Tough fiscal conditions, shareholder activism, the S in ESG, corporate culture, crisis communications, disclosure requirements and ESG skepticism were among the myriad of topics discussed over summer
The IR Magazine Think Tank – East Coast was held in New York on May 18. The event opened with a discussion on macroeconomic conditions, from record levels of inflation to the war in Ukraine and slowing global growth. Amid tightening fiscal conditions, cash is more valuable than ever, the audience heard. Every dollar of cash a company is producing today is worth more, while every dollar of forecast growth is worth less.
The next session focused on shareholder activism. The first three months of 2022 saw 73 new activist campaigns, marking the biggest quarter on record, according to data from Lazard, so there was plenty to discuss.
A new generation of activists is trying to make its mark, the audience was told, so don’t just look out for familiar names on the share register. Companies were also advised to have a ‘day one’ action plan ready, set up in partnership with their various advisers, to avoid ending up on the back foot when a campaign launches.
Trends in IR hiring practices, management and career development were discussed
The New York event held two panels on ESG. The first looked at the best way to measure and report your company’s ESG performance, while the second considered sustainability programs in the context of stakeholder capitalism.
The SEC’s new climate disclosure rules featured heavily in the discussions. We are shifting to a time when companies must be a lot more accountable for their data and communications around climate, the audience heard.
Delegates were also reminded that, where firms don’t disclose ESG data, investors will try to fill in the gaps so issuers with good disclosure can be reassured that investors are working with accurate information.
Balancing act Attendees heard how IR teams are balancing virtual meetings with in-person events and blending sell-side events with direct engagement. They also received a masterclass in putting on hybrid events.
The penultimate session of the think tank focused on IR careers, with presentations and panel discussions on the development of the profession and how to achieve your own career goals.
Speakers pointed out that IROs are in a privileged position where they have touchpoints with basically every part of the business. You can use that to build connections and think about how you would like your role and career to develop, delegates were told.
The final session featured a Q&A with a panel of investors. Topics ranged from the likelihood of a recession in the coming months to how many meetings it typically takes for an investor to buy into a stock. With valuations way off their highs, attendees heard that now may be the time when long-standing relationships with investors could be converted into an investment.
Scope 4 emerging Speakers at the first IR Magazine ESG Integration Forum – Asia, held virtually on June 9, discussed how climate risk and net-zero goals have become a huge focus for investors in the region, while noting that companies need to be able to talk fluently about a wide range of sustainability topics.
‘The past two years have really raised the heat and the pressure on companies to transition to a low-carbon future,’ said Esther An, chief sustainability officer at Singapore-based City Developments. ‘Everybody has learned that the health of our planet, people, business and economy is interconnected and inter-related.’
Ralph Dixon, director of environmental investments at YTL Corporation, the Malaysian infrastructure company, agreed that the sustainability space is ‘evolving very rapidly’, noting the emergence of Scope 4 emissions, also known as avoided emissions, as a new issue.
‘We’re going to see more and more demands from stakeholders such as investors and lenders, and they’re going to be more onerous on companies to disclose,’ he said. ‘Transparency has to increase.’
The G component is still very much driven by compliance rather than the business case, said Jana Jevcakova, managing director and head of ESG for international at Morrow Sodali.
‘The majority of businesses still don’t have a significant portion of institutional investors coming from overseas,’ she explained. ‘And the domestic investors are still not at a stage where they can really exert significant pressure on these companies to disclose better, to be more transparent or to have independence in decision-making, [but] we are seeing signs of it.’
We’re going to see more and more demands from stakeholders such as investors and lenders, and they’re going to be more onerous on companies to disclose
New standards One session took a closer look at new ESG disclosure requirements and how to standardize reporting processes. With the International Sustainability Standards Board (ISSB) recently releasing two disclosure drafts, the panel considered what that could mean for reporting practices across the Asia-Pacific region.
‘We can expect [the ISSB] to first develop standards as a baseline for sustainability disclosures, primarily focusing on providing the information investors need,’ noted Maricris Aldover-Ysmael, vice president of IR at Philippines-based Metro Pacific Investments Corporation.
What investors are really interested in hearing about is how we have looked after our people
‘Because the body is taking a building-blocks approach, I think it will be able to easily facilitate the addition of requirements that are jurisdiction-specific or aimed at a broader group of stakeholders, so this is definitely a fantastic development.’
Other sessions focused on the governance and social aspects of ESG programs. Lily Tsen, general counsel at Amcor Flexibles Asia Pacific, said her firm has received many questions from investors about human capital management and how the business has fared through the pandemic.
‘I think [what] investors are really interested in hearing about is how we have looked after our people,’ she said. ‘My organization is one that has been fairly resilient through the pandemic – we’ve certainly seen an uptick in the volume of work.
‘And the question has been: how do we see ourselves in terms of continuing to engage, motivate and retain our people, and ensure they come to work and get home again safely?’
Measuring corporate culture Covid-19 has raised the bar on the importance among investors of the social or S factor in ESG, almost to the same level as environmental factors, IROs were warned at the latest IR Magazine Think Tank – Europe in London on June 23.
Beyond safety and diversity, what other S metrics are there to report on? TCFD, GRI and SASB are popular social frameworks but the Workforce Disclosure Initiative was described as ‘very niche’. No one framework fits all. Be confident in the story you’re telling, IROs were advised.
The IR Magazine Think Tank – Europe, like all our think tanks, was an invitation-only event exclusively for senior IR officers
Attendees heard that there are about 50,000 ESG KPIs companies can report against but that investors don’t want more information – they want better-quality information.
Materiality processes are key words for businesses. IROs were urged to prepare for incoming legislation for compliance, benchmark against their sector peers and take social and generational trends into account, ‘as it’s all about people: customers, suppliers and employees’.
Communicating ESG values varies between stakeholder groups: investors, potential investors and analysts, attendees heard. They all have their own questions and IROs have to tailor their messages accordingly. ‘It’s easier to drive your ESG strategy with your employees on board,’ one panelist said.
Investors are also focused on greenwashing because they don’t want to associate themselves with a company accused of the practice, IROs were warned. Investors are calling for forward-looking ESG metrics to measure the journey of transition.
The small nature of IR teams has been considered a virtue in such times of crisis because it meant IR professionals were able to react nimbly to live events and be the reliable, knowledgeable point of contact for all stakeholders. But IROs need to balance long-term guidance for shareholders with the reality of the sell side and hedge funds that want shorter-term results, the audience heard.
Panel sessions are followed by roundtable discussions at all think tanks
Culture wars Corporate culture has been of growing interest to investors over the past five years, but what is it and how best to communicate that culture to investors?
As one panelist memorably described the concept: ‘Corporate culture is defined by how we do things around here when no one is watching.’
Attendees heard that one way to quantify corporate culture is via a company’s executive incentive and compensation policies but it also extends to recruitment approaches and codes of conduct. Health and safety measures and anti-money-laundering and sustainability policies are of interest to investors when they evaluate a company, too.
A whistleblowing policy is important to include – and often a requirement – but best practice demands that issues of accountability raised are referred to an external party, rather than the company’s own C-suite.
Combine engagement surveys with results announcements, IR professionals heard. Monitor the culture in a company. One way is ‘consequence management’ – literally disclosing the number of people who contravened codes of conduct and were fired as a consequence.
‘Do that and you’re clearly saying to investors how seriously you are managing your culture,’ an IRO noted.
Outcomes of the proxy season and the growing demand for improved ESG practices were debated
Trends in shareholder proposals Skepticism about ESG has presented itself recently in some high-profile examples of investors and lawmakers pushing back against what they view as putting values above value.
But alongside another groundbreaking proxy season in 2022, discussions at the IR Magazine ESG Integration Forum – Summer, held in New York on July 14, highlighted the continued need for companies to address a wide array of issues from climate to racial equity, and provided advice on how to do so.
Some observers have raised concerns that the US Supreme Court’s recent ruling limiting the Environmental Protection Agency’s ability to curb greenhouse gas emissions signals potential legal difficulties for the SEC’s proposed climate risk disclosure requirements. Whatever happens, there will be some form of regulation – as one panelist said: ‘The genie is out of the bottle.’
Attendees heard that addressing ESG matters can keep customers engaged with a company as well as keep them coming back. Despite the progress many companies have made toward having effective ESG reporting, however, many others are nervous or uncertain how to begin down that path.
Professionals leading those efforts should make sure they have executive buy-in to support that reporting over time, one speaker said, adding that it is important to remain true to a company’s business model and culture while developing ESG disclosures.
Sandra Peters, CFA Institute
New proposal types Another sign of the developing and expanding interest in ESG matters among investors has been the emergence of new types of shareholder proposals that have quickly gained traction in recent years. Among those, proposals asking boards to commission independent racial equity audits have garnered attention.
SOC Investment Group (previously known as CtW Investment Group), working alongside the Service Employees International Union, was the prime mover behind such proposals in the 2021 proxy season. Between them they filed such measures at eight major financial institutions last year – and the proposals, without securing majorities, gained increasing levels of support.
This past proxy season, racial equity and civil rights audit proposals also came from other groups. Tejal Patel, corporate governance director with SOC Investment Group, told attendees at the forum that this year 24 such measures have come to a vote at an AGM – and eight have passed.
The introduction of double materiality was described by one speaker as ‘the next unforced error in the ESG space’, in part, she suggested, because the important thing to consider is impact. It was also noted that there are very different understandings of what constitutes materiality in different geographical regions, and those differences can pose significant difficulties.
L-R: U-Jin Lee, AlphaSense; Renee Campbell, Valmont Industries; Tanya Rakpraja, Annaly Capital Management; Sudi Setlur, Corbin Advisors
Boards were advised that it’s important to set executive compensation within a narrative. Investors want to know why the targets that have been set make sense and how compensation plans are woven into the company’s key strategic decisions.
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