EY 2024 Survey Highlights Growing Concerns Over Greenwashing in Sustainability Reporting | Image Source: Pexels.com
LONDON, December 11, 2024 - The EY 2024 survey on institutional investors reveals a paradoxical scenario in the field of sustainability information. While most investors express confidence in the ability of companies to achieve sustainability and decarbonisation goals, they also have significant doubts about the reliability of sustainability information provided by these companies. This dichotomy reflects the changing challenges in corporate relations and reinforces concerns about green washing.
According to the survey, 85% of investors believe that green and misleading statements of corporate sustainability performance have become a major problem compared to five years ago. This perception is reinforced by the results of EY 2024’s Global Business Reporting Survey, where 55% of financial executives have recognized that sustainability reports in their industrial risks are seen as an ecological wash. These concerns highlight a critical credibility gap in sustainability information, which could undermine investor confidence and capital allocation decisions.
Investor confidence in the credibility of Gaps
Despite their scepticism about the authenticity of sustainability data, 93% of investors surveyed expressed confidence in the ability of companies to achieve their sustainability and decarbonization goals. This optimism contrasts strongly with the results of EY’s Global Corporate Reporting Survey, which found that less than half (47%) of financial leaders believe that their organizations are very likely to achieve important sustainability goals, such as zero-to-time net emissions.
This apparent disconnection raises questions about the dynamics involved. It could indicate the desire to think among investors or the lack of active monitoring of business progress. On the other hand, it could suggest that investors expect companies to adjust their objectives over time, aligning them with achievable results. However, this disparity highlights the need for stronger and more transparent information frameworks to reduce the confidence gap between businesses and their investors.
Transition plans and financial reporting
To increase transparency and risk management, the report highlights the importance of companies adopting and disseminating transition plans for climate change mitigation. However, the EY Global Climate Action 2024 barometer revealed that only 41% of companies had implemented these plans. In addition, only 17 per cent reported capital expenditures (capex) related to climate initiatives and only 4 per cent provided details of the operating costs (opex) associated with these efforts.
The lack of comprehensive financial information on transition activities complicates investors’ ability to assess long-term risks and opportunities. By encouraging the promotion of mandatory and safe disclosure of sustainability in various jurisdictions can lead to improved corporate transparency, which could alleviate some concerns related to green washing.
Investor voting methods and ESG resolutions
The investigation also highlighted the electoral behaviour of institutional investors in relation to shareholders’ decisions related to ESG. 86 per cent of respondents indicated that they generally voted in favour of these resolutions. Political and social pressures appeared to be the most important factor influencing their voting decisions, cited by 39% of respondents, closely followed by the results of previous GSS initiatives in 38%.
However, broader industry data paint a different picture. The Principles for Responsible Investment (PRI) reported a decline in support of ESG-related shareholder resolutions, with average approval levels rising from 28.3% in 2023 to 21.6% in 2024. The PRI attributes this tendency to the perception that certain resolutions are too demanding and to the growing influence of anti-ESG sentiment, which has led to both the submission of anti-ESG resolutions and the reduction of support for pro-ESG measures.
The long-term value approach
Interestingly, only a small fraction (26%) of investors believe that ESG resolutions and sustainability have a significant impact on the long-term value of shareholders, and an even smaller percentage (10%) consider these resolutions to be drivers of short-term profitability. This scepticism reflects a broad ambivalence about the tangible benefits of ESG initiatives and underlines the need for more convincing evidence of their value-generating potential.
To meet these challenges, businesses must prioritize the integration of sustainability into their core strategies and demonstrate measurable progress towards the goals set. Investors should, in turn, promote stricter standards and accountability in sustainability reporting.
The EY 2024 survey on institutional investors highlights the urgent need to align corporate sustainability ambitions with investor expectations. As mandatory disclosure requirements and reporting standards continue to evolve, they provide an opportunity to restore confidence and significantly advance global sustainability goals.
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