IR Magazine Research Report - Stakeholder management
The independent voice of investor relations
<sub>Research Report</sub>
Stakeholder Management
Examining developments in corporate and investor approaches to stakeholder concerns and the impact of these changes on IR
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Introduction
Investigating company focus and investor interest in nine identified stakeholder issues
Many discussions in recent business forums have centered around the notion of stakeholder capitalism, a reinvention of the pre-existing idea that businesses serve a variety of interests and communities and should not be solely driven by the maximization of shareholder value.
Rather than look at stakeholder capitalism in the abstract, this report examines the issues of stakeholder management in a more quantifiable manner. The report investigates the levels and development of both company focus and investor interest in nine identified stakeholder issues:
- Carbon-neutrality goals
- Customer relations
- Employee relations
- Government and regulatory engagement
- Public health measures
- Public relations & corporate reputation
- Resource management & waste
- Socio-economic development
- Supply-chain relations.
We examine how common it is to report on these issues and how company focus on them has changed over the past five years. We also look at the level of investor interest in these subjects and how this has also developed over the same period.
This report further investigates the impact these changes in stakeholder focus have had upon IR and how IROs view the relationship between stakeholder concerns and shareholder value. Additionally, we look at how Covid-19 has changed company focus on stakeholder issues.
The findings in this report are taken from IR Magazine’s Global IR Survey, conducted among IR professionals between Q1 and Q3 2021. Data in this report is broken down by geographical region and company size. The three regions reported on are North America, Europe and Asia. Companies referred to as ‘smaller’ companies in this report are small or mid-cap companies with a market capitalization below $5 bn, while those referred to as ‘larger’ companies are large or mega-cap companies with a market cap above $5 bn. Otherwise market caps are as follows:
Small cap <$1 bn
Mid-cap $1 bn-$5 bn
Large cap $5 bn-$30 bn
Mega-cap >$30 bn
Editor
Lloyd Bevan
Research
Paul Crooke, Ariah Varcianna
Chief copy editor
Kathleen Hennessy
Art & design
James Noden
Company focus
How corporate reporting and the role of IR have evolved
Of the stakeholder concerns identified in this report, resource management, socio-economic development and employee relations are the issues most commonly reported on, with more than six in 10 companies reporting on these issues in the past 12 months. Almost half (49 percent) of companies include employee relations in their annual report, making it the most commonly featured stakeholder issue in that report.
Most stakeholder issues identified have been reported on by a majority of companies. Less than a third of companies included carbon-neutrality goals or public relations in their annual report last year, while the majority of companies do not report on PR & corporate reputation or customer relations.
Have you reported on the following stakeholder issues in the past 12 months?
Over the past five years there has been a notable increase in company focus on all stakeholder issues identified in this report. Of these, more than three quarters of companies have increased their focus on carbon-neutrality goals, public health measures and employee relations, with more than a third saying that focus on carbon-neutrality and public health has strongly increased.
Every issue identified has seen a net majority of companies increase their focus. The only areas where fewer than two thirds of companies have increased their focus are socio-economic development and supply-chain relations.
The number of companies that have decreased their focus on stakeholder issues in the past five years is negligible. Most stakeholder concerns identified have seen just 2 percent of companies lose focus over this time, with the highest for any individual issue being a 4 percent drop in focus for employee relations.
How has your company's focus on the following issues changed over the last five years ?
When asked about what these changes in company focus have meant for investor relations, a large majority of IROs mention an increased focus on ESG in their work. Many IR teams are now fundamentally involved in ESG and sustainability responsibilities at their company. The increase in stakeholder issues has led to IR teams seeking out ESG/CSR investors and one respondent points out that who you have investing in your company is in itself a matter of corporate reputation.
Comments
What has the change in the company's focus on these issues meant for the IR department?
Covid-19 and stakeholder management
A slim majority of IROs say their company’s focus on stakeholder issues has changed as a result of the Covid-19 pandemic. Larger companies are slightly more likely to have changed their focus, with 54 percent of large and mega-cap companies having done so, compared with 49 percent of small and mid-cap companies.
But there is a notable difference according to region: just 44 percent of European IROs say their company’s focus on stakeholder issues has changed as a result of Covid-19, compared with more than six in 10 Asian IROs.
Covid-19 has contributed to a rise in focus on public health as a stakeholder issue. Among those who say their company focus on stakeholder issues in general has changed as a result of the pandemic, 89 percent have also seen a rise in focus on public health issues, with 45 percent registering a strong increase in focus.
Has your company's focus on stakeholder issues changed as a result of Covid-19?
Comments
How has Covid-19 changed your company’s focus on stakeholder issues?
Accountability to stakeholders
When IROs were asked to what extent they agreed with the statement ‘Publicly traded companies should be accountable to all stakeholders equally, instead of prioritizing just shareholders’, approaching two thirds agree with the statement to some extent while one fifth disagree. Just 6 percent of IROs strongly disagree with this statement, compared with 43 percent who strongly agree.
Nearly half of IROs at smaller companies strongly agree that companies should be equally accountable to all stakeholders, compared with just over a third of those at larger companies. North American IROs are least likely to agree with the statement. No Asian IROs disagree at all, while 53 percent strongly agree that all stakeholders should be treated equally.
Publicly traded companies should be accountable to all stakeholders equally, instead of prioritizing just shareholders
Investor interest
Changing investor priorities
Discussions with investors
Customer relations is the stakeholder issue IROs are most likely to have had discussions with investors about, with more than six in 10 having done so in the past 12 months.
A majority of respondents have discussed government and regulatory engagement and public health measures with investors, while exactly half have discussed supply-chain relations and carbon-neutrality goals.
Only two stakeholder concerns identified here have been discussed by fewer than four in 10 IROs in the past year: resource management and socio-economic development.
This is in marked contrast to company reporting, with resource management and socio-economic development (as well as employee relations) being the most common stakeholder issues for companies to have reported on in the past year. Customer relations, meanwhile,
is one of the issues least commonly reported on.
Have you had questions from or discussions with investors on the following stakeholder issues in the past 12 months?
When IROs are asked how interested investors are in each identified stakeholder issue, government and regulatory engagement tops the list, followed by customer relations and carbon-neutrality. Overall, there is a 52 percentage-point difference between IROs who think investors have an above-neutral interest in government & regulatory engagement and those who give it a below-neutral score. These three issues, along with supply-chain relations and public relations & corporate reputation, all have a majority registering above the neutral score of five on a scale of 0 to 10.
The level of interest IROs perceive investors to have in these issues broadly matches the level of discussions they have with them – with two notable exceptions. While the number of IROs who have recently had discussions with investors on public health measures is comparatively high, the level of interest they consider investors to have in the issue is comparatively low. Conversely, there are relatively fewer discussions with investors about PR & corporate reputation, yet IROs consider it one of the most important stakeholder issues for investors.
In general, how interested do you find investors in the following stakeholder issues?
Change in investor interest
According to IROs, all identified areas of stakeholder concern have seen increased interest from investors in the past five years. The issue that has seen the greatest increase in interest is carbon-neutrality, with more than seven in 10 IROs registering an increase in investor interest, including a third registering a strong increase.
Other areas of high increased interest are government and regulatory engagement, public health measures and resource management & waste.
There is negligible indication of decreased interest by investors, with no IROs registering a strong decrease in investor interest on any issue.
There are just three areas where the majority of respondents have seen no change in investor interest during this time: customer relations, employee relations and public relations & corporate reputation.
How has investor interest in these issues changed over the past five years?
Comments
We asked IROs to comment on their perception of investor interest in stakeholder issues. Below is a selection of their responses.
While just under a third of IROs agree that stakeholder issues are only a priority as long as shareholders deem them to be material, half of IROs disagree with this statement, with a quarter strongly disagreeing. IROs at smaller companies are slightly more likely to agree with this statement than those at larger companies.
Almost as many European IROs agree as disagree that shareholder priorities should determine stakeholder interest. North American IROs are the most likely to disagree with the statement, while three in 10 Asian IROs remain neutral on the subject.
Stakeholder issues are only a priority as long as shareholders deem them to be material
Stakeholder issues
An issue-by-issue debrief
Of all the stakeholder issues identified in this report, carbon-neutrality goals have seen the greatest increase in company focus and investor interest, with more than three quarters (78 percent) of IR professionals witnessing a strong increase in focus and 72 percent seeing a swell in investor interest over the past five years.
Carbon-neutrality is clearly a bigger issue for larger firms than smaller companies in every metric, with more than nine in 10 larger companies increasing their focus and eight in 10 IROs seeing increased investor interest. Regionally, carbon-neutrality is slightly less of an issue in North America than in Europe or Asia.
Of the stakeholder issues identified
in this report, customer relations is
the one most commonly discussed between IROs and investors. While there is no real difference in the likelihood of discussions according to company size, European IROs are more likely to discuss customer relations with investors than IROs from North America or Asia.
Larger companies are more likely to have reported on customer relations than smaller companies, and Asian companies are more than twice as likely as North American companies to have reported on this issue.
Investors in North American companies appear less interested in customer relations than those in other regions. North American companies have also seen less of an increase in company focus and a lower increase in investor interest than firms in other regions over the past five years. Larger companies have increased their focus on this issue more than smaller firms.
Employee relations is one of the most reported-on issues identified in this report and is an area of high company focus. But it is an issue perceived to be of less interest to investors. Employee relations is a more important issue at larger companies, in terms of both investor interest and company focus, than it is at smaller companies.
Fewer Asian IROs discuss employee relations with investors, yet more than twice as many Asian companies report on the issue as do North American companies. Despite the lack of discussion, Asian IROs perceive a higher investor interest in this subject than do their European counterparts, though it is in North America where the greatest increase in both investor interest and company focus has been witnessed over the last five years.
Government and regulatory engagement
Government and regulatory engagement is seen as the stakeholder issue that is of most interest to investors. It is one of the most commonly discussed issues between IROs and investors, with 63 percent of IROs seeing increased investor interest over the past five years, and 23 percent seeing a strong increase.
Investor interest in government and regulatory engagement is broadly the same regardless of company size. Smaller companies have seen greater increase in company focus on the issue over the past five years, while larger companies have witnessed a greater increase in investor interest. It is generally a less important issue in North America than in Europe or Asia, in terms of both company focus and investor interest.
Government and regulatory engagement
Public health measures is an area that has seen a great increase in both company focus and investor interest over the past five years.
Understandably, there has been a high level of discussion with investors about this issue in the last 12 months, as a result of the global pandemic. Even so, it still remains an issue of relatively low interest for investors.
Larger companies are more likely to have had discussions with investors and reported on public health in the past 12 months, while more IROs at smaller companies have seen an increase in company focus.
Asian IROs are the least likely to have discussions with investors on public health, while North American companies are the least likely to report on the issue. Investor interest is highest in and increasing most in Asia, with nine in 10 Asian IR professionals having seen an increase in company focus over the last five years.
Public relations & corporate reputation
PR & corporate reputation is the least reported of the issues identified here, although more than seven in 10 IROs have seen an increase in company focus in the past five years. While fewer than half of IROs have had recent discussions with investors on this issue and there has been less increase in investor interest than in other areas, PR & corporate reputation is still considered to be the joint second-most important issue for investors.
PR & corporate reputation is considered to be of pretty much equal importance among companies of all sizes, although larger companies are more likely to report on and have discussions with investors about the issue. Asian companies are less likely to have discussions with investors but more likely to report on the issue.
Public relations & corporate reputation
Resource management & waste
Resource management & waste is the issue most reported on by companies but perceived as of least interest to investors, although 62 percent of IROs say investor interest has increased in the past five years.
As with many other issues, resource management is of greater concern to larger companies, in terms of both company focus and investor interest.
There is considerably less interest in this issue in North America, though three quarters of IROs there say company focus has increased in the past five years. The levels and increases in company focus and investor interest for resource management & waste are highest in Asia.
Resource management & waste
Socio-economic development
Socio-economic development is one of the most reported-on stakeholder issues by companies but the least discussed with investors. It is one of the areas considered to be of lesser interest to investors, although more than half of IROs have seen an increase in investor interest over the past five years.
As is seen with many other stakeholder issues, there is a higher level of reporting and discussion with investors among larger companies than at smaller companies.
Levels of reporting are considerably lower in North America, as is perceived investor interest. Asia has the highest levels of investor interest in socio-economic development, with the greatest increase in investor interest and company focus.
Socio-economic development
Among the stakeholder issues identified, supply-chain relations are relatively low in terms of company focus but score higher when it comes to investor interest. For each metric, it is an issue of noticeably more concern for larger companies than for smaller firms.
While more North American IROs have had discussions with investors on supply-chain relations than have IROs in other regions, perceived investor interest is lowest in this region. North American companies have seen lower increase in investor interest over the past five years but the highest increase in company focus.
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<h2>The importance of building an investment-grade ESG program
By Eric Vermeiren, lead adviser at
Nasdaq ESG Advisory Program
The importance of building an investment-grade ESG program
By Eric Vermeiren, lead adviser at Nasdaq ESG Advisory Program
Over the past 18 months, a series of crises has shaken the status quo for businesses, bringing ESG issues to the fore, particularly amid the advancement of stakeholder capitalism. We’ve witnessed the devastating toll of the ongoing pandemic and the reawakening of the fight for racial justice and socio-economic equity following the murder of George Floyd and countless others.
The societal reckoning has been coupled with catastrophic environmental challenges, from record-breaking temperatures to wildfires, floods and other climate change-related disasters. Given these circumstances, it’s clear, now more than ever, that in order for companies to profit over the long term, they need to consider the needs of all their stakeholders – investors, employees, customers, communities, suppliers and the environment – and build a robust ESG program.
IR typically plays a major role in strategically assessing stakeholder priorities, executing those strategic initiatives and engaging key external stakeholders to manage risk effectively and capture the full spectrum of ESG opportunities. With asset managers and asset owners viewed as some of the largest engines for ESG progress, IR teams must take notice of what is required to build an investment-grade ESG program.
Implementing and executing your ESG strategy
Forward-thinking companies do not view ESG
in a silo but rather as initiatives that, when tied
to corporate strategy, aligned with their vision
and governed through the board and senior management, contribute to overall business success.
When building an ESG program, forward-thinking companies use a systematic approach to measure their own environmental and social impacts and assemble a clear baseline reading of their ESG reputation and performance – otherwise known as a current state analysis. By monitoring and measuring various environmental and social impact areas, such as carbon footprint or diversity metrics, companies can better manage their respective performance.
But business leaders know that performance does not exist in a static state: they recognize that it should be examined alongside the varying priorities of key stakeholders. Through a stakeholder engagement process called materiality, a company can identify its most crucial stakeholders – parties that can make or break a company’s revenues, profits and long-term plans.
Once stakeholder expectations are clearly understood and weighed appropriately, management can prioritize business activities to optimize ESG efforts.
Execution & implementation
Once priority areas are identified, leading companies invest in a repeatable process to collect, manage and house their ESG data.
The data-collection process typically involves upwards of three dozen subject matter collaborators from the issuing company, ranging from traditional financial data to data on human capital, community involvement and environmental impact. Data credibility and access to historical information become crucial at this point.
The next step is to develop specific, measurable goals that map to the priority ESG areas identified through current state analysis and stakeholder materiality. The act of setting clear and ambitious goals helps to clarify a pathway forward so that resources, time and attention coalesce in a collectively reinforcing manner to maximize progress.
The last step is communicating progress on ESG targets and goals to stakeholders by publishing commitments and disclosing implementation plans and metrics, as well as discussing setbacks and headway. For stakeholder capitalism to work effectively, companies must foster trust and be held accountable for their actions. Leading companies are consistent in their communications and share vital ESG data and information through vehicles such as SEC filings, proxy statements, sustainability or ESG reports and quarterly earnings reports.
Capture ROI by engaging stakeholders
While execution and implementation are pivotal, business leaders must understand that ESG is as much an opportunity as a risk. By investing in positive social and environmental impacts, companies can not only boost revenue growth but also increase productivity and attract new sources of capital. In addition, when managed strategically, ESG can be a valuable tool for stakeholder engagement, expansion and value creation.
Releasing an ESG report without a go-to-market plan to engage investors on an impactful story misses both a risk-mitigation plan and a value-creation opportunity.
IR teams at leading companies act as a go-to-market strategy for ESG programs. They integrate their ESG strategy into their existing investment story; these should not be different stories but one integrated approach to communicate long-term growth and impact.
Armed with that integrated investment story, leading IR teams use an updated IR deck (inclusive of their ESG story) to update investors via regular engagement, and run annual ESG roadshows using updated ESG communications as an opportunity to update the market and discuss the strategy with long-term investors. Forward-thinking companies also leverage their board during governance engagement with top holders to focus on key risks and opportunities ahead of proxy voting season.
Doing well by doing good
Serving stakeholders is not just an ethical good – companies that seek to maximize their stakeholder impact by identifying and isolating their areas of greatest impact can make the greatest contributions by leveraging their competitive advantage. Companies that embrace a wider role and operate as part of our broader society will be poised for success in our uncertain future.
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