EY study: ESG disclosures take center stage as investors raise stakes to assess company performance

Institutional investors are ramping up their efforts when it comes to assessing the performance of companies using environmental, social and governance (ESG) factors, according to the fifth EY Climate Change and Sustainability Services (CCaSS) survey of 298 institutional investors globally.

The vast majority of investors (98%) evaluate nonfinancial performance based on corporate disclosures, with 72% saying they conduct a structured, methodical evaluation, according to the survey. This is a leap forward from the 32% who said they used a structured approach in the survey’s fourth edition in 2018.

Laura Ciobanu, Manager, Climate Change and Sustainability, EY Romania said: “In an age when investors are balancing short-term financial results and the company’s long-term goals, it is essential that organizations pay more attention to non-financial performance. ESG (environmental, social and governance) factors are becoming more important in investment management, so that information on ESG increases its relevance in reporting. That is why we are pleased to observe that the Romanian business ecosystem has started to take into account environmental, social and governance aspects, being aware that they can play a major role in the long-term success of the organization.”

At the same time, investors are increasingly holding companies accountable, with ESG factors playing a central role in their decisions. Investors say that nonfinancial performance has played a pivotal role in their investment decision-making over the past 12 months (91%), either frequently or occasionally, with the proportion of investors that say this happens frequently jumping to 43% from 34% in 2018.

Climate change in particular plays a significant part in investors’ decision-making process, with 73% responding that they will devote considerable time and attention to evaluating the physical risk implications of climate change when they make asset allocation and selection decisions.