PwC Survey: Investors Want Exec Pay Tied to ESG Goals, Give Low Grades to Current Company ESG Reporting
Global professional services firm PwC announced the release of its 2021 Global Investor Survey, exploring investors’ views on how companies are managing ESG issues, and the use of ESG information and considerations in the investment process. The survey indicated strong support by investors for standardized ESG reporting, and for C-Suite accountability for ESG risk management, as well as concerns about the quality of information currently being provided by companies.
For the study, PwC surveyed 325 investment professionals in multiple regions around the world, and spread across a range of industries, roles and specialisms. PwC also conducted 40in-depth interviews with investors and analysts representing over $14 trillion in assets under management.
The survey found that ESG integration has become mainstream among investors, with 79% of respondents reporting that a company’s management of ESG risks and opportunities is an important factor in investment decision making, and 76% considering ESG factors when screening potential investment opportunities. Climate topped the list of priority ESG factors listed by the investors, with reductions in Scope 1 and 2 emissions as the most cited issue at 65%, followed by worker health and safety at 44%, and improving workforce and executive diversity, equity and inclusion at 37%.
Investors appear increasingly likely to take action if they believe a company is not doing enough to address ESG issues, with 77% reporting that they would be likely to enter into dialogue with the company, compared to 58% who reported that they already frequently take this action, 57% saying they would be likely to vote against director appointments (29% have already frequently done so), and 49% saying they would consider divesting.
Nadja Picard, Global Reporting Leader, PwC Germany, said:
“It is clear that investors expect ESG to be an integral part of corporate strategy. If investors don’t see that commitment, they won’t hesitate to act and that can include divesting their position in a company and taking their clients’ money elsewhere.”
The study found that investors seek high-level accountability from companies on ESG issues. 66% of respondents reported being more confident that companies are on top of ESG risks and opportunities if someone in the C-suite is accountable, and 68% believe that ESG performance measures and targets should be included in executive pay arrangements.
Hilary Eastman, Head of Global Investor Engagement, PwC UK, said:
“Demonstrating ESG commitment and performance requires a holistic approach to reporting, with sustainability, risk and financial reporting teams working together. Tone from the top helps to cascade the importance of ESG throughout the business and, 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.”
One of the key issues for investors highlighted by the survey was a lack of quality information from companies on ESG issues, with only 33% of investors describing the current quality of ESG reporting as “good.” 74% of investors reported that investment decision making would be better informed if companies applied a single set of ESG standards, and 73% said that company ESG disclosures should be assured at the same level as a financial statement audit.
The survey also explored the key sources of ESG information used by investors, as well as the factors they report as most important in considering ESG information. The most frequently used sources of information, in order, included company annual reports and sustainability reports, investor presentations and earnings calls, third party data providers, press releases and analyst research reports. While over two-thirds of investors reported using ESG ratings and scores in screening potential investments, only 40% reported trusting the ratings and scores provided by ESG ratings agencies completely or significantly. The top characteristics investors reported looking for in ESG reporting included information explaining the relevance of ESG factors to the company’s business model, detailed information about progress towards achieving ESG targets, and explanations of the rationale for the company’s environmental commitments along with detailed plans for how to reach them.
James Chalmers, Global Assurance Leader, PwC UK, said:
“It’s important that companies respond to the call for more comprehensive and reliable reporting on ESG risks and opportunities to build trust with their investors and other stakeholders. The comparability that comes from having a globally aligned set of non-financial reporting standards also would increase trust in the numbers–and that would go a long way with investors.”
Click here to access the PwC survey results.