Advisory intelligence: Social issues expected to dominate ESG discussions
Almost half of issuers (45 percent) expect social issues to be more of a focus in upcoming investor engagements than in the past, according to a recent poll of attendees at Nasdaq’s annual IR Forum.
Whereas environmental and governance issues have been at the forefront of ESG interactions with investors in recent years, the COVID-19 pandemic and the racial equality protests have placed a greater focus on companies’ social policies – from employee health, safety and engagement to diversity and inclusion policies, and community action and engagement.
‘The narrative has really shifted,’ says Steve Vargas, Lead ESG Advisory Analyst at Nasdaq IR Intelligence. ‘If the events in Minnesota and across the U.S. showed us anything, it’s that you need to have a policy in place and share your own perspective. It’s obviously important to gets investors’ input, but also to give a voice to your employees and people that work with your organization.’
Vargas adds that diverse boards and management teams can lead to a broader range of perspectives, which has significant upside in both recognizing risk and opportunity.
This is certainly a topic that investors will keep an eye on in the near future, and Nasdaq’s audience polling shows that 53 percent of respondents see their investors as the primary drivers behind their companies’ ESG reporting and engagement. A further 33 percent of respondents said that the board and management team were the primary drivers.
Vargas acknowledges that many issuers are still wondering about which ESG metrics are most important to their investors, and some struggle to differentiate the ESG alphabet soup of SASB, GRI, TCFD, CDP and other reporting frameworks and guidelines. ‘For many people, [ESG reporting] still feels like the Wild Wild West, with many different frameworks to choose from,’ Vargas says. This will be particularly apparent this year, due to the extra focus on social issues – which has previously been the most underreported ESG area.
Vargas adds that IR teams can find a lot of useful information in investor stewardship reports, many of which have recently been published or will be published imminently. These can provide actionable insight into the engagement preferences and ESG priorities of investors, as determined by their clients and the UN Sustainable Development Goals, as well advice for which reporting frameworks are preferred. ‘Investors are forming more of a perspective, so it’s helpful to know what your shareholder base thinks about these issues,’ Vargas explains.
This is particularly helpful for the 50 percent of event attendees that said that their company hasn’t published a corporate sustainability report in the past. Vargas notes that many small and mid cap companies are striving to improve their ESG disclosures, but don’t necessarily have the resources or a dedicated sustainability team to help.
With this in mind, Vargas recommends that IR teams collaborate with other internal departments to assist with ESG reporting and engagement. Many IR teams have been forming closer bonds with their counterparts in the general counsel and corporate secretary’s offices, in addition to sustainability teams where applicable. Noting investors’ increased focus on social issues this year, Vargas recommends that IR teams build deeper relationships with leaders of another key function. ‘In IR, you need as many allies as possible, and working with HR is a great way to strategize around a story about your people,’ Vargas explains.
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