IR teams have a crucial role to play in ensuring ESG disclosures are company-specific, relevant to investors and don’t fall into the trap of using boilerplate language, according to a new NIRI policy statement.
IR professionals should be educating themselves about the types of ESG information investors want and partnering with internal stakeholders to ensure it gets delivered.
‘NIRI encourages IR professionals to work closely with their company’s legal counsel and internal business partners to develop a consistent approach for ESG information that will be disclosed and how that data should be verified before release,’ the policy statement reads.
‘For instance, IR professionals should reach out to their company’s sustainability/ESG team (if one exists), government affairs, communications, supply chain management, human resources and any other business partners that track or maintain ESG data to fully understand how that data is collected and how it should be communicated to investors and other stakeholders.’
The statement goes on to say that IR professionals should work especially closely with in-house legal teams, to discourage them from using boilerplate language. ESG disclosures should be performance-based and company-specific and should enable investors to compare peer companies’ progress, the statement suggests.
The policy statement, which was signed off by the NIRI board this month, also advocates for an issuer-led approach to ESG disclosures.
Under Directive 2014/95/EU, European law dictates that companies with more than 500 employees must report on select environmental and social issues – including environmental protections, treatment of employees, respect for human rights and diversity on company boards. The EU estimates that more than 6,000 companies must comply with this directive, according to its website.
NIRI suggests that this would not be the correct approach in the US. ‘While some investors have urged the SEC to adopt new disclosure mandates on climate change, human capital concerns and other public policy matters that may not be material for all companies and their investors, NIRI believes regulators should proceed cautiously before adding to corporate disclosure burdens,’ the statement says.
‘It is better to wait and assess how companies respond voluntarily to investor requests on emerging disclosure issues before mandating new disclosures that may get buried in lengthy SEC filings.’
The policy also suggests that by enhancing ESG disclosures, IR professionals could effectively shift the narrative toward a more long-term focused view. ‘ESG disclosures may provide an opening for IR professionals and corporate executives to shift the focus away from quarterly earnings toward more thoughtful discussions about long-term strategy,’ the policy states. ‘They should find a more receptive audience among the company’s longer-term investors, especially the growing number of passively managed index funds.’
This is consistent with NIRI’s updated policy statement on quarterly earnings guidance, released in June 2018, which suggests that quarterly guidance can drive short-term pressures.
The new policy statement on ESG disclosures notes that this is an area of growing importance for investors, and will therefore be regularly revisited by the NIRI board.