Companies failing to adopt ESG risk losing investors – PwC survey

Whether it’s because of the pandemic or increasing concern about climate change, leading investors are demanding that the companies they invest in are making progress on ESG and sustainability issues.

ENVIRONMENTAL, social and governance (ESG) factors increasingly drive investment strategies, and new research from PwC finds ESG has now become a make-or-break consideration for leading investors globally.

Almost half of investors surveyed (49%) expressed willingness to divest from companies that aren’t taking sufficient action on ESG issues. More than half (59%) also said lack of action on ESG issues makes it likely they would vote against an executive pay agreement, while a third say they have already taken this action.

A large majority, 79%, say the way a company manages ESG risks and opportunities is an important factor in their investment decision making.

The PwC 2021 Global Investor ESG Survey captured the views of 325 investors from around the world – primarily asset managers and analysts with investment firms, investment banks or brokerage firms.

An additional 40 in-depth interviews were conducted globally with investors and analysts having more than a combined US$11.6 trillion assets under management. While most investors are likely to take action if companies are not doing enough to address ESG issues, most also say that they don’t want a company’s action on ESG to significantly, if at all, impact their investment returns.

The vast majority (81%) said they would accept no more than one percentage point less in investment returns for pursuit of ESG goals.

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.”

ESG EVALUATION AND REPORTING

Investors increasingly want to hear more from companies about their ESG-related commitments

– 83% surveyed said it is important that ESG reporting provide detailed information about progress toward ESG goals. Greater engagement with investors is critical, along with transparent, trustworthy reporting.

Only one third of investors surveyed, on average, think that the quality of ESG reporting they are seeing is good.

A consistent set of metrics for measuring ESG performance would be of significant benefit to investors, according to the survey.

Nearly three-quarters (74%) said their decisionmaking would be better informed if companies applied a single set of ESG reporting standards, and a similar number (73%) said it’s important to be able to compare ESG performance across companies.

Jayne Mammatt ESG Africa leader for PwC Africa says: In Africa and beyond, we believe organisations must integrate ESG considerations into their corporate and investment initiatives and activities, as well as internalise ESG holistically, to build trust and ensure long-term sustainability, agility and competitiveness. Stakeholders increasingly expect organisations to communicate and deliver convincing and measurable strategies on material ESG matters.”

Renitha Dwarika, PwC Africa Reporting Lead, says: “The survey highlights the need for a single set of globally aligned sustainability reporting standards to improve consistency and comparability. In the absence of this, ESG investors and other stakeholders are extremely challenged in evaluating ESG matters.”

ESG PRIORITIES

Climate was the leading ESG consideration for investors surveyed, with reducing Scope 1 and 2 greenhouse gas (GHG) emissions being the most cited (65%) ESG issue for companies to prioritise.

Ensuring worker health and safety (44%) and improving workforce and executive diversity, equity and inclusion (37%) were other priority ESG considerations identified.

According to the investors surveyed, ESG strategy starts at the top. A high percentage of investors (82%) said ESG needs to be embedded in the corporate strategy, and 66% said they are most confident that ESG issues are being addressed if someone in the C-suite is accountable. More than half of respondents (53%) indicated that it should be the CEO.