ESG/Sustainability Investors Should Engage Directly with Company Executives
Wednesday, September 22, 2010
POSTED BY D. N. Aust
Guest Post by Pamela Styles, Principal, Next Level Investor Relations LLC
Investors and company executives should be concerned about the lack of time and attention investor relations officers (IROs) feel they have available to understand the constructive and rapidly evolving investor attention to ESG (environmental & energy, social issues and corporate governance)/Sustainability factors in investment decisions, especially given estimates of related global managed assets that range from $18 to $27 trillion (see Rigorous Thinking or UN Principles for Responsible Investing reports.)
Thoughtful assessments in two recent Rigorous Thinking postings do not overtly speak to the investor relations dimension, but provide good background. See American Angst, by Professor Bob Aliber and The Shareholder Value Case for Corporate Responsibility, by Aust/Allen. In American Angst, Professor Aliber stopped short of mentioning regulatory/legislative “reforms” in his economics-based commentary including the observation “There is a lot of chatter that President Obama’s stimulus hasn’t worked.” Without debating whether the wave of reforms related to stimulus efforts and attempts to “fix the system” will be effective, or will simply serve as window dressing to appease constituents, rapid reforms efforts are taking valuable time of public company executive teams, including investor relations.
Contributing factors to overcome in order for IROs to prioritize time and attention toward ESG/Sustainability related communications likely include:
- Thirty years, or so, of “activist” and “gadfly” haranguing of publicly traded companies in the name of SRI (Socially Responsible Investors) – also referred to as CSR (Corporate Social Responsibility) – has left IR and other executive management skeptical and jaded.
- Regulatory and reporting “reform” initiatives, and other efforts to augment additional non-financial reporting requirements, have significant practical implications for company management. The amount of time spent looking in the “rear view mirror” to expand disclosure on what has already happened may arguably be getting (or already is) unproductively disproportionate.
- Institutional investors who may think they are asking companies their ESG/Sustainability related questions, but may mostly be relying on other third party ESG-focused organizations, such as ESG-focused stock indexes, ratings and collaborative groups, to aggregate the information for them. This may be the cause for why many IROs with whom I speak about ESG literally say, “…investors are not asking, so ESG can’t be that important or worth my time…” The most memorable comment to-date, “…I have too much wood to chop before I’ll ever get to ESG…”, which came from an IR colleague at a $20bn company.
- The classic way third party ESG-focused organizations obtain company information through the practice of sending out overwhelming volumes of questionnaires, which land most often (directly or indirectly) with the company IR departments. The questionnaires are so detailed and specific that the vast proportion are set-aside or immediately discarded. There is also the tension between public companies and investors and politicians/regulators regarding other massive/broad new information requests. Not only may companies lack comparable and consistent information tracking across the company, the information may be considered competitively sensitive. Retrofitting information systems and communications is very time consuming and doesn’t happen “over night.”
Corporations and investor relations are simply overwhelmed. It is truly unclear as to whether the current regulatory/legislative “reforms” will actually protect shareholders and the U.S. economy from future crises and “fix the system”, or just cause costly distraction.
Productive efforts and intent by institutional investors to focus on ESG/Sustainability information in investment decisions are being frustrated by all of the above. I encourage investors to simply pick up the telephone and start engaging company IR and C-suite executives in direct ESG/Sustainability related conversation – stay focused on your few key concerns specific to each company/sector. Make it very clear that your firm looks seriously at ESG/Sustainability factors in investment decision criterion, if in fact true. Engagement in constructive dialogue is likely the best way to help corporate executives focus on the critical bits of new specific information investors need. Engagement should also help them appreciate that the new generation of ESG/Sustainability investor is now simply mainstream and conscientious in its due diligence efforts towards long-term investment.