Global professional services firm PwC announced today the release of the PwC 2021 Global Investor ESG Survey, a new research report investigating investors’ opinions on issues including ESG investing, companies’ sustainability performance and the state of ESG reporting and disclosure. PwC surveyed 325 investors from around the world for the study, and conducted 40 in-depth interviews with investors and analysts.
The results of the survey indicate that the integration of ESG considerations in the investment process has become mainstream, with a large majority investors indicating that a company’s management of ESG risks is an important factor in investment decision making, but a lack of clear and consistent reporting making assessment of companies’ ESG performance challenging.
ESG integration and priorities
According to the PwC survey, ESG considerations are top of mind for investors, with 79% reporting that a company’s management of ESG risks is an important factor in their investment decision making, nearly half reporting that lack of action on ESG by a portfolio company could lead to divestment, and 57% indicating that they would vote against director appointments due to insufficient action on ESG issues.
Investors also discussed their key ESG focus areas, with climate – specifically the reduction of operational emissions – topping the list of priority issues reported (65%), followed by worker health and safety (44%) and workforce and executive diversity, equity and inclusion (37%).
Despite the increased focus on ESG, investors are not willing to trade investment returns for sustainability performance. 49% reported that they would not be willing to accept a lower rate of return in exchange for societal or environmental benefit, and 81% would not be willing to accept a greater than 1% reduction in returns.
James Chalmers, Global Assurance Leader, PwC UK, said:
“Our research shows investors are simultaneously focused on short-term results as well as the longer-term societal issues that can create both risks and opportunities for their investments. It is clear that investors expect ESG to be an integral part of corporate strategy. That includes making expenditures to address ESG issues, 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 and taking their clients’ money elsewhere.”
As ESG considerations become more important for investors, the need for improved data and reporting by companies is coming into focus. While 83% of respondents want ESG reporting to provide detailed information about progress toward ESG goals, only a third currently rate the quality of existing reporting as good.
The survey also lends support to ongoing efforts to establish unified sustainability disclosure standards, with 74% indicating that a single set of ESG reporting standards would help their decision-making.
Nadja Picard, Global Reporting Leader, PwC Germany, said:
“Our survey reinforces the need for a single set of globally aligned sustainability reporting standards. Without global standards, investors are severely challenged in evaluating ESG performance. It is also much more difficult for companies to report on ESG performance without common benchmarks or frameworks to follow. As a result, companies today need to leverage the best of existing standards, focusing at least initially on the topic of climate, to respond to urgent investor demand.”
Accountability and executive compensation
Investors also indicated a need by companies for accountability on ESG. Two thirds reported more confidence in companies’ handling of ESG risks if someone in the C-Suite is accountable, and 68% said that ESG performance measures should be included in executive pay arrangements.
Emma Cox, Global Climate Leader, PwC UK, said:
“ESG cannot be an afterthought, it must be an integral part of corporate strategy. Tone from the top helps to cascade the importance of ESG throughout the business. Demonstrating ESG commitment and performance also requires a holistic approach to reporting, with sustainability, risk and financial reporting teams working together. Ultimately, our research shows that to meet the demands of investors, companies need to take their ESG-related performance as seriously as they do all of their business and financial metrics.”
Click here to access the results of the PwC 2021 Global Investor ESG Survey