The following post was written by Jane Madden, Managing Director, U.S. Corporate Responsibility, and Elizabeth Woodworth, Manager, U.S. Healthcare Practice.
In 2016, Burson-Marsteller’s Corporate Responsibility Practice, together with our sister firm PSB, published the research report, “Is Your ESG Report Getting Noticed by Investors?” which found that institutional investors say a company with strong ESG (Environmental, Social and Governance, the three main factors that measure the sustainability and ethical impact of a business) initiatives is a more attractive investment.
At last week’s Bloomberg Sustainable Business Summit in New York City, we found that investors were the topic of discussion. We heard from leaders that more institutional investors are now thinking of ESG less as a separate investment evaluation input and more as data that provides additional insights into to how businesses operate and their growth trajectory. In fact, ESG is being viewed more closely in line with traditional financial data than ever before.
The theme of the summit was “Sustainability is Good Business,” a sentiment held by many in the business community. In fact, Burson-Marsteller and PSB’s research found that 77 percent of surveyed investors say building ESG initiatives into a company’s business model – the associated costs, risks and benefits of these issues – is a smart business decision. But surprisingly, leaders across various sectors noted there are gaps that hamper investors’ understanding of the value ESG initiatives bring to the business. As Morgan Stanley’s Chief Marketing Officer and Chief Sustainability Officer Audrey Choi noted, “There’s an epidemic of silent interest in ESG among investors.” So, why is the interest silent?
Three themes we identified throughout the two-day summit are, in our view, important in understanding how investors are thinking about sustainability and where the communications opportunities are to improve the dialogue between businesses and their shareholders.
1) Speaking the Same Language: While consumers now demand more “sustainability” efforts from companies, investors as a broader group do not yet speak the language of sustainability. There is a lot of room to improve communications around how ESG is related to financial performance. A more open and proactive dialogue with investors is critical to clarifying that many of the issues they are already thinking about –the cost of carbon, to board diversity. human rights issues – are also sustainability issues, they just aren’t using the same terminology as the Chief Sustainability Officer. In addition, using the right financial vocabulary helps investors understand material ESG data, risks and opportunities.
2) Combine Short and Long-Term Outlooks: Aligning the short and long-term views of standard financial and ESG reporting by coordinating Investor Relations and Sustainability departments is another key theme. While investors and IR teams usually think quarter to quarter and by fiscal year, sustainability and ESG operate on longer timelines. If you are lucky, as Jay Gould, President & CEO of Interface said, you have a board of directors who thinks on a 20-30-year timeline. But both short-term financial performance and longer-term sustainability should be communicated to investors in parallel to illustrate healthy performance, identify opportunities that lead to innovation and note risks that can be mitigated. Sustainability leaders ranging from Dave Stangis, VP-Corporate Responsibly and Chief Sustainability Office of the Campbell Soup Company to JetBlue’s President and CEO Robin Hayes spoke about a greater need to coordinate Investor Relations and Sustainability teams to align the short and long-term nature of these analyses, which can then improve value reporting to shareholders and other stakeholders.
3) Engage to Control Your Message: As Ingrid Dyott, Managing Director at Neuberger Berman noted, ESG are business issues, which are issues investors should care about. But ESG is still a subtle concept for many, so you need to get ahead of your communications before someone else does it for you. From an institutional perspective, look closely at who is behind the investment. Dyott noted, for example, that pension funds are a bourgeoning area for ESG investing because teachers, firefighters and police officers inherently care about sustainability issues and the impact of their investments. And now with a growing Millennial population making investments (by 2025 they will make up 75 percent of the workforce and are two times as likely to back an investment product that aligns with their values, says Morgan Stanley’s Audrey Choi), asset managers should be thinking of these investments not only according to financial risk and reward – but also impact, and what the nature of that impact is. These investor groups have certain expectations and asset managers and IR teams should insert their POV into the narrative before investors do it for you.
There is a rapidly growing consensus that sustainability is good business and drives innovation. Now the opportunity is to further integrate investor relations, sustainability planning and ESG into standard financial reporting and cohesive investor communications. Doing so can help clarify the material and non-material value of these initiatives in the language your investors speak and illustrate the trend that purpose and performance are increasingly one in the same.