Investors want higher quality ESG data—and independent analysis

Over the past few years, institutional investors and other stakeholders in the capital markets have asserted that environmental, social and governance (ESG) issues are important and they have taken steps to clearly articulate what they want from companies. This shift is rapidly accelerating, pressuring companies to disclose additional investor-grade data and decision-useful information on climate, human capital, diversity, equity & inclusion (DE&I), governance and other ESG topics.?

One thing is certain: There is market demand for higher-quality, comparable ESG information. After all, ESG issues can be material to a company’s core strategy and long-term value creation—and many investors believe it’s fundamental to their understanding of a business and its performance.?

ESG data already informs investor decisions

Specifically, investors want to understand the ESG risks and opportunities that are relevant to a business, what companies are doing to address them, and how they compare to others in their industry. According to our recent 2021 Global Investor ESG Survey, 79% consider ESG risks and opportunities an important factor in investment decision making.

This creates opportunities for companies to demonstrate a commitment to these matters and provide high-quality reporting—and alternatively, can pose significant risks for companies that fail to do so. Globally, almost half of investors (49%) surveyed express willingness to divest from companies that aren’t taking sufficient action on ESG issues. Though there is clearly an appetite from investors for this information, not all ESG reporting is created equal, which is why there is an inherent need for reliable ESG data.

Meeting investor needs

The market demand for ESG information is strong, and companies have a clear opportunity to provide investor-grade data. However, only one third of investors surveyed believe that the quality of ESG reporting they see is good—demonstrating the demand for companies to enhance reporting efforts to better meet investor needs.?

To meet this, companies should reevaluate their reporting processes to develop the proper internal controls necessary to disclose investor-grade ESG data and to upskill employees and corporate directors on new processes and governance systems. Investors should be given the same confidence in ESG information that they currently expect from financial disclosures.?

Investors want independent assurance

Stakeholders everywhere want some measure of confidence—something they can trust. Trust in the quality of information is necessary for any complex society to function, and markets operate most efficiently when there is reliable, quality information that stakeholders can use to make decisions.?

When it comes to financial and nonfinancial information, trust is enhanced by the expertise and independence of a vibrant auditing profession, both in the public and private markets. And we’re seeing this desire for additional confidence in ESG disclosures from investors. In the same PwC survey, a majority (79%) of investors reported having greater confidence in ESG reporting that has been independently assured, and 75% think it’s important that reported ESG-related metrics are independently assured.?

Independent assurance provides meaningful credibility to the information, allowing investors and other stakeholders to be more confident in the data quality and transparency. And when that assurance is completed by a certified public accounting (CPA) firm, the information is designed for public use to help stakeholders make more informed decisions—versus when a report is independently developed for company management or when a company releases its own data without independent assurance by a CPA firm. This can be an important differentiator because these reports serve different purposes for different audiences, but having information designed for public consumption is critical for building trust in companies and capital markets. This is why PwC advocated for independent assurance for all new ESG disclosures in a recent comment letter to the SEC regarding potential rulemaking on climate change disclosures.

While the regulatory environment is changing quickly—with new climate change disclosure rules expected from the SEC in the coming weeks—increasing investor demands make it clear that companies cannot wait for new regulations to begin reporting on ESG. After all, ESG initiatives should not exist simply to tick a regulatory box, but to create sustainable advantage and value. At PwC, our ESG work takes a holistic approach and a strong overall strategy to help determine where an organization is headed and identify what’s needed for reporting, tax planning and operations, and technology that can deliver investment-grade metrics. We believe it’s not only possible, but essential, to hold both shareholders and stakeholders equally in mind—and that a strategic focus on ESG and reporting can alleviate risk and build trust with stakeholders.