IR’s stake in ESG has grown meaningfully, with nearly 40 percent of IR professionals now having ESG as part of their remit, according to Nasdaq’s third annual Global IR Pulse Survey, to which more than 700 IR professionals responded globally. This level of focus by IR teams can be attributed to a number of factors, but it would be hard to ignore the increased attention by investors as one of the main drivers. Asset owners, retail investors and other allocators of capital have increased their focus on including ESG in the capital allocation process.
As a consequence, we’ve seen an explosion of asset managers launching ESG strategies to meet this demand. ESG-dedicated funds and ETFs now command $2.9 tn in assets under management1. More impressive is the growth in ESG-dedicated funds and ETFs. Globally, there are now 5,808 ESG-dedicated funds and ETFs, compared with 4,061 ESG-dedicated funds and ETFs as of Q4 2019 – a 43 percent increase in less than two and half years2.
Engaging ESG capital: One size does not fit all Not all ESG-dedicated capital is created equal and the variance between ESG strategies has brought greater confusion for IR teams looking to engage ESG investors. ESG strategies can range from including ESG topics in the investment process (ESG integration) to ESG topics being the dominant factor in the investment process, such as impact investing, or only investing in firms that positively impact society or the environment.
While ESG integration still captures the majority of ESG-dedicated strategies, impact and thematic ESG funds are growing in popularity. Since Q4 2019, the number of impact and thematic ESG funds and ETFs has grown 116 percent, compared with ESG integrated fund and ETF growth of 34 percent3. Some believe impact and thematic ESG funds and ETFs are the fastest-growing portions of the asset management industry.
Engaging investors on ESG topics requires a mix of engagement strategies As investors increasingly include ESG topics in their investment processes, it has changed the calculus by which IR teams prepare for investor conversations. From retaining top holders to building relationships with new investors, the engagement strategies vary based on the investor's level of ESG focus.
In conversations with an investment professional at an ESG integration fund, ESG questions may be limited as the ESG work may have been done ahead of the meeting using in-house experts or ratings agency data. If an IR team engages an impact fund, the questions will be largely ESG-led and tend to be deeply technical. This range in strategies forces IR teams to include new corporate participants in investor conversations, especially in ESG-led conversations.
We’ve seen these trends play out in Nasdaq’s proprietary investor meetings data, whereby we anonymize, aggregate and analyze 7.5 mn investor meetings from the last 10 years. When analyzing the data, we found that the volume of corporate participants in sustainability and ESG roles attending investor meetings jumped 39 percent between 2020 and 20214.
We suspect that with the broadening of ESG and sustainability as a senior leadership function within firms, in combination with the technical nature and growth of impact and thematic ESG funds, we will see continued growth in sustainability and ESG professionals joining investor meetings in the future.
ESG can have a multiplier effect. For those IR teams with ambitions to capture the ESG benefits by running dedicated ESG roadshows, we suggest IR teams use the following tips list to ensure readiness, meeting efficacy and scale.
Six tips for IR professionals when considering dedicated ESG roadshows
Assess your readiness: Dedicated ESG roadshows require sophistication – does your company have an ESG strategy, data-rich ESG report and a strong ESG position vs peers (for example, above-average ESG ratings/scores)?
Know your audience: When targeting current and new ESG investors and understanding their ESG process, consider the funds’ ESG exclusion policy, degree of ESG focus (integration, thematic, impact), investor location and whether the fund or asset manager has ESG professionals who engage.
Have the right content: Leverage your company’s ESG report, but also think about a set of focused content – such as an ESG highlights summary/ESG tear sheet or ESG roadshow deck – depending on the audience’s degree of ESG focus (integration, thematic, impact).
Timing and leveraging fresh content: Consider conducting the ESG roadshow in the months following the release of your company’s ESG report.
Add ESG corporate participants to investor meetings: In meetings where investors have stronger ESG focuses, include sustainability and ESG professionals to more effectively answer complex questions about ESG scores/ratings and strategy.
Leverage your existing relationships and the sell side: Many asset managers have launched ESG strategies on top of traditional funds. Leverage your relationships with sector analysts and portfolio managers at existing holders to get in the door with new ESG funds. Also leverage the sell side, which has ramped up ESG roadshow support and forged new relationships with ESG investors.
How Nasdaq can help Proritize ESG efforts & engage stakeholders – Nasdaq’s ESG Advisory Program brings together data, insights and a team of analysts to prioritize and guide your ESG efforts as well as engage stakeholders to secure ESG capital. Draw from Nasdaq’s extensive expertise for sector-specific recommendations to understand what metrics and strategies are most suited to your company at its current development phase.
Footnotes 1 Nasdaq Corporate Solutions, as at June 30, 2022 2 Nasdaq Corporate Solutions 3 Nasdaq Corporate Solutions, as at June 30, 2022 4 Nasdaq Corporate Solutions