IROs expect ESG to grow in importance but are warned of activists’ using it as a ‘Trojan Horse’
Attendees of the IR Magazine Think Tank – West Coast were urged to develop good, consistent messaging to their investors before an activist does, as activist campaigns are starting earlier than ever before. IR professionals at the in-person event in Palo Alto in late March heard that ESG is a Trojan Horse for activists and ‘part of the activist playbook’, to be used as leverage for profit and not in genuine support of ESG values. The panel’s advice was to get share prices up and be better and consistent with messaging. It was never too early to keep management in the loop about an activist threat, attendees heard.
IR professionals were advised to recruit allies within their company to help get the ESG story they want to present. They were told to pick bite-sized aspects that are practical and material to their company and identify what brings the most risk or opportunity to the business.
‘This is not an all-or-nothing exercise,’ delegates were told. ‘Whatever you pick, just make sure it is consistent throughout your messaging, reporting and disclosures.’
IROs agreed that competition for the time and resources of investors and management is at the highest level it has ever been, and that they need to be more discerning regarding the meetings they set up.
‘Higher-quality meetings are always better than treating it like a numbers game,’ one panelist noted. ‘Work with your brokers to reach your goals – allocate them the time, understand their financial motivation and understand how you can give them a win while also getting the meetings you want. Own your targeting efforts.’
Content is king Attendees were called on to be prepared to talk about all kinds of ESG metrics. No longer is it just about climate change or greenhouse gases. IROs need to be ready to answer questions about executive compensation and diversity and inclusion metrics, too. ‘Don’t water down your message with multiple metrics; focus on being clear and consistent with those that are material to your business – and part of the new SEC requirements,’ delegates heard.
When it comes to messaging, content is king. Irrespective of the channel used – whether it be an in-person or virtual event – good content will always shine. Social media was hailed as a great way to get messaging out but the advice was to work on the ROI for each channel in order to decide which one works best for the IR professional.
‘If content is king, consistency is the queen,’ delegates were told. ‘You will know you have arrived when an analyst starts to parrot your messaging.’
Help wanted In confluence with ESG, investors are increasingly interested in human capital, delegates heard.
They want to know how the firms they are invested in are attracting, retaining and developing talent in the context of the Great Resignation, where employees are re-evaluating their career priorities post-pandemic. Many companies are struggling to recruit the talent they need and investors want to know how firms are competing in the jobs market.
Panelists said it was important to create a corporate culture that potential hires and investors want to be a part of, and investors also want to know how that will happen.
There is support for gender pay equality as well as diversity, equity and inclusion initiatives but the overall reason for investor interest in a company could not be sidelined. One speaker shared a remark with the audience from an investor: ‘The only green I see is the green in my pocket.’
Investors care about governance and what will change along with a labor shortage. The experts said customers – more than investors – are calling for the publication of targets but mainly around greenhouse gas emissions, not so much on other ESG metrics.
There had been resistance to publish targets at the top of some companies because of uncertainty over which framework to use to measure them, delegates heard.
IROs attending the think tank were urged to foster corporate and investor ownership of ESG goals to help achieve them. ‘Sometimes you have to work backwards from targets to policy,’ a speaker said.
Talking shop Communicating ESG stories led to discussions about targeting the right investors in a post-pandemic world and what that meant for roadshows. ‘Hybrid is easy to say but harder to execute,’ a speaker noted.
Some firms found the 25 percent to 30 percent extra technological cost of hosting hybrids on top of a meeting in a physical venue hard to justify. When engagement was low at hybrids, they decided to revert to just in-person meetings, noting ‘Zoom fatigue’.
Other firms appreciated the greater efficiencies of hybrid events and don’t want to go back to in-person events at all. Investors learned their access to the C-suite has become easier virtually while executives realized they don’t always have to fly to meetings. But some felt access has become too easy, with the sell side expecting to have the ear of the chief executive instead of doing its own research.
Some delegates predicted an increase in virtual or pre-recorded videos would overtake the frequency of hybrid events.
‘There has to be a trade-off,’ delegates heard in a debate about balancing demands on management access. Some virtual meetings may not be worth the C-suite’s time. Parameters should be set instead, with IROs qualifying meetings pitched to CEOs and CFOs. ‘Corporate access is not our time – it’s the company’s time,’ an IR professional noted.
ESG expectations Attendees of the IR Magazine Integration Forum ESG – Europe in London in early March were polled for their views on companies' increasingly integral ESG investing approach.
We asked whether increasing pressures on corporate bottom lines from inflation, the cost of living and geopolitical disruption in a post-pandemic recovering world would slow the ESG movement. A resounding 89 percent said no and just 11 percent said yes. Attendees believed ESG would continue to grow in importance and be a bigger issue for all stakeholders.
We then asked whether delegates expected an increase in ESG-related proposals against companies at the 2022 AGM season compared with 2021. A similarly emphatic 88 percent said yes, with just 12 percent saying no.
Companies in the rapidly approaching proxy season really anticipate more action from investors when it comes to ESG issues. Some changes in the US market in particular are going to make it easier for shareholder proposals related to ESG to make it onto the ballot.
IR Magazine asked delegates whether they believe public companies should think more holistically about their stakeholder needs instead of their shareholder needs. A very conclusive 100 percent said yes. The focus on stakeholder capitalism – the need to go beyond just focusing on shareholder value – is something everybody continues to think is very important and it is still evolving as an issue.
We also asked whether the creation of the International Sustainability Standards Board (ISSB), established at COP26 in Glasgow in November 2021, means ESG is going mainstream. Again, a very conclusive result, with 100 percent of delegates saying yes. The poll result confirms the general sense of direction for ESG and suggests the creation of the ISSB is another step in developing more standardized ESG reporting on a global basis.
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