Intel and Nike use this investor engagement tactic most companies overlook
Many companies are missing a key opportunity to engage an overlooked and important stakeholder in sustainability: investors. As Morgan Stanley’s recent report, "Sustainable Value: Communicating ESG to the 21st Century Investor," highlights, "With investors increasingly taking note of ESG factors, companies that fail to communicate may miss benefits such as brand reputation, access to capital, and investor interest."
Growing demand from investors for more information on how companies address environmental, social and governance (ESG) issues drives a need for relevant corporate communications presented within a business framework. ESG information is increasingly incorporated by investors and research firms into assessments, tools and models that inform investing strategies and products. For example, Bloomberg terminals currently provide 700 ESG indicators and corporate disclosure rankings on 11,000 publicly listed companies.
To gain the maximum value from sustainability efforts, companies need to recognize and satisfy this investor interest. According to Morgan Stanley, "Companies are not disclosing information in a way that is useful for investors," so they often lose control over the narrative of their sustainability performance as investors turn to alternative sources. Investors use "noncorporate sources, such as regulatory reports, trade associations and publicly available customer feedback, in pursuit of what they consider unbiased, decision-useful information."
A proactive strategy to engage investors around your ESG performance protects and creates value for your firm. It provides opportunities to increase investor understanding of your company's actions and efforts. It also can help develop more positive relationships with investors, open lines of communication and increase goodwill. Participating in the conversation can protect your brand, reputation, access to capital, and diversify your investor base.
The best strategies include these steps.
1. Define and identify your audience
Identify which of your top shareholders assess ESG performance. Highlighting major shareholder interest in sustainability can drive internal buy-in for a related investor outreach plan. Understanding which shareholders look at which ESG issues and how they assess these factors also will help you lay a foundation for internal and external dialogue.
Major investment firms look closely at corporate ESG performance. Some 1,750 investors — including State Street Global Advisors, Vanguard, Goldman Sachs, Bank of America, Wellington Asset Management and BlackRock — committed to addressing ESG factors by signing on to the Principles for Responsible Investment (PRI). While head of North America for PRI, I saw a dramatic increase in investor interest either to begin or advance their adoption of ESG investing. Currently, PRI signatories represent a combined $70 trillion of assets under management, although not all have implemented ESG investing across all their assets.
2. Know your investors' approach
Does one of your top shareholders divest over ESG concerns? The Norwegian pension fund, the largest fund in the world at $958 billion, has divested holdings over human rights concerns, Dakota Access and coal mining. Understanding who may engage and the actions they may take — such as divestment review, letters, shareholder resolutions — will inform an effective outreach program.
3. Map out your investors’ interests
What environmental concerns are raised by investors for your industry? How do investors respond to actions by your peers? Undertake an assessment of the ESG topics of interest to your investors to understand potential concerns and effective responses.
Know which shareholders previously have engaged with your company and why. Expand past the top 20 shareholders to identify key sustainability issues. Small, active shareholders can raise ESG issues in a high-profile way within an industry.
Benchmark your efforts against those of your peers and leaders across industries. Morgan Stanley points to BASF, Campbell Soup, Intel, Marriot, Microsoft, Nike, and Unilever as "first mover companies that are already capitalizing on investor interest in ESG."
Starting an internal dialogue: Educate decision makers
Once you have information that demonstrates the scope, depth and breadth of investor interest in your sustainability performance you will be prepared to approach key internal allies for internal buy-in. To aid internal dialogue you will want to:
- Provide a narrative on how the suggested approach creates and protects value
- Cite credible third-party data and sources
- Partner with the corporate communications team to develop informative material
- If your company has a cross-functional group to assess sustainability inquiries, include investors as a stakeholder group and loop in representatives from investor relations, corporate secretary and corporate communications.
Rationale by corporate function
Morgan Stanley’s report identifies "three internal players — company leaders, investor relations teams and sustainability teams — [that] hold the key to successful investor ESG engagement that communicates and builds business value." The chart below lays out relevant motivations for proactive engagement with investors on ESG by these distinct corporate functions:
Engage. Be proactive, not reactive
Proactively engaging provides opportunities to share your story and insights and increase investor understanding of your actions and efforts.
Present your sustainability approach to investors in a process similar to earnings calls. Great Lakes Advisors, World Business Council for Sustainable Development (WBCSD) and Indelable are organizing a series of calls where individual companies share information with attending investors on their management of ESG risks and opportunities using a business value framework. These are a chance to provide a narrative to analysts, as well as to receive feedback from investors.
Public dialogues between companies and investors are rare. Prudential’s CSR team tackled a difficult conversation with investors in a transparent manner by participating in a "debate" with SASB as part of a daylong event, Accelerating Innovation in ESG Investing, organized by Bloomberg’s Head of Sustainable Finance and myself on behalf of the Intentional Endowments Network. Investors said they appreciated hearing Prudential’s perspective on the challenges and reporting fatigue as a leader in disclosure. Companies do not have to do something that bold, but even small steps can begin to bridge this gap.
Find opportunities to tell your story, to share with investors where you see potential value creation and the steps you are taking to address these areas and explain your long-term goals and strategies. From 2009 to 2011, Total organized CSR forums at their investor days to discuss efforts on sustainability risk management, policies and performance.
Learn to speak the language of investors
Shareholders want to understand:
- ESG risks and opportunities facing companies
- How they are being managed
- How the company’s sustainability initiatives create corporate value
- How social, environmental and governance issues can affect short-term and long-term business operations and ultimately the value of a corporation and potential investment returns.
The bottom line is that companies need to discuss how their ESG actions influence corporate value creation. This typically requires a different communications framework than the company CSR report. Consider creating a separate smaller, more focused report targeted to investors.
Formulate a plan to prevent future concerns from investors
As investor interest in ESG continues to grow, open lines of dialogue about your efforts. Establish a communication plan that reflects investors’ interests and identifies specific engagement opportunities. Establish a clear and defined process for how investor ESG requests are handled. To ensure investor requests are sent to the correct people through the right channels, plan the process before you receive an inquiry.
A successful ESG strategy for investors requires an upfront investment. Given the potential dividends, a growing number of companies are showing they believe their investment is worth it.