ESG: the growing impact on investors and IROs
This article was produced in association with ELITE Connect. It was originally published on the ELITE Connect platform.
Companies’ ESG performance has quickly progressed from a niche topic of interest for socially responsible investors to a mainstream subject within the global investment community.
And now governments are joining the ESG revolution, responding to calls for transparency by way of new legislation. France, for example, recently implemented mandatory carbon footprint reporting for its institutional investors and their entire portfolios, a move widely expected to be replicated by other European governments in the near future.
For investors, this can be seen as another pressure on top of existing ESG demands. ‘Asset managers are increasingly being driven by their pension fund clients to take sustainability and corporate governance factors seriously and to communicate regularly and effectively on how they’re addressing them,’ observes Mike Tyrrell, editor at SRI-CONNECT. ‘There’s also the pressure of conforming to good practice as defined by the UN’s Principles for Responsible Investment (PRI); this global initiative is increasing in momentum and importance within the investment community.’
According to Adam Black, head of ESG & sustainability at Coller Capital, the rewards of successful ESG adoption and its subsequent communication are clear to see, with ESG now adding value to investment offers. ‘ESG has grown in importance, particularly over the past three or four years where it’s progressed from a ‘tick in the box’ to investors taking it more seriously and recognizing its merits,’ he explains. ‘It’s very much a commercial issue now and, when managed properly, it can de-risk an investment and have the potential to create or protect value.’
But what about the impact of ESG on IR? How can teams cope with this surge in investors’ interest? Tyrrell points out that by proactively absorbing ESG communications into their routine general IR responsibilities, teams can build their confidence and knowledge of the area, and then respond more efficiently and effectively to ESG-related questions.
‘IROs don’t have to be passive victims of investor interest in these subjects,’ he says. ‘The more control they take of the communications process, the more productive the experience will be for the company as a whole. Applying standard IR disciplines – such as investor analysis and targeting and communications programs – to sustainability and corporate governance issues means these can simply become one more issue on the IR agenda, not a total game-changer.’
Black observes that IR teams looking to implement successful ESG communications need to consider delivering the narrative, rather than solely focusing on performance facts and figures. ‘IR plays a critical role in the effective communication of a company’s ESG successes,’ he says. ‘Instead of simply looking at integrated reporting using KPIs and statistics, there’s a real opportunity for IR members to tell a powerful ESG story through the use of case studies that draw upon key facts and figures to support the narrative. By painting a picture of a company’s commitment to ESG and its positive impact, IROs can really add interest to the investment story and demonstrate the business benefits to investors.’
One very quick win is for companies to host an annual webcast presentation of their sustainability performance to which they invite analysts and investors. ‘This is a very simple, popular and cost-effective way of taking control of the communications process,’ observes Tyrrell. ‘It also saves companies weeks of questionnaire completion time.’