Focus on ESG Issues Generates Sustainable Financial Returns

(3BL Media/Justmeans) – Investors, more than ever, are using non-financial performance to draw conclusions on value and to better inform their decisions. The investing community around the world increasingly believes it is a sign of operational excellence if a company shows they are handling ESG issues well.

New research from EY’s Climate Change and Sustainability Services (CCaSS) practice shows that it is vital for companies to recognize the connection between non-financial performance and investor attitudes. The third EY CCaSS survey of more than 320 global institutional investors revealed that as many as 82 percent of the respondents believe ESG risks have been ignored for too long, and it is time that ESG performance must move up the corporate agenda.

Eighty-one percent of respondents said they now pay closer attention to non-financial disclosures. Ninety-two percent agreed that over the longer term, ESG issues – ranging from climate change to diversity to board effectiveness – have tangible and quantifiable impacts. In fact, 89 percent agreed that a sharp focus on ESG issues can generate sustainable returns over time.

The survey found that in the last 12 months, 68 percent of respondents said a company’s non-financial performance had played a pivotal role in their investment decisions, up from 58 percent in 2015. Sixty percent of institutional investors said that their clients are now demanding ESG information.

Fifty-nine percent said that in the absence of a direct link between ESG initiatives and business strategy to create value in the short, medium and long term they would reconsider investment. Fifty-eight percent of investors would reconsider investment following disclosure of risk or history of poor governance.

Mathew Nelson, EY Global and Asia-Pacific Climate Change and Sustainability Services Leader, said that given there is now evidence that sustainable companies outperform their peers, investors are seeking information that provides the confidence that management and the boards of their investees are thinking long term. In the absence of clear, consistent and verifiable data, investors are taking matters into their own hands – some are starting to underweight these companies in their portfolios.

Source and Image: EY