Investors demand more than ‘returns, returns, returns’: ESG disclosure

Investors demand more than ‘returns, returns, returns’: ESG disclosure

Investors demand more than ‘returns, returns, returns’: ESG disclosure Companies aren’t quite up to snuff in providing institutional investors with the information they require, finds a first-of-its-kind study.

Investors demand increased disclosure regarding environmental, social and governance issue from companies, with 85% saying such information influences how they perceive a company’s management and board, finds consulting firm SimpleLogic.

However, while companies are making efforts to fill this gap, improvement is needed in CSR reporting says President Catherine Gordon. “This has been evolving for a long time, the idea of environmental and social governance, and it started out in socially responsible mutual funds,” she says.

“Companies over the last several years have started creating environmental social governance reports because there’s been interest. What’s happened is that research has shown that there is a link between environmental and social governance issues and financial and operational performance.”

The report, which polled 24 institutional investors with over $1.7 trillion assets, including pension, mutual, and pooled fund managers, found that governance is considered by 95% of investors. Environmental and social issues were weighed by 65%.

Currently, there is no standardized approach to integrated reporting in North America, a need Gordon says inspired the study. “When we went to companies and talked to them, they said they didn’t hear anything from investors – so we said, ‘well let’s go ask investors about what they think’, and this is the research that we did.”

She adds that investors are recognizing the direct link between ESG disclosure and performance – an important development companies should understand.

“I think that companies have been focusing on risk management for a long time,” she says. “In the past, the pressure was on returns, returns, returns. Now, investors are saying, ‘We want the returns, but we need more.’

“One thing that companies aren’t doing is linking their corporate strategy with their CSR strategy directly, but also with their compensation strategy. How are they incenting their executives to do this, because we are seeing there’s a link between this and performance, and investors are looking at that too.”

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