More than nine in ten investors (94%) believe corporate reporting on sustainability performance contains unsupported claims, according to the PwC 2023 Global Investor Survey.
The survey queried 345 investors and analysts across regions, asset classes and investment approaches for insights into the factors that most affect the companies they invest in and cover.
It found that while macroeconomic and inflationary concerns are still top-of-mind, they have eased from the highs seen in 2022. Notably, climate risk has risen considerably, putting it on par with cyber-risk at 32%.
Overall, the survey paints a picture of an investment landscape driven by technological transformation: 59% of respondents identified technological change as the most likely factor to influence how companies create value over the next three years. In particular, 61% say faster adoption of artificial intelligence (AI) is “very” or “extremely” important.
Sustainability also continues to remain pivotal to investors: 75% say that how a company manages sustainability-related risks and opportunities is an important factor in their investment decisions, although this is down four percentage points from the previous survey.
“We are moving from a period of awareness raising around the importance of climate and technological change to a time where investors are increasingly asking specific and tough questions about how companies are addressing those issues in their strategy, how they assess risk and opportunity and what is truly material for them,” said James Chalmers, global assurance leader with PwC UK.
“In this context, corporate reporting needs to continue to evolve so that it provides reliable, consistent and comparable information that investors — and other stakeholders — can rely on.”
GREENWASHING CONCERNS
Investors have highlighted a strong undercurrent of doubt around the reliability of sustainability reporting and information that they use, often referred to as “greenwashing”.
Ninety-four percent of investors believe corporate reporting on sustainability performance contains some level of unsupported claims (up from 87% in 2022), including 15% who think they are there to a “very large extent”. The proportion who said unsupported claims are present to a moderate or greater extent is up one percentage point at 79%.
These perceptions of greenwashing may explain why investors are looking to regulators and standard setters to create clarity and consistency in companies’ reporting.
Fifty-seven percent of investors said that if companies meet upcoming regulations and standards — including the EU Corporate Sustainability Reporting Directive (CSRD), SEC-proposed climate disclosure rules in the US, and International Sustainability Standards Board standards — it will meet their information needs for decision-making to a “large” or “very large” extent.
Furthermore, 85% say that reasonable assurance (akin to an audit of financial statements) would give them confidence in sustainability reporting to a “moderate”, “large”, or “very large” extent.
The focus of investors on how businesses meet the cost of environmental, social and governance (ESG) commitments has also risen, with 76% finding this information important or very important. Investors also want information on a company’s impact on society or the environment, and of those, 75% agree that companies should disclose the monetary value of their impact on the environment or society, up from 66% in 2022.
“We are seeing significant steps towards more consistent reporting from companies around climate change; however, there is a need for improvement,” said Nadja Picard, global reporting leader with PwC Germany.
“All the while, investors are calling for greater engagement around how companies manage the opportunities and risks of new technologies, particularly generative AI, as new technologies increasingly drive business transformation and investment.”
AI A PRIORITY
The survey findings show investors view the accelerated adoption of artificial intelligence (AI) as critical to value creation, while recognising the importance of managing risks. Some 61% of investors say faster adoption is “very”, or “extremely” important. Including responses noting “moderately important”, this jumps to 85%.
Nonetheless, 86% see AI presenting considerable risk from a “moderate” to “very large” extent when it comes to data security and privacy, insufficient governance and controls (84%), misinformation (83%), and bias and discrimination (72%).
Chanchai Chaiprasit, CEO of PwC Thailand said investors and Thai businesses are increasingly conscious of the importance of ESG. Still, some small and medium-sized companies lack a clear understanding of the details of sustainability reporting.
Meanwhile, regulators are encouraging companies to produce properly audited sustainability reports to instil confidence in investors who require the information.
“Over the next two to three years, we expect to see regulatory authorities in each country issuing clear regulations and enforcement standards that will mean companies have to implement auditing and assurance before disclosing their sustainability reports,” said Mr Chanchai.
“In Thailand, there’s a growing demand for sustainability reporting from foreign investors, which is pressuring regulators to issue rules that align with global reporting standards. Once they do, every company will have to analyse the impact of ESG on the business and on sustainability reporting standards.
“It’s the companies that move swiftly, covering every dimension of ESG, who will have an advantage over their competitors. However, there’s no one-size-fits-all sustainability strategy. Top management must drive the change, providing clear and consistent guidance to other departments in the organisation.”