Four Things Investors Want to See in 2024 Annual Reports and 2025 Reporting

As the business world transitions into 2025, the pressure is mounting for companies to clearly communicate their strategies, particularly around technological investments like artificial intelligence (AI) and sustainability initiatives. Insights from the latest PwC and EY investor surveys, coupled with broader market dynamics, paint a vivid picture of what investors will scrutinize in annual and sustainability reports. These include understanding the financial impact of AI, addressing the discrepancies in long-term versus short-term focus among different investor types, and meeting the demands of an evolving regulatory landscape (see my prior article on the future of sustainability reporting).

1. The Financial Impact of AI Investments

AI continues to dominate discussions among executives and investors alike, with many companies touting their significant investments in this transformative technology. According to PwC’s 2024 Global Investor Survey, nearly three-quarters of investors believe companies should increase their AI investments throughout their operations. However, there are growing questions from investors about how these investments will translate into measurable financial performance.

Investors are no longer content with vague promises about AI's potential. They are looking for tangible answers to critical questions: Where can they see the returns on these investments? What line items or metrics in the financial statements will reflect AI’s impact over time?

To meet these demands, companies should consider the following:

• Define Metrics: Highlight specific areas where AI will drive improvements, such as cost reductions, productivity gains, or revenue growth. For example, savings in operational costs might appear in reduced SG&A expenses, while increased sales could reflect enhanced customer personalization or market insights driven by AI.
• Track AI-Driven Revenue: Clearly distinguish revenue streams influenced by AI-driven products or services, ideally breaking these out in management’s discussion and analysis (MD&A) sections.
• Explain CapEx and OpEx Allocations: Investors are eager to understand how much of AI spending is accounted for in capital expenditures (long-term investment) versus operating expenditures (ongoing costs).

Quoting one of the PwC survey's interviewees: “It’s almost impossible for an outsider to work out whether money [invested in AI] is being spent wisely.” Companies should bridge this gap by providing clear narratives around return on investment (ROI) expectations and tying these to quantifiable performance indicators in future reporting.

2. Reconciling Long-Term and Short-Term Investor Perspectives

One of the most persistent challenges companies face is managing the competing expectations of different investor types. Pension funds, insurance companies, and sovereign wealth funds often operate with decades-long investment horizons, allowing them to focus on the long-term value of sustainability initiatives or AI innovations. In contrast, most active asset managers, including hedge funds, are evaluated based on annual performance, driving a more short-term focus. Earnings calls, the most transparent of all investor interactions, almost entirely are dedicated to the last quarter's financial performance and short-term future guidance.

Adding complexity to this dynamic is the proliferation of passive investing. With passive funds focused on tracking indices, their interest generally lies in macro-level, long-term performance rather than individual, short-term company-specific details. When they do engage with companies, they are much more likely to consider long-term shareholder value implications as opposed to shorter term effects. This divergence can lead to discrepancies in what different investor types expect from corporate disclosures.

According to EY’s 2024 Institutional Investor Survey, nearly two-thirds of investors believe shifts in the business cycle (including macroeconomic-induced shifts) will substantially influence their strategies over the next two years. However, 63% also say that climate impacts will play a significant role. Companies should balance these pressures by:

• Providing Multi-Horizon Reporting: Use annual reports and other communication channels to cater to both short-term and long-term investors. Include detailed discussions on immediate operational performance, highlighting a roadmap as to how to consider the results and progress towards long-term strategic initiatives.
• Tailoring Communication: Engage with investor groups individually, recognizing that long-term institutional investors prioritize very different risks and opportunities from short-term investors, who may focus on more immediate ROI. Ensure these tailored communications align with the company’s overall messaging about achieving long-term shareholder value.
• Align Communications Narratives: Ensure that all the different corporate communication channels will be pieced together by different investor types to support the overall corporate strategy for growing long-term shareholder value. Inconsistent narratives erode investor trust, resulting in discounts in valuation and can also attract activist investors.

3. The Evolving Role of Sustainability Reporting

See my prior article on how sustainability reporting is likely to evolve over the remainder of the decade. Despite the changing political winds, the odds are that market forces will result in four distinct dialects of corporate reporting:

• Required GAAP financial reporting
• Voluntary non-GAAP financial reporting
• Mandated (if not fragmented) elements of sustainability reporting
• Voluntary sustainability reporting

Sustainability continues to be a contentious area for many investors, with significant discrepancies between those who say they prioritize ESG factors and their actual investment behaviors. EY’s research highlights this “say-do gap,” noting that 66% of investors might decrease their consideration of ESG factors in decision-making, even as global reporting regulations intensify.

At the same time, global and state-level regulatory frameworks like California's climate disclosure regulations, the International Sustainability Standards Board (ISSB) and the EU’s Corporate Sustainability Reporting Directive (CSRD) are pushing companies toward more rigorous mandatory sustainability disclosures. Many global investors focused on the climate transition increasingly expect clear and measurable plans—including net-zero transition strategies with associated CapEx and OpEx breakdowns—to evaluate the credibility of corporate commitments.

Companies should address these divergent market expectations by:

• Building Trust Through Transparency: Provide a bridge to the investor community for those ESG initiatives which specifically can be shown to contribute to financial performance, such as reducing energy costs, enhancing customer loyalty, drive innovation, improve productivity or opening new market opportunities.
• Transparency and Materiality: Avoid “greenwashing” by clearly linking disclosed metrics to material impacts on business performance. Streamline the voluntary sustainability reporting to those material issues which provide decision-useful information, rather than overwhelming investors with excessive detail.

4. Closing the Communication Gap

Both surveys emphasize the importance of trust in management’s ability to deliver long-term value. PwC’s survey notes that 86% of investors consider agility during crises an essential factor in their decisions. This underscores the need for companies to:

• Align and Streamline Messaging: Ensure consistent narratives across financial statements, sustainability reports, and investor presentations.
• Engage Directly with Investors: Tailor investor communications to address specific concerns, whether about AI, climate resilience, or quarterly earnings, while ensuring alignment with the company’s broader strategic messaging.
• Educate Stakeholders: Explain the implications of new reporting standards like California, ISSB and CSRD in clear, accessible language.

Looking Ahead

In 2025, investors will scrutinize corporate reporting with heightened expectations for clarity, specificity, and alignment with both short-term performance and long-term strategic goals. Companies that rise to this challenge—by providing measurable insights into AI investments, balancing diverse investor horizons, and honing relevant sustainability disclosures—will be well-positioned to secure trust and capital in a competitive marketplace.