There’s a wide sustainability expectation gap between CFOs and investors, according to a EY survey.
This existing gap threatens to stifle access to capital for many organisations and could hinder progress on decarbonisation, the firm said.
The Global Corporate Reporting Survey canvasses the views of 1,040 CFOs and other senior finance leaders, and 320 institutional investors around the world, EY noted.
Long-term investments or short-term gains
One aspect of the sustainability expectation gap is the attitude towards long-term investments and short-term gains.
According to the report, 78% of investors say they believe companies should invest in improvements relating to ESG matters, even if it dents their short-term profits, but only 55% of business leaders hold the same view.
The findings also show that 53% of respondents believe their efforts to drive long- term investments are, in fact, impeded by investor pressure to show short-term gains.
One in five (20%) of the finance leaders surveyed went as far as to say that investors are “indifferent” to long-term investments, including those relating to sustainability.
Investors are also highly critical of businesses’ approach to disclosing important information on sustainability activity, EY said.
Almost all investors surveyed (99%) say that ESG reporting is a crucial part of their investment decision making, but three quarters (76%) feel that organisations are ‘highly selective’ about the information they provide.
This raises concerns about greenwashing — and almost nine in ten (88%) hold the view that companies only disclose when they are forced to do so, survey results indicated.
Where businesses do make long-term investments in sustainability, 80% of investors say that they often fail to explain their rationale, and they argue that this can make such investments hard to evaluate, according to EY.
Room for improvement
Despite the wide sustainability expectation gap between CFOs and investors, many businesses seem to recognize room for improvement in their approach to reporting, EY pointed out.
Just over half (54%) of respondents said they provide investors with relevant information on sustainability activity, leaving a significant percentage who recognise that they do not.
In addition, 41% of finance leaders interviewed, admitted their current ESG reporting would not stand up to the scrutiny of basic assurance standards, known as “reasonable assurance.”
Common ground on reporting flaws
The survey also highlights some common ground between businesses and their investors.
Both sides agree on the weaknesses of current reporting standards and call out the lack of requirements for supporting evidence; the separation of ESG reporting from mainstream financial reporting; and the lack of forward-looking disclosure, as key issues that need to be addressed, EY said.
EY highlighted two priorities when it comes to how organisations can strengthen confidence.
They are improving sustainability reporting designed to meet expectations and elevating the role of finance leaders and the finance function in this reporting, EY 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 – systemically, strategically and rigorously,” said Tim Gordon, EY Global Financial Accounting Advisory Services Leader. “Only then will we see investor skepticism subsiding and businesses feeling that they’re being recognised for their efforts to become more sustainable.”