Research commissioned by Aviva Investors last year took a much-needed look at why sell-side analysts tend to focus on the short term and don’t integrate material non-financial issues into their research. The study exhorted companies to “proactively articulate their integrated long-term strategy for value creation, including the risks and opportunities presented by broader, non-financial factors”.
How can investor relations professionals take up this call to action? This was the question we were asked to discuss with the Italian Investor Relations Association last week in Milan. Here’s a summary of the four points we put to the gathering, which included a range of companies from blue-chip to small cap and at various stages in their sustainability journey.
Help to define materiality
Too often, materiality assessments involve only internal stakeholders. A recent study suggests that 43% of Italy’s leading companies has no external engagement in their materiality process (and even 7% admit to not engaging any stakeholders whatsoever).
For us, the external perspective has been fundamental for guiding company choices in various sustainability projects.
The IR function has an opportunity here because it’s one of the few parts of the business in regular, direct contact with a stakeholder category. Whether your company is actively reviewing its materiality or not, the IR team should conduct its own “intelligence” by sounding out analysts and investors with regards to the topics that are relevant from their point of view. In all likelihood, they will take a sectorial view and there may be research already conducted that helps build that picture. A formal engagement process is the opportunity to obtain structured input from your investor base.
This should put you in a position to talk about topics and issues (and what you do to tackle the most important ones) rather than about sustainability or ESG as a vague and undifferentiated concept.
Integrate sustainability into investor info
Despite all the reports about mainstream investors taking up the ESG agenda, the investor relations area of corporate websites are reluctant to touch on these themes.
In our latest CSR Online Awards study, almost all Europe’s top 100 companies broach sustainability topics in the “About us” part of the website and in relation to “Careers”. In IR, however, a quarter of companies make no reference to non-financial topics and 27% limit themselves to presenting the sustainability report (or linking to it). A token effort.
Have a message, not just disclosure
Good disclosure is fundamental, but to reach the next level and distinguish yourself, you need a joined-up story about how sustainability fits into the broader investor proposition and corporate strategy. It’s amazing how many people make the mistake of assuming good reporting is sufficient for good communications.
Of course, this messaging shouldn’t be limited to IR-owned channels: of the companies talking about sustainability in the “About us” area of the website, we found half do so when presenting the business strategy. This is precisely where to articulate the strategic value of non-financial topics to the long-term vision.
Moreover, in a Mifid II world, IR teams will need to rely more on the website to get their story out to a wider investor audience as the role of equity research shrivels.
For inspiration, you could look at the companies that emerge as perennial sustainability leaders in the GlobeScan/SustainAbility Leaders Survey (the 2018 edition is just out) or look at our work with Zurich Insurance Group and Terna.
Engage the responsible investor community
It’s encouraging to see a survey this month showing that 32% of top Italian companies have organised roadshows with responsible investors and another 11% intending to start in 2018. Anecdotal evidence tells us that there is a growing trend to take sustainability to investors rather than stay at home and fill out questionnaires.
This is in line with the advice Mike Tyrrell at SRI-Connect has been giving for years. The network of 5,000 SRI professionals that he has convened is a great source for any IR professional needing to get inspiration on ESG communications. For starters, go to the Independent Research in Responsible Investment Survey 2017 (by SRI-Connect and Extel), in particular its ranking of top Company communicators as voted by market participants, and this helpful interview with the heads of IR and sustainability at Stora Enso.