The influence of ESG on investing is undeniable, with the acronym itself dominating headlines on a daily basis. Today, an impressive 89 percent of investors consider ESG factors in their investment decisions, reflecting a growing trend of conscious investors.
Yet, the term has become somewhat of a buzzword. BlackRock’s Larry Fink has even reportedly stopped using the term ESG for fear that it has become too political. However, to shy away from ESG would be a mistake. And, to truly make a positive impact in this domain, it is imperative to heed the voices of investors.
Get the basics in place first
Before engaging your investors in the complex landscape of ESG, it is crucial to get your ducks in a row. Failing to have a robust strategy in place can quickly lead to challenging situations with stakeholders. Start by securing commitment to ESG at all levels within your company. Then, assess your current state in terms of ESG practices and performance. Set clear and actionable ESG goals that align with your overall business objectives. Finally, choose an appropriate ESG framework that best suits your organisation's needs.
By following these basic steps, you can lay the groundwork for a successful ESG journey with investors.
Pulling up a chair for your investors
This year’s AGM season saw a number of meetings hitting the headlines due to shareholder discontent over inaction around ESG. All this goes to show that stakeholders are no longer simply making investments for financial gain. A new breed of responsible investor has arrived, one who is increasingly advocating for stricter ESG standards and isn't afraid to hold companies to account.
In fact, our research shows the top reasons for attending an AGM are to ask questions of the board about how the company they own is run (43 percent), followed by making their voice heard on issues they are passionate about (42 percent). Just 29 percent want to influence dividends, showing financial gain is less important than influencing governance.
That’s why it’s so important for businesses to make space for debate at important meetings like AGMs. This is a chance for businesses to open the floor, communicate progress and address any concerns. Moreover, engaging with investors on ESG matters can help companies anticipate regulatory changes and proactively address potential compliance issues. As AGM season comes to a close, businesses should already be reflecting and planning how they will showcase their ESG progress at next year’s meeting.
Another important consideration to open up discussion is using hybrid meeting formats. Well-conducted hybrid meetings enable stakeholders to express opinions, ask questions, and provide valuable feedback on the company's ESG approach, regardless of their location or whether they attend in-person.
Moving beyond the AGM
Whilst the AGM is the most important shareholder meeting of the year, it’s essential to offer investors multiple opportunities to express their views. Different investors have varying priorities and expectations regarding ESG. Some focus on specific environmental issues, such as climate change and carbon emissions, while others prioritise social aspects like labour practices and diversity. And, as shareholders now have questions all year round and companies must invest in IR events to meet this demand. These events provide regular touchpoints for discussions on ESG and other topics that are top of mind for investors. This ensures any concerns around ESG aren’t left to fester.
ESG reporting throughout the year: Striking the balance
Consistent ESG reporting all year round is also paramount. It also gives your business a competitive advantage. Investors today want to be part of responsible businesses and effective reporting attracts more shareholders, leading to not only credibility but also profitability.
It can be tempting to downplay your company's environmental commitments for fear of backlash, a practice known as 'green-hushing.' However, it’s better to be transparent about the progress that still needs to be made rather than brushing it under the carpet. Over-emphasizing goals that haven't been achieved yet or ignoring challenges can also undermine trust. The key is to provide clear and transparent reporting that showcases both progress and areas for improvement. Surprisingly, many companies still rely on paper communications with investors, this cannot be the case in the digital age and fails to address the urgency of ESG.
To succeed with effective ESG reporting, it’s also important to recognise that different investors have varying priorities and expectations. Some care about environmental issues, such as climate change and carbon emissions, while others prioritise social aspects like labour practices and diversity. Understanding the preferences of investors is crucial in tailoring ESG initiatives to meet their interests.
The reality is effective ESG practices are good for business and can lead to long-term success. Companies that tackle environmental and social challenges while maintaining strong governance are more likely to be sustainable and resilient amidst market volatility and changing regulations. So, if you master the basics, be transparent with shareholders and conquer the ESG maze, you’ll thrive as a result.
Sylvie Harton is chief business strategy officer at Lumi Global