ESG should be done even with profit reduction, says study

For 78% of investors, investment in ESG should be made, even with profit reduction, points out study

ESG should be done even with profit reduction, says study:

The ESG agenda (environmental, social and corporate governance) is one of the pillars that has been gaining strength and should enter even more in the business circuit of companies for 2023, regardless of the sector, size and country of operation. Furthermore, it has become a determining point for investors to make decisions about whether or not to invest in companies.

These are some of the conclusions of the survey carried out by the consulting and auditing firm EY, the Global Reporting and Institutional Investor Survey , which surveyed over 1,040 senior financial leaders in companies and 320 investors.

The study also shows that 99% of investors use companies' ESG disclosures as part of their investment decisions. What's more: 78% of investors surveyed believe companies should make investments that address ESG issues relevant to their business, even if doing so reduces profits in the short term. 

“Investing in ESG, in addition to mitigating risks, provides business protection over time and in markets with more maturity, this long-term benefit is more noticeable”, says Leonardo Dutra, partner-leader of services in the area of ​​Climate Change and EY Sustainability for Brazil.

“The disharmonious mentality. of these two important stakeholders can impact organizations, in addition to jeopardizing the proper functioning. of the capital market and collective efforts against climate change”, he adds.

Lack of information is still an obstacle

Equating the lack of information is still a challenge for organizations. The companies are still very focused on what they see as short-term pressure from certain investors, but they say they don't get robust information about the company's long-term growth strategy. 

More than half (53%) of large companies surveyed say they “face short-term earnings pressures from investors, which impedes our long-term investments in sustainability”. Already 80% of investors interviewed say that “many companies fail to adequately articulate the rationale for long-term investments in sustainability, which can make investment evaluation difficult”.

Long-term growth or short-term results?

“If we think that ESG guarantees. medium and long-term competitiveness, it is essential that. We have boards of directors trained in this matter. and that they are agents to fund the strategies, showing the market the most accurate data and investment benefits”, says Ricardo Assumpção, leading partner of ESG for Latin America South and Chief Sustainability Officer at EY Brasil.

“Regarding the purpose of ESG investments: are they related to improving return on investment. or promoting sustainable development? A relevant part of those who buy financial products backed by ESG believe in the second part, and from an investor's point of view it is the first part”, he adds.

Lack of data-driven reporting and insights

The study also points out that investors do not get from organizations the reports and data-based insights they need to justify their investment decision-making and their assessment of a company's growth and risk profile. 

More than seven in ten say that “organizations fail to create better reports, covering financial and ESG disclosures, information that is essential for decision making”. 

For 76% of participating investors, companies are highly selective in choosing the ESG information they provide, thus raising questions about greenwashing.

“With this, the priority for companies. is to align themselves with investors. and other stakeholders in ESG disclosures and reports, using as insight the three elements that the survey identified: focus, responsibility and accountability with transparency”, concludes Dutra.