Think about what your business looks like in a polycrisis
Sectors and geographical locations will be among the factors that impact different IROs. But stubborn inflation, supply-chain disruption, digitization and climate change linked to sustainability impacts everyone. IROs should be focused on developing their digital transition strategy for their company, including artificial intelligence (AI), because the board will ask them for it, and what can be done to renewably electrify, digitize and work sustainability. The economy will be turbulent but IROs control what they can.
Tips for IROs when engaging stakeholders
It’s not a one-size fits all but understanding who your stakeholder groups are is key. From board directors to analysts and shareholders, understand the uncertainties and pressures each group faces. Link their vulnerabilities and apprehensions and address them. IROs should speak to all groups, not just external shareholders. Bring the discussion internally and make it relevant. Manage expectations internally.
It’s important to continue to communicate and be transparent within reason as well as honest about the challenges companies are facing despite market volatility. Your external stakeholders are facing the same uncertainty so if you cut off communication it’s even more difficult for them to understand what is going on. The economy will return to normal and it’s important to play to your competitive advantage and position yourself strongly and strategically in the meantime.
Manage expectations when communicating internally
There is a rise in the number of companies requesting investor perception studies. Target investors that will be interested in your equity case. Cover your bases with your major shareholders and keep them well informed: they are with you for the long term.
ESG oversight and activism prevention
Traditional value-based activism and ESG activism exists today. With ESG activism, shareholders launch resolutions on improving climate strategy and governance. Between 2016 and 2021, activism increased by 20 percent. It slowed during the pandemic but is now on the rise again. That rise is due to increased recognition by widening groups of investors that it is a value-creator or a value-loser. The Covid-19 pandemic exacerbated a lot of social issues.
There are key elements: build a strong track record for your company and have a strong story about ESG elements. Know your register, understand whether you have potential activists in your base and whether they are creeping up. Know your rules in different jurisdictions as activists are local. Identify and engage your shareholders, build strong trusting relationships so if the share price drops, you’ll be aware of it and can reassure before activism sets in.
How to incentivize short-tenure executives to embrace long-term ESG goals remains a challenge but large institutional investors now understand that non-compliance with ESG costs money so the financial case is there to be reaffirmed to the C-suite.
ESG fatigue is already being felt with so much ‘back work’ required to meet requirements
There is a balance to be struck in being compliant while maintaining your sustainability strategy. It’s an important issue not just for investors but also for all stakeholders so coherence is key. Think about different ways of communicating beyond annual reports and quarterly updates. Consider an annual ESG capital markets day to provide in-depth examination of what targets are being achieved, what work remains and how the company is approaching those targets. Condense information and make it accessible.
There is no one clear ESG trend for everyone to follow but language is moving away from hyperbole and marketing to what is achievable. ‘Companies are about making money but we want to do it sustainably and responsibly,’ delegates were told. Others say we’re on a ‘journey’ toward using green technology, for instance, so firms want to start talking about sustainability now to set the scene for later. The challenge is to take stakeholders on that journey so when green tech becomes a major part of the portfolio, it’s not a surprise to anyone because ‘investors don’t like surprises.’ Other companies are shoehorning ‘sustainability’ into their corporate strategy.
Rethink retail investors
Retail investors are more sophisticated and longer term in thinking so it’s important to maintain communication with the whole register. It’s very easy for companies to ignore that cohort of capital. The hard part is translating the investment case into language the retail investor understands but everyone around the boardroom table and institutional investors will appreciate that messaging, too. The retail piece needs to attach to a much larger institutional agenda.
Shareholder engagement and re-engagement in a hybrid world
There is clear return to capital market days in person but while embracing technology to allow online participation. IROs are evaluating what they want to get out of their year, their objectives and which formats meet those objectives. Recording and distributing videos of interviews with the CEO before meetings is one strategy that has proven popular with investors and also executives, who get to record more than one take if necessary.
Technology is improving, enabling more polished sessions – but how tech-enabled the venue is should not be overlooked. Virtual meetings diminish the firm’s carbon footprint from flying corporates out or investors in; ESG concerns and ‘practicing what you preach’ is becoming more top of mind. Talk to your investors: what engagement do they want? Offer the ‘optionality’ of in person, hybrid or virtual.
IROs should try different service providers and know what is available. IROs can visualize how your strategy will work. Find a service provider that can take the hard work off your shoulders.
Elevate the role of IR in companies
IR is the function that can support and enable top executives. The pressure from the board is on the CEO so it important to have that relationship with the IR professional. IROs should think strategically, like an activist and an entrepreneur – would you put your money in your stock? Be that trusted adviser to management.
The IR Magazine Think Tank – West Coast, exclusively for heads of IR, will be held in San Francisco, California on September 26. Click here for details and to request your invitation.