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Insights 13 Oct 2016

The Full Picture: Investor Relations Meet Sustainability

By Rebecca O'Neill

investor-relations

The communication gap between Investor Relations and sustainability departments is leaving investors without a full picture of corporate performance and unable to fully integrate environmental, social and governance factors into decision-making.

Companies have been working to meet investors’ needs for as long as there have been shareholders. The relationship is complex and increasingly so due to the growing interest in sustainability.

Socially responsible investors (SRIs) are not a new phenomenon – negative screens of tobacco and weapons have been around for decades. But investors are becoming increasingly savvy at integrating environmental, social and governance (ESG) factors into investment decision-making.

The growth of investor interest is making many companies start to pay serious attention to requests for ESG information.

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The level of investor interest has grown to a threshold that is making many companies start to pay serious attention to requests for ESG information. This chart from Bloomberg demonstrates the growth of demand for this kind of data since 2009.

Investors have also increased their sophistication in analysing the issues. Investors recognise that a company’s strategy and performance on their material ESG issues makes a financial difference. Yet on the whole, companies are not currently meeting investor expectations on ESG, as this PwC report highlights.

This increased demand for ESG data presents a communication challenge for companies. What exact information do investors want? Does the company have that information available – if not, how can they get it? How can they ensure that investors know what the company is doing on ESG?

Investor Relations meets Sustainability

Investor Relations (IR) departments are the traditional point of call for investors seeking information. IR professionals are well versed in their corporate strategy and finances. However, for more issue-specific information, they often turn to other departments to answer questions.

Sustainability teams are being increasingly called upon to help with ESG information. In a SRI-Connect and Extel 2015 survey it was found that in 28% of companies, sustainability departments were responsible for communicating to SRIs. Some investors even go straight to the sustainability contact and bypass IR completely due to an existing relationship or perhaps because they perceive it to be the more efficient way to access the data.

In 23% of companies there is now a shared responsibility for SRI communications.

Who Runs the Process (SRI)

Question: Who runs SRI communications for your company. Source: SRI Connect

Question: Who runs SRI communications for your company. Source: SRI Connect

There are a number of channels between investors and companies, from questionnaires to dedicated calls and analyst days. Ultimately the two teams rely on each other in order to communicate to those investors that use the ESG information. Sustainability professionals have the deep knowledge of how the company is addressing its material sustainability issues. IR professionals have the financial expertise and the finger on the pulse of their company’s investors’ expectations. The responsibilities are blurred as investors are a key stakeholder and user of company information.

Engaging Stakeholders Network Research

Our latest research is aiming to better understand the current state of engagement between IR and sustainability teams and what can be done to improve that dynamic so that companies can better communicate to investors on their material ESG issues.

We have carried out desk research and spoken to many different stakeholders in sustainability and IR teams, as well as investors and other experts.

The degree of collaboration between the two teams varies hugely across different companies based on a large number of factors such as geography, sector and company culture.

What we have heard is that there is still a gap between the two teams and, as a result, a lack of integration of ESG issues into investor communications.

Understanding the reasons for the gap is helping us to identify some solutions and best practices that companies can apply to enable more integrated and proactive communications. The project is part of our Engaging Stakeholders Network programme and we plan to launch the research findings at our Fall workshops in the US and Europe.

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