Organizations risk losing out on investment due to lack of non-financial information disclosure

EY LLC, Kyiv, Ukraine, 
Tuesday, May 13, 2014

Published by U.S.-Ukraine Business Council, 

Wash, D.C. Tuesday, May 13, 2014

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 89% of global investors report non-financial performance informationplayed pivotal role at least once in decision-making in the last 12 months

„Investors report difficulties in identifying what is material to valuecreation, peer-to-peer company comparisons, and a lack of connection betweennon-financial and financial performance

„ 70% of the respondents based in emerging markets frequently oroccasionally use non-financial information, compared with only 49% of those indeveloped markets

13 May2014, KYIV. Opting out of reporting non-financial performance is no longer a choicefor organizations looking for investment, according to a new report, Tomorrow’sinvestment rules, released by EY.

The global survey of 163 institutional investors conductedby Institutional Investor magazine,on behalf of EY, identifies the key trends and drivers that influence theuptake and use of corporate disclosures of non-financial information. Eighty-ninepercent of investors report that non-financial performance information played apivotal role at least once in their decision-making over the last 12 months. Two-thirdsof those investors are using some kind of technique to evaluate non-financialdisclosure and of this group only half have a structured evaluation or have aprocess in place. The report highlights that many are relying on personaljudgment of environmental and social data when determining the impact of suchfactors on value creation and risk.

Juan Costa Climent, EY’s Global Leader of ClimateChange and Sustainability Services comments: “The emergence of integratedreporting and a widening appreciation of the risks and opportunities posed byexternalities; creates a significant opportunity for organizations that can betterinform investors of the non-financial risks and opportunities that theirbusiness faces.”

When looking at the sources of non-financialinformation, annual reports, integrated reports and company websites wereranked as the most important sources by investors, rather than third parties indexes;highlighting the crucial need for organizations to consider how they presenttheir non-financial data to different financial stakeholders.

Many of the investors also pointed out the challengeof finding meaningfully ways to compare companies’ performance, even amongpeers. A lack of information to understand what issues could materially impactreturns for shareholders was a common frustration, with many unable to drawquantifiable links between non-financial and financial performance.

Dr Matthew Bell, EY Australia Climate Change andSustainability Services Partner, comments: “Whatinvestors are telling us is that they’re using non-financial information toinform their decision-making – whether or not the companies are providing itthemselves. They’ve also identified weaknesses in current reporting, and socompanies now need to consider a more structured approach. By using anintegrated framework companies can report what is material to them, provide furtherinformation, and point to where an investor may find the raw or unabridged datathat bigger investment teams will find useful.”

The survey also identified geographical differenceswhen it comes to the uptake of non-financial information. Over 70% of the respondentsbased in emerging markets frequently or occasionally use non-financialinformation, compared with only 49% of those in developed markets.

With investors looking to minimize risk, 43% of therespondents from emerging markets said that non-financial information wasessential to minimize risk, compared with only 29% of those from developedmarkets; highlighting that the risks posed by environmental, social andgovernance issues are more prevalent in emerging markets. In markets, such asChina and South East Asia, sustainability concepts are critical to the waycompanies operate, and how quickly they adapt to a shifting landscape,therefore non-financial information is essential to minimize the risk.

The report lists key recommendations for those compilingnon-financial information, based on the survey results, including: investing inreporting to unlock the value created from being transparent on environmental,social and governance disclosures; reporting on and highlighting what’s trulymaterial to the organization’s performance; keeping abreast of internationaldevelopments in terms of reporting guidelines; and finally getting theorganization’s governance processes in place.

Bell concludes: “It is no good saying that investorsaren’t asking for this sort of information. They’re finding ways of gettingthis data and they are assessing companies on it, so organizations need to takeback the initiative. Companies need to act now or be penalized.”

-ends-

Notes to editors

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