Investors looking for consistent sustainability reporting

Investors are calling for an overhaul of sustainability reporting standards following concerns that current guidelines prevent accurate and informed investment decisions.

A major survey by consultancy McKinsey & Co, published this week, revealed the majority of investors and company executives are frustrated with the lack of standardisation in sustainability reporting and believe standards need to change.

While over four-fifths ofinvestors (82%) and two thirds of executives (66%) said companies should berequired by law to issue sustainability reports - 89% of investors backed thenotion that there should be fewer reporting standards than currently exist,while 75% want to see just one standard introduced to make giving investmentadvice easier. Over four fifths of executives agreed with them.

According to the survey,years of effort by standard-setting groups have produced nearly a dozen majorreporting frameworks and standards, which businesses have the discretion toapply as they see fit.

The majority ofinvestors said greater standardisation would help them allocate capital andengage companies more effectively, while executives said it would improve theirability to respond to sustainability-related trends, such as climate change andwater scarcity.

More than 60% ofinvestors said greater standardisation would attract more capital tosustainable investment strategies, however a fifth said uniform reportingstandards would �level the playing field� and reduce the competitive advantagearising from their proprietary research and investment products.

Respondents cited inconsistency,incomparability and a lack of alignment in standards as the main shortcomingsof current sustainability reporting practices.

Investors also harbourdoubts about corporate sustainability disclosures due to a lack of third-partyaudits.

�Nearly all theinvestors we surveyed, 97%, said that sustainability disclosures should beaudited in some way, and 67% said that sustainability audits should be asrigorous as financial audits,� McKinsey analysts state.

The survey quotes a sustainableinvesting director at a major asset manager who explained the numerous reportingframeworks and guidelines means companies rarely make sustainabilitydisclosures that can be compared as neatly as their financial disclosures can.�We have positions in over 4,500 companies. Unless [sustainability information]is comparable, hard data, it is of little use to us,� the director said.

The survey notes manyinvestors fail to participate in standard-setting efforts, with somestating they distance themselves because they feel standard setting shouldaddress their needs as a matter of course.

However, McKinseyanalysts warned that until investors clarify which sustainability disclosuresthey want and help to rationalise frameworks and standards, sustainabilityreports might �continue to deliver less material information than they wouldlike�.

The survey comprisedresponses from 107 executives and investors, representing 50 companies, 30 assetowners and 27 asset managers and was supplemented by interviews with more than25 investors, academics and standards organisations.