By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A Bahamian accountant says it is vital that investors have trust in a company’s sustainability reporting in an environment where increasing emphasis is being placed on climate action.
Kevin Cambridge, advisory and ESG (environmental, social and governance) partner at PricewaterhouseCoopers (PwC) Bahamas, speaking after the firm released its 2022 Global Investor Survey, said it was critical that companies build trust in such reporting through the provision of hard data that can be tested.
“Having trust in sustainability reporting is critical for investors,” he added.
“Independently assured information helps to build trust in capital markets, and in business performance on key issues.
“But to build trust effectively, assurance must be of a high quality, with strong professional standards and a combination of audit and subject matter expertise.”
While investors see inflation (67 percent) and macroeconomic volatility (62 percent) as the biggest threats facing business over the next 12 months, the PwC survey found that investors want corporate management to continue to make climate change a focus.
Over the next five years, investors expect the threats stemming from climate change and cyber crime (including hacking and disinformation) to rise considerably.
Almost half (44 percent) of the global investor community surveyed believes that tackling climate change by reducing greenhouse gas emissions should be a top five priority for business.
This contrasts with lower scores for societal ESG issues such as protecting worker health and safety (27 percent), and improving workforce diversity and inclusion (25 percent).
The chief priority identified for business is innovation (83 percent), which is even higher at 86 percent for insurance industry investors; followed by maximising profitability (69 percent).
Data security and privacy ranks third (51 percent), and effective corporate governance is fourth (49 percent).
Arthur Wightman, PwC’s ESG Leader for the Caribbean, said: “Unsurprisingly, investors want companies to keep a sharp focus on innovation and financial performance. And, even in a challenging economic environment, climate focus is a commercial priority for investors.
“Delivering net zero transformation is critical in achieving commercial imperatives and attracting capital.
“Today’s investors expect business to be able to change in ways that enhance profitability, build trust and deliver sustained outcomes.”
However, investors are dealing with a difficult information environment and have a low degree of trust in corporate sustainability reporting. They largely believe such reporting contains unsupported claims about a company’s sustainability performance.
Over three-quarters (78 percent) said ‘unsupported claims’ were present to a moderate, large or very large extent.
Just 2 percent said corporate reporting does not contain unsupported claims about sustainability performance.
Information from ESG ratings agencies is not filling the trust gap, with just 22 percent of investors surveyed saying they use them to a large or very large extent.
Nadja Picard, PwC’s global ESG reporting leader, said: “When almost eight out of ten investors tell us they suspect greenwashing in corporate sustainability reporting, companies and regulators should take note.
“The lack of trust is troubling as sustainability information becomes increasingly important to both investors’ and other stakeholders’ decisions. There is a need for companies to improve their data, systems and governance, and for regulators to continue the move towards globally aligned and interoperable reporting and assurance standards.”
On the subject of assurance, three-quarters (75 percent) of investors say that reasonable assurance (the level provided in financial statements) would give them confidence in corporate sustainability reporting.
Investors also have clear views about what they want from assurance practitioners. Seven in ten (72 percent) said it is important that assurers are subject to independence and ethical standards, and 73 percent highlighted the importance of professional scepticism.
One in five (22 percent) believe companies will be highly or extremely exposed to climate risk in just the next 12 months, and the number reaches 37 percent over a five-year time horizon, matching concern about geopolitical conflict (also 37 percent).
Over a ten-year horizon, the energy transition (50 percent) almost ties with technology change (53 percent) as the trend most likely to have a large or very large impact on profitability.
Investors are supportive of significant public policy measures to tackle climate change.
By a margin of 28 points, they are more likely to think that imposing taxes on unsustainable activities would be ‘effective’ rather than ‘ineffective’ in encouraging corporations to take action on sustainability issues. The margin for support of strong reporting requirements is 34 points, and for targeted subsidies it is 20 points.
PwC said 66 percent of investors believe companies should disclose the monetary value of the ‘effect their operations or other activities have on the environment or society’, as this would help companies understand the full economic effect of their business decisions. Only 13 percent disagreed.
Additionally, nearly three-quarters (73 percent) of investors want companies to report the cost to meet the sustainability commitments they have set.
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