Generally, investors' biggest concern is their shareholder return, which is why environmental and sustainability concerns long have been afterthought for most of the investment community. 

As a recent report from Ernst & Young shows, however, environmental and sustainability concerns are no longer just outcries from environmental activists in the green echo chamber. Issues related to climate and the environment are increasingly becoming material financial risks for investors.

The report, "Tomorrow’s Investment Rules 2.0," also discusses where institutional investors look for non-financial information, such as Environmental, Social and Governance (ESG) information, and which ESG issues are most concerning for investors.

Highlighting this trend is the emerging threat of stranded assets, which 62 percent of 2,011 institutional investors surveyed mentioned as a concern. Additionally, 35.7 percent of respondents said that in the last 12 months they have reduced holdings in a company’s shares because of the risk of stranded assets.

"You're taking environmental and social attributes and you are starting to think about the longevity of some of these assets," said John DeRose, executive director of Americas climate change and sustainability services for Ernst & Young.

According to the Smith School of Enterprise and the Environment at Oxford University, "Stranded assets are assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities and they can be caused by a variety of risks."

This emerging threat of stranded assets has become increasingly intertwined with environmental risks, especially with fossil fuels as a result of increasing regulation on carbon emissions and rising future demand for renewable energy.

The non-profit financial think tank Carbon Tracker has suggested that if world leaders are serious about keeping the world’s temperature from rising above 2 degrees, then much of the world’s carbon reserves will be unburnable and forced to stay in the ground, including any drilling in the Arctic.

"The responses about stranded assets reveal that investors’ concern over this risk might be more widespread than many expect," the Ernst & Young report noted.

The report also details how investor concern about stranded assets and non-financial information differs throughout the world.

The report states that 57 percent of investors surveyed from Latin America said that they have reduced holdings in companies because of the threat of stranded assets, while in the United States and Canada 22 percent of investors reduced holdings.

One analyst at a Peruvian pension fund mentioned in the report that "it’s not regulated" in Latin America.

"Companies issue things they have in their favor," the report noted. "Pertaining to risks, they just report what they feel like."

The disclosure dilemma

Beyond the threat of stranded assets, the report shows that many institutional investors do not believe that companies are accurately disclosing their ESG risks as 38.8 percent of respondents claim that companies should disclose these risks more fully.

E&Y’s report aligns with what former Securities and Exchange Commission Chair Mary Shapiro said in November at the Bloomberg Sustainable Business Summit that investors are "highly dissatisfied with the information they are getting today" and additionally "can’t really use it effectively for their allocation decisions," according to the Wall Street Journal.

Himani Phadke, interim head of sustainable settings organization at the Sustainability Accounting Standards Board (SASB), said that some companies are disclosing ESG information on annual filings known as 10-Ks, but that information is not focused.

"It doesn’t tell investors what companies are doing about it and how these risks manifest on their financial performance," said Phadke.

Part of the problem that ESG disclosure advocates face is that there has historically been little enforcement by the U.S. Securities and Exchange Commission for companies to disclose sustainability and environmental risks.  

Although publicly traded companies are required by the SEC disclose anything material in their annual filings, or anything that could affect the investment making process, companies often omit environmental and sustainability risks such as drought or climate change. 

Companies issue things they have in their favor. Pertaining to risks, they just report what they feel like.

This leaves non-profit accounting boards such as the Global Reporting Initiative (GRI) and SASB to ask companies to voluntarily disclose this information to investors. SASB specifically helps companies disclose information in SEC annual filings known as 10-Ks and 20-Fs.

"There is a general push from investors for companies to provide this information," said Phadke.

Phadke also mentioned the increasing number of shareholder resolutions that companies are seeing related to ESG information.

So far, companies have filed a total of 433 shareholder resolutions this year, up from 417 in 2014, according to the Proxy Preview published by the sustainability non-profit As You Sow. Of the 433 shareholder proposals filed in 2015, 39 percent or 168 proposals related to environmental or sustainability resolutions.

A new wave of regulations

Yet, disclosure rules regarding environmental or sustainability issues may become more rigorous in the future as Peabody Energy, the world’s largest private-sector coal company, agreed (PDF) in November to provide more information about its risks associated with climate change in future SEC filings. 

The announcement by Peabody came as a result of a two-year investigation by the New York Attorney General Office for not disclosing the impacts that climate change regulation would have on its business to investors.

The New York Attorney General also announced in November that it is investigating claims that Exxon Mobil misled investors about its financial risk to climate change, while its internal research showed that climate change possessed a serious thereat to their business.

More broadly, DeRose suggested that ESG disclosure should not be problematic for companies because it relates to risks that companies already should know about.

"If you are thinking from an operational perspective, it’s either nothing new or it should be an eye opener of something you’ve been missing all these years," said DeRose.