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Nov 22, 2019

From trend to action: Highlights from the ESG Integration Forum – Europe

IR and governance professionals met in London to learn how best to respond to growing interest in ESG

With investor attention on ESG issues at an all-time high, IR Magazine and sister online publication Corporate Secretary recently brought together all sides of the investment world for the ESG Integration Forum – Europe.

Held in London, the forum offered governance and investor relations professionals the chance to get up to speed on how the buy side, sell side and ratings agencies are incorporating ESG issues into their work.

It also provided advice and case studies for listed companies to help them respond to the growing demand for information on ESG topics, such as climate change and board diversity. 

Mike Tyrrell, editor of SRI-CONNECT, kicked off the day’s proceedings. ‘We are going to try to move from trends to action, that’s the theme. And in actual fact it’s not going to be that hard,’ he said.

For Tyrrell, there are only a few things that should hold IR teams back. ‘You have to stay focused on: what does this mean for my company? What do I have to do tomorrow? What do I have to do in the next reporting cycle? So for all the exciting stuff, those three questions, keep them in your mind,’ he said.

He then outlined the views of the investment community on ESG issues, basing his comments on the Independent Research in Responsible Investment Survey, which this year polled more than 950 people from listed companies, the buy side and the sell side. 

‘What do investors want?’ Tyrell asked. ‘The standout piece here is that they are concerned about the Task Force on Climate-related Financial Disclosure, the UN Sustainable Development Goals (SDGs) and Climate Action 100+. 

‘We also asked investors: how important is direct communication with companies in your sustainable investment and corporate governance research? And 32 percent said it’s a top priority, 38 percent said it’s an important part of [the] research process, and only 8 percent don’t really want to hear from you very much.’

In the following session, speakers from three investment firms – Osmosis Investment Management, Allianz Global Investors and M&G Investments – discussed the main ESG trends affecting their decision-making and engagement with companies.

Gaia Mazzucchelli, ESG research analyst at Allianz Global Investors, which has more than €500 bn ($545 bn) in assets under management, said her firm takes three different approaches to ESG integration. 

The first is a risk-based approach, in which Allianz tries to understand whether ESG concerns will become material to the business. The second focuses on selecting the best ESG performers and using that knowledge to help build portfolios. And the third is impact investing, where investments are made with the aim of generating a positive sustainability result alongside financial returns. 

‘If we consider all these different strategies that we integrate, more than 30 percent of our assets under management are ESG-integrated or have a sustainability approach. And our goal is to become 100 percent, fully integrated,’ said Mazzucchelli.

After a refreshment break, the focus turned to listed companies: speakers from Total and RBS explained how they are responding to investor demands for more ESG information. They were joined on the panel by Stephen James, head of corporate business for Europe at ISS Corporate Solutions.

‘The number one concern for Total and also for our investors is climate change,’ said Aurore Bardon, CSR investor relations manager at Total. ‘We do not have a climate strategy – we integrate climate into our strategy, and for us it makes a big difference. Our strategy is built around four key pillars and those pillars are taking into account anticipated market trends from the 2ºC scenario of the [International Energy Agency].’

Looking to the future, James said there are a couple of ESG issues for companies to watch out for. ‘One is the idea of ESG coming into the boardroom, whether the boardroom wants it to or not,’ he said. ‘For organizations, whether they think they are in the firing line, or they think they are somehow ducking the ESG issue, investors are taking matters into their own hands [and] may start to vote against members of the board in the event that climate is not being addressed in a way they feel is reasonable.

‘I think the other point to make, given that we engage and support so many different companies and we get this broader perspective, is the number of companies that are seeking to bring ESG drivers into the performance-award design process for CEO pay. If you want to weave ESG into the fabric of your business, then incentivize your CEO, and so we see this.’

Other sessions during the day focused on climate change reporting, selecting the most material issues for your business, and corporate governance – the latter featuring a fireside chat with Olivia Dickson, a board member at the UK’s Financial Reporting Council.

‘I would be really clear about… what it means in 2019 to be a responsible business,’ she advised. ‘How do you think about being a responsible business? Get that narrative straight in your head. Think about the data you have, and pluck out of it responsible business data. 

‘And be able to speak to the material impacts of your company, positive and negative, on the SDGs – not everything, but three or four of your most important impacts on the environment and society, and have a narrative and be able to talk to that. Make sure it’s consistent with your brand, your business model, your strategy and your purpose.’

Tyrrell returned at the end of the day to answer questions and deliver some takeaway advice for the companies in attendance. He reminded the audience about the key things they needed to do to get to grips with the growing investor interest in ESG. ‘You need to understand the SRI landscape, know your investors, shape your messages and communicate proactively,’ he said.

To conclude the forum, audience members voted on which actions were at the top of their to-do list to improve their ESG practices. The following options were the most popular:

  • Contact the ESG and stewardship teams at your top 20 shareholders and arrange a meeting to discuss ESG related risks
  • Survey your shareholders to understand their preferred ESG reporting frameworks and data sources
  • Conduct an analysis of ESG disclosure by peer companies
  • Assess investors’ data demands and conduct a gap analysis with your company’s data supply
  • Develop a suite of key messages and articulate it in presentation format.