COMPANIES that fail to act on environmental, social and governance (ESG) issues risk losing investors, according to the new PwC 2021 Global Investor ESG Survey.
ESG factors are increasingly driving investment strategies as the new research from PwC finds that they have now become a make-or-break consideration for leading investors globally.
Almost half of investors surveyed, or 49 percent, expressed willingness to divest from companies that are not taking sufficient action on ESG issues.
More than half (59 percent), also said that a lack of action on these issues makes it likely they would vote against an executive pay agreement, while a third said they had already taken this action.
A large majority, or 79 percent, said the way a company manages ESG risks and opportunities was an important factor in their investment decision making.
The survey captured the views of 325 investors from around the world, mainly active asset managers and analysts with investment firms, investment banks or brokerage firms. An additional 40 in-depth interviews were conducted with investors and analysts having more than a combined $11.6 trillion (about R178 trillion) assets under management.
Most respondents also said that they did not want a company’s action on ESG to significantly, if at all, impact investment returns.
The vast majority, at 81 percent, said they would accept no more than one percentage point less in investment returns for pursuit of ESG goals while nearly half, (49 percent) were unwilling to accept any reduction in returns.
PwC UK Global Assurance Leader James Chalmers said their research showed investors were focused on short-term results as well as the longerterm societal issues that could create both risks and opportunities for their investments.
“It is clear investors expect ESG to be an integral part of corporate strategy. That includes making expenditures to address ESG, while clearly communicating the rationale and benefits to the business strategy. If investors don’t see that commitment, they won’t hesitate to take action and that can include divesting their position in a company,” Chalmers said.
Investors increasingly want to hear more from companies about their ESG-related commitments as 83 percent of those surveyed said it was important that ESG reporting provide detailed information about progress toward ESG goals.
Greater engagement with investors was critical, along with transparent, trustworthy reporting. Only one-third of investors surveyed thought the quality of ESG reporting they were seeing was good.
Investors gained greater confidence in ESG reporting that had been assured, as 79 percent of those surveyed said they placed more trust in ESG information that had been assured. Some 75 percent thought it was important that reported ESG-related metrics were independently assured.
A consistent set of metrics for measuring ESG performance would be of benefit to investors, according to the survey. Nearly three-quarters said their decision-making would be better informed if companies applied a single set of ESG reporting standards and a similar number said it was important to be able to compare ESG performance across companies.
PwC Africa ESG Africa leader Jayne Mammatt said they believed organisations should integrate ESG considerations into corporate and investment initiatives and activities, as well as internalise ESG holistically, to build trust and ensure long-term sustainability, agility and competitiveness.
“Stakeholders increasingly expect organisations to communicate and deliver convincing and measurable strategies on material ESG matters,” said Mammatt.
PwC Africa reporting lead Renitha Dwarika said the survey highlighted the need for a single set of globally aligned sustainability reporting standards to improve consistency and comparability.
“In the absence of this, ESG investors and other stakeholders are extremely challenged in evaluating ESG matters. When you tell investors and other stakeholders how you plan to reset your strategy, reimagine your reporting, reinvent your operations, and drive toward new outcomes, you build trust while creating sustainable value for the long term,” said Dwarika.
Climate was the leading ESG consideration for investors, with reducing Scope 1 and 2 greenhouse gas emissions being the most cited (by 65 percent) ESG issue for companies to prioritise.
Moreover, 82 percent said it was important that ESG reporting explained the rationale for environmental commitments, along with detailed plans on how to reach them.
Ensuring worker health and safety (44 percent) and improving workforce and executive diversity, equity and inclusion (37 percent) were other priority ESG considerations identified.
BUSINESS REPORT ONLINE