Some of the world biggest investors now look to more non-financial information rather than just the profit/loss numbers when making investment decisions.
An EY global survey of 163 institutional investors says non-financial performance information played a pivotal role for 89% at least once in their decision-making over the last 12 months.
Two-thirds of those investors are using some kind of technique to evaluate non-financial disclosure and of this group only half have a structured evaluation or have a process in place.
The report highlights that many are relying on personal judgment on environmental and social data when determining the impact of such factors on value creation and risk.
Juan Costa Climent, EY’s Global Leader of Climate Change and Sustainability Services, says there’s a significant opportunity for companies to better inform investors of the non-financial risks and opportunities of their business.
Annual reports, integrated reports and company websites were ranked as the most important sources. News coverage and social media rated lower.
This highlights the crucial need for organisations to consider how they present their non-financial data to different financial stakeholders.
Many of the investors also pointed out the challenge of finding meaningfully ways to compare companies’ performance, even among peers.
A lack of information to understand what issues could materially impact returns for shareholders was a common frustration, with many unable to draw quantifiable links between non-financial and financial performance.
The survey also identified geographical differences when it comes to the uptake of non-financial information. Over 70% of based in emerging markets frequently or occasionally use non-financial information compared with only 49% of those in developed markets.
With investors looking to minimize risk, 43% of the respondents from emerging markets said that non-financial information was essential to minimize risk, compared with only 29% of those from developed markets.
In markets, such as China and South East Asia, sustainability concepts are critical to the way companies operate, and how quickly they adapt to a shifting landscape.
Dr Matthew Bell, EY Australia Climate Change and Sustainability Services Partner, says “It is no good saying that investors aren’t asking for this sort of information. They’re finding ways of getting this data and they are assessing companies on it, so organisations need to take back the initiative. Companies need to act now or be penalised.”