A wide majority (94%) of investors believe that corporate sustainability reporting contains at least some greenwashing in the form of unsupported claims, says a new PwC survey.
Sustainability disclosures are among the least trusted sources of information investors use to make their decisions, despite their growing interest in understanding how companies manage their climate and sustainability risks.
To improve this trust, 85% of them would like to see sustainability reports assured by a third-party auditor, ideally with specific subject matter knowledge.
Broad support for sustainability reporting standards and regulation
The PwC survey of 345 global investors confirms the need for minimum transparency standards in sustainability reporting – which is the purpose of recent and upcoming regulation such as CSRD in Europe and California’s climate disclosure laws.
Sustainability directors have shown concern about the compliance burden presented by these new requirements. In the US, some are even threatening legal action against the Securities and Exchange Commission if its delayed climate disclosure rule is deemed too extensive. But this new survey confirms comments made by SEC Chair Gary Gensler last month about investors pushing for standardisation.
In fact, 57% of investors surveyed said that if companies meet upcoming regulations and standards such as the CSRD, the SEC rule and new ISSB standards, “it will meet their information needs for decision-making to a large or very large extent”.
Quantifying the cost of the sustainability transition
When it comes to the type of sustainability information they want to see, investors say they “want clarity that goes beyond [today’s] net-zero commitment, [and for companies to provide] visibility into what it means over [the next] three, eight, or 12 years,” signalling a shift to much longer-term thinking.
Additionally, an increasing number of them (76%) want to know exactly how much the sustainability transition is going to cost the company in terms of capital or operating expenditure.
Investors prefer to engage… but aren’t afraid to divest
Sustainability is becoming a key priority for the investment community, and these firms are directly engaging with the companies in their portfolio on this topic. They do this mostly through dialogue (Xerox, for example, had 31 calls with investors on sustainability in 2022), and financial incentives, such as integrating ESG targets into executive pay.
Already, two-thirds of the members of the World Business Council for Sustainable Development tie executive compensation to sustainability performance, despite frequent concerns on the legitimacy of these incentives.
But when companies fail to meet their expectations on sustainability management, investors aren’t afraid to take drastic action: 42% said they have divested their stakes in companies that haven’t demonstrated sufficient action.