Despite the postponement of deadlines for the implementation of sustainability reporting obligations (the so-called "Stop the Clock"), investor demand for transparency on ESG metrics continues to grow. This trend has had a positive impact on companies, leading to a reduction in their cost of equity, particularly for the disclosure of social issues following the 2015 Paris Agreement.
Which information has attracted the most interest from investors?
A study conducted by MSCI analyzes the impact of disclosing ESG (environmental and social) metrics on more than 3,000 companies between 2002 and 2021, excluding those related to corporate conduct, as they are generally mandatory.
The analysis focuses on eight key sustainability metrics that have a significant impact on companies' main financial indicators:
- Greenhouse Gas (GHG) emissions
- Energy consumption (direct and indirect)
- Water withdrawal
- Total waste produced
- Total injuries and fatalities
- Average training hours per employee
- Employee turnover rate (voluntary and involuntary)
- Gender diversity index
The analysis, which takes into account regional and temporal dynamics, highlights how growing investor attention to ESG information has affected disclosure premiums. In particular, European companies that shared environmental and social metrics recorded a positive premium on the Forward Price-to-Earnings, a key market valuation indicator. This reflects not only market dynamics but also a growing investor awareness of sustainability issues.
Another key factor: the evolution of investor preferences
The study underscores that, after the Paris Agreement, there was a clear shift in investor preferences toward sustainability. Investors now demand increasingly detailed information about companies' ESG practices, with positive effects on their market valuations. In other words, companies that adopt sustainable practices are increasingly rewarded.
The importance of ESG metrics by sector
ESG metrics have different relevance depending on the economic sector. Environmental issues are particularly relevant in sectors such as consumer staples, healthcare, industrials, technology, and utilities, while social metrics have a greater impact in sectors such as consumer staples, real estate, healthcare, and utilities.
Why is it important to start reporting your ESG information today?
As we have seen, companies that disclose their ESG information are rewarded by investors. This behavior not only increases transparency and trust but also brings concrete benefits, such as lower financing costs.
Indeed, the study shows that investor gains from encouraging companies to disclose their ESG practices are substantial. Prompting companies to report their commitment to environmental and social issues is advantageous for all: investors, who can benefit from higher returns, and the companies themselves, which experience lower capital costs. In other words, ESG transparency translates into a positive economic return for those who choose to invest responsibly.