Covid reality check: How to improve virtual ESG engagement with investors

Dec 08, 2020
Rolls-Royce’s ESG commitment remains in place despite massive restructuring

Just weeks after Isabel Green joined Rolls-Royce as head of IR in March, global travel ceased. Demand for engines and maintenance sputtered and the company’s share price plunged to a 17-year-low before regaining altitude on news of Covid-19 vaccine breakthroughs.

‘When the chips are down, you see the real priorities in a company,’ Green told the IR Magazine ESG Integration Forum – Europe. ‘This year engagement with our stakeholders has been more important than ever, particularly from my side – that’s been more the investors and the government, but also I’m thinking about with our customers. We supply and maintain airplane engines. It is the biggest part of our business and our customers are hurting. Now is the time to stand up and be counted, to engage even when you are trying to save costs.’

Rolls-Royce is in the midst of the largest restructuring of its civil aerospace business in the history of the British manufacturer. In late October shareholders backed a £2 bn ($2.6 bn) equity raise to boost the balance sheet, a move that allows Rolls-Royce to access an additional £3 bn through a bond sale and a £1 bn term loan. It is a story investors and analysts will be interested to hear on Friday, December 11 when Rolls-Royce offers a trading update to the London Stock Exchange at 7.00 am GMT and holds a conference call two hours later.

The company’s focus is not just on its massive recapitalization package, however. Even while implementing a cost-saving plan that will see headcount reduced by 9,000 – one sixth of its workforce – Rolls-Royce is weighing its investment priorities in R&D and driving better lower-carbon solutions. The company is focused on creating engines that don’t pollute and on alternative fuels, Green said.

‘What we need to do as a society is fundamentally change,’ she added. ‘And if you don’t keep investing now, when you are short of money, I think you are showing a very real signal about how important [ESG] really is to you.’

Lip service

Like most panelists at the forum, Green cut back on business travel this year, switching to virtual communication as the pandemic took hold. But she noted that the savings in carbon as a result of the travel industry shutdown barely touched the edges.

Still, small thing can make a huge difference, said Charles Parry, head of investor relations at Alternative Investment Market-listed renewable energy supplier Good Energy Group. The small-cap company launched in the UK 20 years ago to allow customers to do something about climate change by choosing renewable energy for their homes and businesses.

Cutting back on air and train travel is not just paying lip service to ESG, Parry said: ‘A lot of these smaller wins will ultimately drive a bigger impact over time, and to ignore that is potentially quite dangerous.’

Carl Franklin is the London-based head of investor relations at Seplat Petroleum Development Company, which is involved in oil and gas exploration and production in Nigeria as well as gas processing. At the start of the pandemic Franklin cancelled four trips, including a journey to South Africa that would have put him on the ground for a day and a half. He said he saw that trip, in retrospect, as ‘daft’ and unsustainable.

Speaking at the forum, Franklin said it’s important to challenge the traditions and ideas that dictate the need to take a taxi 30 minutes across the city of London for a meeting or a long-haul flight just to shake hands.

‘We have to build trust through other ways, definitely’ he said. ‘If people are serious about ESG and reducing emissions, we really need to bite the bullet here and start acting as if we are serious about it.’

Seplat added two extra quarterly meetings during the pandemic by hosting Q1 and Q3 calls. That wasn’t specifically driven by Covid, but it has given investors more timely information and a chance to question directors more often without spending time in transit.

Hybrid approach

Michael Hufton, founder and managing director at IR systems vendor firm ingage, told the forum that Covid-19 brought opportunity and pushed management to try new technology and tools for communication, roadshows, gathering meeting feedback and AGMs. The change helped push ESG to the top of the investor agenda. What happens next, when global travel is once again possible, is unclear, however.

‘I think one of the most interesting challenges as we come out of this is: how does everybody cope with a hybrid world?’ asked Hufton. ‘It is actually relatively easy to do virtual when everybody does virtual, but when you suddenly start doing a little bit of both it becomes much more difficult to manage.’

Mark Schwarz, vice president and associate general counsel at Vontier, a global industrial technology company focused on transportation and mobility solutions, pointed out that Zoom meetings have created a positive dynamic: he is based in the UK but his team is scattered across China, India, North Carolina and beyond.

Schwarz hasn’t travelled since February and wasn’t sure his company would return to in-person management meetings in the future, although he recognized the downside: ‘Of course, we are missing the personal contacts and that affects managing teams.’

Virtual AGMs may be here to stay as well, he told the forum, describing many aspects of the old-style AGM as ‘pre-historic’.

‘The big question going forward is [whether] shareholders feel they can still get the same benefits out of virtual,’ Schwarz said. ‘Can they still escalate their concerns? Can they still register protests? Can they still get access to executives, and register agreements and collaborate with other shareholders?’

While reduced travel and fewer meetings are a good start, Schwarz said they are just part of the jigsaw puzzle. The bigger ESG conversation at Vontier is around shifting away from fossil fuels to electric charging, and shifting to better smart city technology that will reduce commuting and emissions.

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