The Risks and Rewards: Tracking Investors’ Confidence
What do investors see as the most significant issues in assessing which companies offer the best financial opportunities? A new global study by the management-consulting firm, PwC, examines investors’ decision criteria in evaluating companies’ strengths and weaknesses in macroeconomic responsiveness, emerging technologies such as artificial intelligence, and sustainability. What do investors see as the key risks and rewards, and how would your company measure up in this assessment?
Gauging investors’ decision criteria
For bio/pharma companies and their suppliers, a key question is what do investors look at in evaluating which companies to invest in—what makes a company an attractive investment or not? Aside from fundamental financials, what other issues come into play?
To answer that question, in September 2023, PwC surveyed 345 investors and analysts across 30 countries and territories globally, and conducted 15 in-depth interviews. The survey—now in its third consecutive year— queried 345 investors and analysts across geographies, assets classes, and investment approaches for insights into the factors that most affect the companies they invest in and cover.
Respondents were predominantly institutional investors, comprising portfolio managers (19%), analysts (18%), and chief investment officers (17%), with 48% having more than 10 years of experience in the industry. Their investments covered a range of asset classes, investing approaches, and time horizons, and the assets under management (AUM) at their organizations range from$500 million to $1 trillion or more, with 65% of respondents from organizations with a total AUM of more than $1 billion.
The results of the study, PwC’s 2023 Global Investor Survey, released this week (November 15, 2023) had several key findings:
- Three-quarters of investors say sustainability is important to their investment decisions while more than half (57%) back greater clarity and consistency in sustainability reporting;
- 61% say faster adoption of artifical intelligence (AI) is “very” or “extremely” important; and
- Macroeconomic and inflationary concerns fall from 2022 highs as concern about climate change rises from 22% to 32%, putting climate on par with cyber risk
The survey found that while macroeconomic and inflationary concerns are still top-of mind, they have eased from 2022’s highs. Notably this year, climate risks have risen considerably, putting it on par with cyber risk at 32%.
All the while, the survey paints a picture of an investment landscape driven by technological transformation: 59% identified technological change as the most likely factor to influence how companies create value over the next three years. In particular, 61% say faster adoption of AI is “very” or “extremely important.”
Sustainability also continues to remain pivotal to investors: 75% say that how a company manages sustainability related risks and opportunities is an important factor in their investment decisions although this is down 4% on last year.
“We are moving from a period of awareness raising around the importance of climate and technological change to a time where investors are increasingly asking specific and tough questions about how companies are addressing those issues in their strategy, how they assess risk and opportunity and what is truly material for them,” said James Chalmers,Global Assurance Leader, PwC UK, in commenting on the study’s results. “In this context, corporate reporting needs to continue to evolve so it provides reliable, consistent, and comparable information investors—and other stakeholders— can rely on.”
Focus on sustainablity
With respect to sustainability, investors are looking to regulators and standard setters to create clarity and consistency in companies’ reporting. Fifty-seven percent of investors said that if companies meet the upcoming regulations and standards (including the European Union’s Corporate Sustainability Reporting Directive, the US Securities and Exchange Commision’s proposed climate-disclosure rules in the US, and the standard of the International Sustainability Standards Board), it will meet their information needs for decision-making to a “large” or “very large extent.” Furthermore, 85% say that reasonable assurance (akin to audit of financial statements) would give them confidence in sustainability reporting to a “moderate,” “large,” or “very large extent.”
The focus of investors on meeting the cost of environmental, social, and governance (ESG) commitments has also risen, with 76% finding this information important or very important. Investors also want information on a company’s impact on society or the environment, and of those, 75% agree that companies should disclose the monetary value of their impact on the environment or society, up from 66% in 2022.
Emphasis on technology, including AI
The PwC survey results showed that investors view the accelerated adoption of artificial intelligence (AI) as critical to value creation while recognizing the importance of managing risks. Sixty-one percent of investors say faster adoption is “very”, or “extremely important.” Including responses noting “moderately important,” this jumps to 85%. Investors identified technological change (59%) as the factor most likely to influence how companies create value over the next three years. Furthermore, investors ranked innovation and emerging technologies (including AI, the metaverse, and blockchain) among their top five priorities when evaluating companies. Nonetheless, 86% see AI presenting considerable risk from a ”moderate” to “very large extent” when it comes to data security and privacy, insufficient governance and controls (84%), misinformation (83%),” and bias and discrimination (72%).
“We are seeing significant steps towards more consistent reporting from companies around climate change, however there is a need for improvement,”siad Nadja Picard,Global Reporting Leader, PwC Germany, in commenting on the study’s results. “All the while, investors are calling for greater engagement around how companies manage the opportunities and risks of new technologies, particularly generative AI, as new technologies increasingly drive business transformation and investment.”
Seventy-seven percent of investors said that reporting on the use and deployment of new and emerging technologies was important or very important to their investment analysis—a finding that has implications for companies’ internal decision-making. The PwC study notes that investors are looking for more granular information from companies on how they deploy and use new and emerging technologies. Consider two examples: cybersecurity and data privacy, and emerging technologies more broadly. In both cases, about half of the investors surveyed in the PwC study said that they possessed limited information, moderate information or no information at all. This was true of both quantitative and qualitative information that companies might disclose—examples of which might include the types of technologies employed, their intended use and effectiveness, and how they are governed.