Nonfinancial reports helped stimulate the growth of sustainable investing. Now investors are questioning current reporting practices—and calling for changes that executives and board members must understand.
As evidence mounts that the financial performance of companies corresponds to how well they contend with environmental, social, governance (ESG), and other nonfinancial matters, more investors are seeking to determine whether executives are running their businesses with such issues in mind. When companies report on ESG-related activities, they have largely continued to address the diverse interests of their many stakeholders—a long-standing practice that involves compiling extensive sustainability reports and filling out stacks of questionnaires. Despite all that effort, a recent McKinsey survey uncovered something that should concern corporate executives and board members: investors say they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately.