Meeting Investor Demand for Corporate Sustainability Disclosures

As companies prep for investor meetings this winter and annual meetings in the spring, I thought it was timely to tackle the topic of rising investor interest in corporate responsibility.  

 During the past six months at SustainabilityNext we’ve noticed a sharp increase in inquiries about our sustainability reporting services from “first time reporters”. These inquiries appear to be driven, at least in part, by more focused attention on environmental, social and governance (ESG) issues from the investor community.   

 The trend towards sustainable and responsible investing is not new, but interest in it is ramping up. According to The Forum for Sustainable and Responsible Investment (USSIF), sustainable, responsible and impact (SRI) investing grew 36% from 2016 to 2018, accounting for over $12 trillion in assets and 26% of assets under professional management in the U.S.   

 More than one prospective client has mentioned the 2018 letter to CEOs penned by BlackRock’s Larry Fink which caught the world’s attention when he wrote that companies must positively contribute to society and create long-term value instead of focusing on short-term returns which may negatively affect stakeholders. As the world’s largest asset manager (BlackRock manages $1.7 trillion in active funds), this statement was difficult to ignore.

 Importantly, mainstream investor research and rating agencies have incorporated ESG factors into their methodologies. MSCI’s ESG Research platform is used by 46 of the top 50 asset managers globally.  Institutional Shareholder Services, Inc. (ISS) announced in early 2018 the launch of an ESG scorecard for institutional investors.  Several SustainabilityNext clients have already received their scores from ISS, which bases its ratings on publicly available information about a company’s ESG approach.

 So, what do you do if you are a publicly traded company (or soon planning to be) and are concerned about ESG ratings? How do you start the process of evaluating your ESG performance and addressing disclosures if you do not currently have a corporate social responsibility (CSR) program or sustainability report?

While the task might seem overwhelming, you can start by breaking it down into five simple steps.

 Step 1: Start with where you are.  Take stock of what your organization is already doing related to ESG.  Many companies come to us saying they want to get better scores from the rating agencies, but they don’t know where to start. The reality is most companies are already engaged in activities or have ESG policies that investors care about, but they have not communicated these publicly. Rating agency scoring tools can be a helpful guide in what to start looking for, though we caution against using the scores as a foundation for developing CSR strategy. A “check list” approach will not reflect your company’s unique value proposition.

 Step 2: Benchmark against competitors and peers. Investors want only the most relevant information related to risks and opportunities for your business, not a laundry list of all the things you could possibly say about sustainability. Conduct research to understand what the most material topics are for your business to address.  Good information can be garnered from peers in your industry who are ahead of the sustainability curve. 

 Step 3: Identify gaps.  Where do you believe you are falling short, based on your company’s values, and unique business model?  Where are you lacking data to understand how you are doing in key CSR areas like energy use or employee health and safety? Survey or talk to your stakeholders to find out what sustainability issues they think are most important for your business to address and compare this information to what you are already doing. These are areas to focus more attention and resources.

 Step 4: Seize opportunities to improve or transform. Meeting investor expectations is about more than a slick marketing piece that looks good on the company website. As rating agencies and investors become more sophisticated around their evaluations of ESG factors, they are looking under the covers and behind doors to find out how deeply companies are committed to strategic ESG performance. A holistic CSR strategy that leverages opportunities to create competitive advantage and addresses emerging risks will give investors confidence the company is headed in the right direction and effectively monitoring trends.

 Step 5: Create a plan to communicate your ESG initiatives and efforts. The biggest challenge for many of our clients is creating communications that are authentic and engaging and don’t fall in the “greenwashing” category. Even the companies with the most sophisticated CSR programs often fall short when it comes to effectively communicating their sustainability goals and initiatives.  Take the time to consider the various audiences, what level of ESG information they need, and which format works best for them. Options include CDP reports, GRI-based CSR reports, website summaries, investor decks, social media, and other communication tools that reach the target audience in the right way.

To sum up, it’s clear that investors are demanding more transparent and robust ESG disclosures from companies, and businesses benefit from developing holistic strategies that underpin enhanced communications about their corporate responsibility initiatives.

At SustainabilityNext, we can help you with any or all of the steps outlined above.  We have experience with CSR audits and gap analysis, peer benchmarking and research, facilitating stakeholder engagement, and developing CSR strategy and effective communication plans.  We want to partner with you to enhance your company’s attractiveness to investors and support your goals related to environmental and social impact.  Click here to contact us and find out how we can work together.