Institutional investors placing more emphasis on non-financial risks, disclosures: EY

INSTITUTIONAL investors in Singapore and globally are increasingly placing more emphasis on non-financial risks and disclosures such as those related to environmental, social and governance (ESG) risks.

Some 82 per cent of 320 global institutional investors said in an EY survey that ESG risks have been ignored for too long by the business world, while 81 per cent said companies are inadequate in their disclosure of non-financial risks that could affect their businesses.

This comes as the view that a sharp focus on ESG issues can generate sustainable returns over time gains widespread acceptance; 89 per cent of those surveyed agreed with such a stand.

Mathew Nelson, global and Asia-Pacific climate change and sustainability services leader at EY, said recent corporate environmental and social scandals as well as a focus on longer-term value are pushing non-financial reporting up the agendas of institutional investors.

"This leads to a disconnect between investors who see ESG as having real and quantifiable financial impacts, and companies that do not see ESG risks as core to their business," he said.

In Singapore, there has been an increase in the awareness of the importance on non-financial disclosures, especially after Singapore Exchange announced comply-or-explain requirements on sustainability reports by listed companies, said climate change and sustainability services managing director K Sadashiv.

"We expect a quantum increase in the number of companies disclosing their non-financial policies and performance in the coming year, and this will lead to better quality and depth in corporate reporting," he added.