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Oct 26, 2022

ESG disclosures: Your audience is bigger than your investors, says NIRI

New policy statement urges IROs to become ‘well versed’ in ESG theme

NIRI has announced an updated policy statement on ESG guidance highlighting that even though the topic has raised some questions, a company’s sustainability profile has become a ‘measure of its societal license’.

This means ESG practices significantly influence a company’s reputation and impact the perception that both stakeholders and the general public have of a business.

ESG‘As a growing proportion of US-based institutional and retail investors use ESG data in investment-screening factors and assessment of business risk, today’s IR practitioners must develop cross-functional ESG-specific subject matter expertise. This knowledge is key to successfully identifying environmental, social and governance risks, challenges and opportunities that potentially impact a company’s equity valuation,’ the policy statement reads.

It urges IR professionals to develop and understand best practices for delivering non-financial ESG disclosure and managing key stakeholder expectations.

On the latter, the statement says the list of ‘key ESG stakeholder groups’ is growing and goes beyond institutional and retail investors. In fact, it includes third-party ESG rating firms responsible for providing investors with ratings for peer comparison, stock exchange requirements, regulators, customers, business partners, suppliers and even employees.

Board education

NIRI’s guidance policy also calls for the IR community to support management in the evaluation and communication of ESG factors, and lead the development of accurate disclosures.

Up-to-date knowledge of ESG developments, reporting styles and stakeholder sentiments plays a crucial role in the identification of relevant trends for IROs. Those trends, the statement notes, will help to counsel management on how to respond to various requests for information.

stakeholders meetingsAcknowledging the growing importance of ESG should also be part of a company’s long-term strategy and IR should be able to shed light for the board on the links between ESG programs and long-term corporate strategies.

‘It is no longer satisfactory for companies to talk about ESG in a box or to simply discuss the current and immediate benefits of ESG policies,’ the statement reads. ‘Investors and other stakeholders expect to see alignment between ESG programs and long-term corporate strategy, purpose and mission.’

When it comes to delivering ESG-related information to third parties, the policy statement puts data collection, disclosure statements and disclosure tracking as staples of the IR role.

Drawing attention to accuracy, message delivery and engagement, it says: ‘IR professionals should be aware of their company’s past ESG disclosure record and be prepared to explain to investors if the company changes the methodology in which it discloses specific ESG data.’