PwC has just issued its 2023 Global Investor Survey, now in its third consecutive year.
More than nine in 10 investors believe that corporate reporting on sustainability performance contains unsupported claims, often referred to as “greenwashing”, according to PwC's 2023 Global Investor Survey.
The survey covered 345 investors and analysts across geographies, assets classes, and investment approaches for insights into the factors that most affect the companies they invest in and cover.
The report finds that while macroeconomic and inflationary concerns are still top of mind, they have eased from 2022’s highs. Notably, this year climate risks have risen considerably, putting it on a par with cyber risk – at 32 per cent, the survey reveals.
It paints a picture of an investment landscape driven by technological transformation: 59 per cent identified technological change as the most likely factor to influence how companies create value over the next three years. In particular, 61 per cent said that faster adoption of artificial intelligence (AI) is “very” or “extremely important,” the firm said in a statement.
Sustainability also continues to remain important to investors: 75 per cent said that how a company manages sustainability related risks and opportunities is an important factor in their investment decisions, although this is down 4 per cent on last year.
“We are moving from a period of awareness raising around the importance of climate and technological change to a time where investors are increasingly asking specific and tough questions about how companies are addressing those issues in their strategy, how they assess risk and opportunity, and what is truly material for them," James Chalmers, global assurance leader at PwC UK, said. “In this context, corporate reporting needs to continue to evolve so it provides reliable, consistent and comparable information investors – and other stakeholders – can rely on.”
The greenwashing phenomenon worries advocates of "green" investment ideas because they fear that unless checked, it will foster cynicism and loss of interest in the space. Over the past 20 years, commentary and interest in ESG investing has increased, accelerating after the 2008 financial crisis as firms saw these ideas as a means to reconnect with clients and repair their brand images.
Investors need stronger reporting standards
In particular, investors this year highlighted a strong undercurrent of doubt about the reliability of sustainability reporting and information that they use, often referred to as greenwashing. Ninety-four per cent of investors believe corporate reporting on sustainability performance contains some level of unsupported claims (up from 87 per cent in 2022), including 15 per cent who think they are there to a “very large extent.” The proportion who said unsupported claims are present to a moderate or greater extent is up one percentage point on last year at 79 per cent, the firm added.
These perceptions of greenwashing may explain why investors are looking to regulators and standard setters to create clarity and consistency in companies’ reporting, the firm said. The findings show that 57 per cent of investors believe that if companies meet the upcoming regulations and standards, it will meet their information needs for decision-making to a “large” or “very large extent.” Furthermore, 85 per cent say that reasonable assurance (akin to audit of financial statements) would give them confidence in sustainability reporting to a “moderate,” “large,” or “very large extent,” the survey reveals.
The focus of investors on meeting the cost of ESG commitments has also risen, with 76 per cent finding this information important or very important. Investors also want information on a company’s impact on society or the environment and, of those, 75 per cent agree that companies should disclose the monetary value of their impact on the environment or society, up from 66 per cent in 2022.
Annabelle Bryde, managing director and head of UK Private Bank and Crown Dependencies at Barclays Private Bank also believes that regulation is necessary to prevent greenwashing, but thinks that there will be a stronger focus on climate-related matters in the future, with good returns to be had from ESG-focused investments. See more here.
Investors want accelerated AI
This year’s PwC survey findings also show that investors view the accelerated adoption of artificial intelligence as critical to value creation, while recognizing the importance of managing risks. Sixty-one per cent of investors say faster adoption is “very,” or “extremely important.” Investors identified technological change (59 per cent) as the factor most likely to influence how companies create value over the next three years. Furthermore, investors ranked innovation and emerging technologies (including AI, the metaverse, and blockchain) among their top five priorities when evaluating companies. Nonetheless, 86 per cent see AI presenting considerable risk from a ”moderate” to “very large extent” when it comes to data security and privacy; insufficient governance and controls (84 per cent); misinformation (83 per cent); and bias and discrimination (72 per cent).
“We are seeing significant steps toward more consistent reporting from companies around climate change, however there is a need for improvement,” Nadja Picard, global reporting leader at PwC Germany, said. “Investors are calling for greater engagement around how companies manage the opportunities and risks of new technologies, particularly generative AI, as new technologies increasingly drive business transformation and investment.”