Globally, investors have an appetite for using non-financial information (NFI) to make capital allocation decisions but don’t always have the information they need to for decision- making processes. Investors want information that is relevant and reliable.
This is according to a report issued by PwC and the World Business Council for Sustainable Development (WBCSD).
The report, titled ‘Enhancing the credibility of non-financial information,’ focuses on what investors need in order to make decisions that consider non-financial information – that is information outside of financial statements including environmental, social and governance (ESG) metrics.
The goal behind the research was to understand which aspects of non-financial information are most useful to investors and their processes, how they use this information and what can be done to improve the confidence in the information reported.
The report is the product of a series of roundtables and interviews with over 50 investors in Australia, Denmark, Frankfurt, Hong Kong, India, Johannesburg, London, the Netherlands, New York, São Paulo, Tokyo and Toronto. Through these interviews it became clear that investors are not getting the sustainability information they want or need to make informed decisions.
Jayne Mammatt, director of sustainability and climate change at PwC South Africa, says: Globally, there has been a surge in the amount and variety of information reported to investors outside of financial statements. Investors want companies to show how NFI is integrated in their strategic decision-making and are looking for material information to be underpinned by controls and processes on a par with those used for financial information.
“Investors need this information because time has shown us that companies who understand and manage their NFI performance are more resilient to external pressures and change, and there is a growing body of evidence that suggests such companies outperform their peers when it comes to long term shareholder value.”
Although some countries are introducing legislation that requires assurance on ESG information, most assurance is voluntary and can vary greatly in scope and level. NFI reporting systems and information are relatively immature compared to financial information which is governed by accounting standards and subject to audit.
The investors interviewed set out the challenges they face in using NFI – with many of these arising from the numerous reporting frameworks and initiatives in this area, as well as the sheer volume of information reported and the perceived lack of high-quality, consistent and comparable information. This complicates corporate reporting and leaves investors guessing at the relevance of the information provided, all the while leaving clear gaps.
In addition to being relevant, investors want to have confidence in the reliability of NFI. There was a general view among investors that, when the information is assured by an independent third party, they can have more confidence in the information, although it may not necessarily change how they use it.
To address this, there are actions that companies, data aggregators, assurance providers, standard setters and regulators can take or should consider to improve the relevance and reliability of NFI.
Mammatt comments: “Both PwC and WBCSD are committed to increasing trust in sustainability information and finding a way of applying it effectively. This report is an important step in the right direction.”