Tim Human reports on a host of ways IR teams are telling their ESG story that go beyond the sustainability report
A question occupying the minds of many IR professionals today is how to tell their company’s ESG story. Issuers are increasingly placing ESG issues at the heart of corporate strategy, a shift they want to communicate to shareholders and other stakeholders. Meanwhile, external demands for more ESG disclosure continue to grow, with investors, ratings agencies and NGOs calling for more detail on areas such as climate risk, water scarcity and human capital management.
Many companies start with a sustainability report, but which other channels could support getting your message across and ensuring key data is available to interested parties? In this article, we look at case studies from investor relations teams that have held an ESG investor day, launched an ESG statbook, discussed ESG on the earnings call and released a thematic report on a single sustainability topic. Are you trying anything else? Get in touch and let us know.
Mark Read, CEO of WPP, at the company's ESG investor day
ESG investor day: WPP ESG-themed investor days have become a popular, if not yet mainstream, event for listed companies. It means issuers putting them on now are in something of a sweet spot, says Peregrine Riviere, director of group investor relations at WPP, the FTSE 100-listed advertising giant.
‘We are in the first third of big companies to do this,’ he says. ‘You get to learn from what other people have done – see what works and what doesn’t. And then you can use your own skills as a company to try to do something a bit different.’
WPP put on its first ESG investor day in June. The two-hour virtual event began with a discussion of the company’s purpose, before diving into four segments on people, planet, communities and governance. No new information was released at the event – all the data came from either the annual report or the sustainability report. For Riviere, an event such as this provides an opportunity to present the whole ESG story in one go and bring it to life with case studies from client work and sustainability practices within the organization.
‘I’ve been doing IR for 20 years and have heard a lot about how CSR or SRI is next year’s big thing – and next year has finally arrived,’ says Riviere. ‘I felt we should put everything in one place so investors of all types could access it in an easily digestible way.’
During the event, WPP had specific messages it wanted to convey. First, it showcased just how much ESG is now a business driver. ‘Coming out of the Covid-19 pandemic, there’s hardly a client brief that comes across our desk – whether it’s in branding, advertising or PR and reputation – that doesn’t have some kind of purpose or ESG angle,’ Riviere points out.
Second, the group reinforced the progress it has made on corporate governance, following the departure of founder and long-time CEO Martin Sorrell in 2018. Under Sorrell’s leadership, WPP had become a byword for lax governance structures and outlandish executive pay. ‘We wanted to tell a story of how far we have come in the last three years,’ says Riviere.
Third, it wanted to highlight its people-focused culture. As a company providing advice and technical skills, WPP’s employees are the source of its value. ‘We are a people business,’ says Riviere. ‘Sixty-five percent of our costs are people. The average age is young, below 30. Millennials really care about sustainability issues. It’s important to communicate that you are serious.’
As the world’s biggest advertising company by revenue, WPP has helped hundreds of businesses explain their own ESG credentials. But that work comes with difficult questions. If the company is committed to sustainability, why does it continue to work with sectors like oil & gas or tobacco, for example?
Riviere acknowledges this as the main ESG-focused question right now from investors and analysts, and one the company tried to tackle during the event. ‘Our approach here is we will not work with companies that are making misrepresentative or misleading claims,’ he says.
‘We don’t stand in judgment over what products people produce or market, but the marketing has to be responsible. For a small cadre of investors, that’s probably not enough. But for the vast majority, I think it is.’
Teamwork Logistically, the event was run jointly by the IR team – given its experience putting on big investor days – and the sustainability team. Riviere enjoyed support from various departments, including corporate affairs, legal, company secretariat and WPP’s central client team, to deliver the content.
‘We were very fortunate because we have a nice studio in our office and businesses that make films – adverts are lovely things to show,’ he says. ‘We were also not too precious on all production values. We’d just been through a year of Covid and everyone is used to talking on Zoom, so we were happy to have people record themselves on iPhones for 30 seconds or a minute.’
During the preparation, Riviere stressed to other departments the importance of engaging the audience through case studies. This plays into his broader philosophy that IR should try to appeal to both the logical and emotional parts of the brain.
‘IROs forget that a lot of the investment process is emotional and attachment-based,’ he explains. ‘How do I feel about this company in a way I can’t define? So this is exactly the kind of event where there’s a little bit of left brain – there are some statistics and targets – but the way you bring it to life is all about the right side of the brain. And if WPP can’t do that, then no one can. This is our skill.’
Riviere says one recommendation is to prerecord as much as you can to help the event run as smoothly as possible. He also suggests doing extra prep with management team members to make sure they are comfortable discussing sustainability topics in detail.
In terms of speakers, WPP decided to use the management team and not include any non-executive directors – a departure from some other ESG investor days. The company felt the people directly responsible for the issues being discussed should be the ones who present, explains Riviere: ‘You need a positive reason to include the non-executives.’
As a final piece of advice, he says don’t forget the various audiences of an ESG investor day. ‘Even if you are doing this for investors, your people, clients and customers are also going to be really interested,’ says Riviere. ‘You definitely have to factor that in.’
Deutsche Post DHL's ESG statbook
ESG statbook: Deutsche Post DHL For several years, Deutsche Post DHL has produced an IR statbook, covering areas such as the balance sheet, P&L and cashflow. Updated each quarter, it provides a single location to get all the key information about the business.
It also draws a line around what the company is willing to share with the market. ‘If you are asking for anything more, you’re not going to find it,’ says Martin Ziegenbalg, executive vice president and head of investor relations at the delivery company.
Earlier this year, in an overhaul of Deutsche Post’s ESG strategy and sustainability reporting, the company decided to create an ESG statbook as well. The booklet includes all the ESG KPIs the firm thinks are important.
‘We’re not trying to bend over backwards to make each and every bizarre rating and ranking out there happy,’ says Ziegenbalg. For the information deemed relevant to the business, however, Deutsche Post is ‘happy to provide that in a condensed format,’ he says.
Functional in nature, the ESG statbook is an Excel spreadsheet featuring tabs that cover environmental, social and governance data. Users will find information such as carbon emissions for the company’s vehicle fleet and employee engagement data across its 570,000 workers, with the figures going back five years.
There are also tabs dedicated specifically to the GRI and SASB reporting standards. Ziegenbalg says these two options were included because they appear to hold the most weight among investors. When Deutsche Post doesn’t report against one of the standards’ data points, it includes a sentence explaining why.
Statbooks save time by avoiding the need to respond to common questions, says Ziegenbalg. Analysts know what information is available and where to find it. In addition, because the location of the data in the spreadsheet stays the same, they can even plumb it straight into their models. For example, headcount for a particular division will always be in the same cell, he says.
The launch of the statbook came amid a broad rethink of Deutsche Post’s approach to sustainability. Over the previous year, the company had identified a new set of ESG KPIs for the business, including science-based targets for cutting C02 emissions across its fleet of more than 10,000 cars and 250 planes.
It launched the new ESG strategy in March 2021 and, at the same time, reworked its sustainability reporting. Rather than produce a separate sustainability report, as it had done previously, Deutsche Post included its ESG information in the annual report. It released the ESG statbook and an ESG presentation to act as supplements to the annual report.
Looking to the future, Deutsche Post plans to develop the ESG statbook alongside its sustainability reporting. The company is working on TCFD reporting and that is something that may be reflected in the statbook, says Ziegenbalg. The business has also identified additional ESG KPIs to report on, but wants to improve the quality of the information first. ‘That’s now being prepared, so I would expect a couple of further KPIs to be added,’ he says.
Based on feedback from the buy side, Ziegenbalg says he doesn’t think there are many other ESG statbooks out there. But investors seem to like the idea. ‘They said, That’s perfect – we wish everyone was doing that,’ he notes.
Polyus' first water report
Thematic report: Polyus Companies that want to delve deep into a single sustainability topic or showcase industry leadership may choose to produce a thematic report. Polyus did this in March with its first water report – a move that helped the Russian gold miner win best ESG materiality reporting at the IR Magazine Awards – Europe 2021.
As CEO Pavel Grachev explains in his introduction to the report, regulators are placing ever-stricter disclosure requirements on mining companies about their environmental impact. At the same time, new standards for water management disclosure have been developed by the International Council on Mining and Metals, of which Polyus is a member.
‘The growing demands have provided impetus for the preparation of a stand-alone report where water management issues are described more extensively than in the annual sustainability report,’ says Grachev.
The 39-page document includes sections on Polyus’ approach to water management, legal requirements, stakeholder engagement, UN Sustainable Development Goals and water bodies within the company’s footprint. Readers will learn that Polyus’ flagship mine Olimpiada relies in part on the Yenisei River, the longest in Russia and fifth-longest in the world, at around 3,500 kilometers.
A key objective for Polyus is to reduce its reliance on natural water sources and increase the use of recycled water. To track this, the company records the intake of fresh water for each unit of processed ore. The report notes a positive trend: in 2020, water withdrawal per ton of ore stood at 0.22 m3, compared with 0.30 m3 in 2016.
Mining firms have always needed to be one step ahead in terms of ESG reporting, given the environmental risks posed by their industry, Victor Drozdov, director of business communications and IR at Polyus, tells IR Magazine. On top of this, Russian companies tend to trade at a valuation discount to international peers, so they need to work extra hard to get their message across to investors, he adds.
‘We need to disclose more information, share it with the market and always stay in touch with our stakeholders, in effect being trend-setters rather than trend-followers,’ he says. ‘Specifically this year, that means us publishing our water report – the first by a Russian company.
'On the side of both ESG and investor interaction, we strive to do a little more. I’m not comparing us with our peers: we’re just trying to do more than we did a year ago.’
The project to create the water report was led by Polyus’ sustainability team, explains Alex Caicics, who is responsible for ESG communications at the company. ‘[That team is] the ultimate holder of expertise and knowledge here,’ he says. ‘IR has provided input regarding the format of the document and helped to publish and promote it externally, as well as providing external feedback.’
Caicics says Polyus doesn’t plan to produce a new water report each year. ‘It’s not so much about current performance data but rather about describing the framework in which we manage water resources, and the principles according to which we do this,’ he says.
When Polyus scooped the prize for best ESG materiality reporting for a large-cap company at this year’s IR Magazine Awards – Europe, the award winner was selected by a panel of judges, composed mainly of senior members of the buy side.
Polyus’ sustainability reporting is among ‘the most comprehensive we have come across, and it has improved further this year with much greater detail on minimizing water use,’ said one judge. ‘First choice on ESG materiality reporting, in my view.’
Consultants say thematic reports remain fairly uncommon and are more likely to be produced by larger companies that have the resources to create such documents in addition to their sustainability report. Beyond the mining sector, another example is the human capital management report released by Verizon in April 2021. The report includes an introduction from Christy Pambianchi, chief human resources officer, and sets out how the telecommunications company aims to attract and develop its employees.
ESG on the earnings call: Nestlé A growing number of companies are discussing ESG issues on the earnings call. According to FactSet, more than 30 percent of S&P 500 companies cited ‘ESG’ during their first-quarter earnings call this year – the highest number on record.
The drivers of this trend are well known: over recent years, investors have increasingly focused on environmental risks, particularly climate change. Then, in 2020, Covid-19 and worldwide anti-racism protests threw an intense spotlight on how companies approach social issues.
But what is the best way to integrate ESG topics into earnings call content? Simply adding some slides at the end of the presentation could indicate ESG is being treated in a superficial way, not as a core risk or driver of value.
‘One of the concerns is the issue of bandwidth,’ says Brian Tomlinson, an adviser to companies on ESG strategy, who co-authored a research report on ESG and the earnings call. ‘We don’t want boilerplate, generic ESG disclosures to take the place of decision-useful financial information. This is about disclosing ESG information that is tailored to the format of the earnings call and its audience, and that supplements and contextualizes the other information that is shared.’
One company that has thought carefully about this subject is Nestlé. In February 2019 CEO Mark Schneider flagged that the global food firm would increase its focus on sustainability issues and creating shared value during earnings calls. ‘We will now make this a more regular feature of our investor calls because I think it is an element that's deeply embedded in our company and sets us apart,’ he said.
Since then, Nestlé has included regular updates on calls. For example, in April 2019 the company included a section on why capsules are actually an environmentally friendly way to consume coffee. The following quarter, Nestlé provided details on how its medical nutrition business is supporting cancer patients.
While many of the updates have focused on specific ESG topics, Nestlé has also used the earnings call to set out its broader approach to sustainability. During the full-year results for 2020, Schneider included several hundred words on why sustainability is key to value creation.
‘It’s important for me that people do not see it only as a short-term impact on our P&L or a burden but, rather, that we see it very much as an opportunity,’ he explained.
‘An opportunity to, first of all, do a great service to society and the Earth around us, but then also a great business opportunity in a world where priorities around sustainability are changing very fast.’
For companies that want to take a more structured approach to including ESG content in their calls, Tomlinson has some suggestions. Companies could spend one call doing a deep dive into ESG issues, and then provide updates on key metrics in the other three quarters, he says.
Alternatively, they could use the CEO’s macro comments once or twice a year to explain how ESG fits into corporate strategy.
‘There are all sorts of ways of doing it,’ Tomlinson points out. ‘This isn’t about completely reimagining the earnings call. It’s about folding in pertinent ESG information.’
