ESG was once a novel discussion in the boardroom, however it has catapulted to the forefront of everyone’s minds in recent years. Governments, regulators, investors, industry bodies and wider society continue to push this agenda forward and this has led to a complex web of ever-evolving and ever-expanding initiatives, frameworks and disclosure expectations. This can be hard to navigate even for larger companies with comparatively boundless resources.
But with this continued drive forward, how does this actually affect investment decisions, and in particular, what are the expectations for small and mid-sized quoted companies?
Our Research Report, Asking the Earth?: Investor Attitudes to ESG sponsored by CMS and Inspired PLC, looks into what investors really think of ESG, how it affects their investment decisions and how they believe this will develop in the future.
We have found that one in three investors favour Main Market companies to those quoted on AIM or AQSE markets; despite evidence that smaller companies’ ESG reporting has stepped up, with four-fifths of investors observing an improvement, investors still face challenges when assessing growth companies' ESG credentials due to an inability to compare data between companies and incomplete data.
Our research shows that there is a divide between investor expectations and the practices and disclosures of small and mid-cap companies. Despite improving their practices in recent years, many smaller quoted companies fall short of what investors are looking for. Although companies may be adept at telling their story and have established processes to identify and manage ESG-related risks and opportunities, they are often unable to provide the right information and in the right manner to investors.
Yet, there is nevertheless opportunities for companies who can get it right.