Almost 90% of institutional investors sometimes consider nonfinancial information when making investment decisions, a report released Tuesday by EY found. The survey of 163 institutional investors found 89% said nonfinancial information played a "pivotal role" in at least one decision in the past 12 months.
Among investors who don't consider nonfinancial information like environmental, social or governance factors in their investment decisions, half said it was because they were not sure it would have a material impact.
The survey, "Tomorrow's Investment Rules," was conducted by Institutional Investor magazine for EY in September. Respondents were predominantly from North America and include third-party investment managers, banks, pension funds, foundations, endowments, sovereign wealth funds, insurance companies and family offices. Almost 60% of respondents were at firms with at least $10 billion in assets under management.
While two-thirds of investors who incorporate nonfinancial information in their decision-making process have some sort of technique to do so, only half of those have a structured process in place.
Investors favored annual reports, integrated reports and company websites as sources of nonfinancial information over third-party indexes, however, many shared frustrations over which issues would have the biggest impact on shareholder returns.
"What investors are telling us is that they're using nonfinancial information to inform their decision-making – whether or not the companies are providing it themselves," Dr. Matthew Bell, EY Australia climate change and sustainability services partner, said in a statement. "They've also identified weaknesses in current reporting, and so companies now need to consider a more structured approach. By using an integrated framework companies can report what is material to them, provide further information, and point to where an investor may find the raw or unabridged data that bigger investment teams will find useful."
Despite what you might think, investors aren't investigating nonfinancial information to ensure it's in line with personal values; at least, not many of them. The most important nonfinancial issue was the impact regulation had on business for more than half of respondents. Just 17% of respondents said a firm's personal values were "essential" information they needed as an investor.
