Reporting Mismatch Undermining Impact and ESG: EY Survey

Companies may be “cherry picking” environmental, social, and governance (ESG) data to report to their investors, according to respondents to a survey by EY.

The global consultancy giant surveyed more than 1,000 corporate senior finance staff and 320 institutional investors. More than three quarters (78%) of investors want companies to make ESG-related investments relevant to their industries even if there was a short-term reduction in financial performance, but far fewer (55%) finance leaders agree.

EY believes this demonstrates a “disconnect” between investors and the companies they own that “could create problems further down the line in sustainability performance and corporate reporting”.

The consultancy group suggests that this could result in ESG- and impact-related reporting and associated metrics “lacking a clear narrative”, which in turn could raise concerns among investors that companies will not make meaningful progress towards ESG and impact goals.

Three quarters (76%) of investors say they felt companies were “highly selective” in the information they provide, which raises concerns about greenwashing. Almost 90% say companies provide only “limited decision-useful ESG disclosures” unless there was a regulatory requirement to go further.

In addition, just over half (53%) of corporates with annual revenues above $10 billion a year say they face “short-term earnings pressure from investors” that hinder longer-term investment in sustainable projects. Four in five (80%) investors say companies are failing to adequately articulate their rationale for making ESG or impact investments, making it difficult for investors to assess.

EY urges companies to align their ESG reporting and activities with those of investors — many of whom face regulatory requirements relating to addressing climate change risks. They should also look to develop “more consistent, comparable and reliable ESG disclosures”. It also urges companies to ensure finance leaders are more connected to the ESG agendas within their businesses.