Almost Half of CFOs Admit to Poor ESG Reporting, Says EY
According to EY's Global Corporate Reporting Survey, 41% of CFOs say their reports on ESG performance don't meet basic assurance standards, and a "substantial percentage" of them claim they don't give investors "relevant" information.
In March, the Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded companies to give detailed information about their carbon emissions and risks related to climate change.
The SEC wants to make it a requirement that companies explain on Form 10-K how they plan to deal with climate risk, including how they plan to reach any goals they have set to reduce this risk.
Companies would also have to share information about their greenhouse gas emissions, whether they come from their buildings or the energy they buy, and get an independent attestation of that information.
According to SEC Chair Gary Gensler, a unified climate risk reporting framework would provide businesses with detailed insights into potential costs and possibilities, while investors would be able to better measure risks at specific companies and compare risk levels across industries.
“Companies and investors are at odds when it comes to sustainability,” EY said. "The clash of opinion threatens to stifle access to capital for many organisations and could hinder progress on decarbonisation.”
According to EY, nearly four out of five institutional investors (78%) believe that companies should invest in enhancing their ESG performance, even if it means sacrificing earnings. Only 55% of CFOs agree.
EY said that four out of five investors say that companies often do not explain why they are making long-term investments in sustainability, which makes it hard to evaluate.
Matthew Bell, EY’s global climate change and sustainability services leader, said:
"Businesses and the investors they rely on still have very different goals and expectations about sustainability. Company efforts to promote sustainability can only hit home if they are seen as credible.”
Tim Gordon, leader of EY’s Global Financial Accounting Advisory Services, said:
"Businesses that are serious about securing trust and a reputation for long-term focus must ensure that sustainability is built into their reporting processes — systematically, strategically, and rigorously."
According to EY, the number of institutional investors who use a rigorous, systematic approach to evaluate ESG performance increased to 74% this year from 32% in 2018.
“Investors feel strongly that they do not get the reporting and data-driven insight they require to inform their investment decision-making and how they evaluate a company’s growth and risk profile,” according to EY.
"Seventy-three per cent of investors said organisations have largely failed to create more enhanced reporting, encompassing both financial and ESG disclosures, which is critical in our decision-making,” EY said.
Source: CFO Dive