It's not just about the financials: The widening variety of factors used in investment decision making

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Investment professionals are becoming more and more interested in understanding how environmental, social and governance (‘ESG’) matters affect businesses. So we asked them to talk candidly and in some depth about how they use ESG information, whether it is growing in importance, how well they think companies do in communicating it, where the gaps are in ESG reporting and how they think Integrated Reporting can help. Our report, produced with the International Integrated Reporting Council, includes interviews with senior investment professionals from some of the world’s biggest investment institutions, with almost US$2 trillion of assets under management between them.

Key findings:

  • Tide of opinion is turning for ESG information. Far from considering it as ‘greenwashing’, the investment professionals we spoke with firmly believe relevant ESG information captures important aspects of corporate performance.
  • They were clear that ESG information is not always non-financial in nature. Instead, they repeatedly cited it as a leading indicator for future financial impacts.
  • Rather than viewing ESG information as a way of explaining how the company affects the environment, investment professionals are starting to use it to understand how the environment (and other risk areas) affect the company – and what they’re doing about it.

Our interviewees said that integrated ESG information allows them to assess a host of important variables including whether to invest, divest, engage or look closer to see if there are other problems in the business. But, crucially, they also said that there are gaps in the ESG information companies report and that often it isn’t very well integrated into corporate communications.  They told us that reporting under clear frameworks, for example the International Integrated Reporting Council's <IR> Framework, can help. In particular they want information that is more clearly linked to the business model, information they can rely on, and information that clearly links to how a company creates value and manages risk.

While acknowledging that ESG information is a fast-developing aspect of valuation, they all argued for improved data, more connectivity and consistently applied frameworks.

Contact us

Hilary Eastman
Director of Investor Engagement

Ellie Newton
Relationship Development Manager, Investor Engagement
Tel: +44 7702 698 140

Michelle McKenna
Manager, Investor Engagement
Tel: +44 7802 659 050

Namratha Nirmal
Manager, Investor Engagement
Tel: +44 7711 562 424

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