A Guide on ESG for Investor Relations Professionals
Do your investors understand what ESG (Environmental, Social and Governance) means to your business? How well does your organisation integrate these factors with strategy and then communicate these initiatives to the market?
Investment against ESG metrics has been growing rapidly in the last decade: globally, there is over $22 trillion in assets under management committed to sustainable, responsible or impact investing.
In Australia and NZ over half of all managed assets incorporate ESG strategies, to the tune of $516 billion as of 2016. Investors are demanding greater transparency of how a company considers ESG factors in order to assess how they are positioned to handle the full range of risks and opportunities; and inform their long-term value creation strategy.
Developing ESG goals and relating them to business strategy can be a challenge. That’s why we’ve partnered with an ESG implementation firm to help identify gaps and opportunities. Regardless of where you are along the ESG journey, this approach allows you to assess where you stand and make it easy to implement what investors are demanding: transparency across all factors that impact long-term success.
So, where do you start in developing your ESG program? These four questions will help you understand where you are and what you need to consider:
1. Is it clear to internal and external stakeholders how your ESG strategy aligns with your business goals?
The investment community will take notice of ESG metrics that clearly align to your business objectives and demonstrate long-term value. Both internal and external stakeholders need to be considered in developing your ESG program to provide a holistic view of risks and opportunities. Developing a thoughtful ESG strategy provides a platform for implementation and communication that engages stakeholders, reduces risk and improves bottom line performance.
2. How do your ESG metrics translate to your bottom line?
Research has shown better shareholder returns for companies with high ratings on material sustainability indicators. Developing a considered ESG strategy and using widely recognised metrics provides transparency that strengthens relationships with stakeholders and builds your investment proposition. It is important to consider which KPIs are most relevant for your business and communicate these in a way that resonates with your stakeholders.
3. Have you engaged with external stakeholders to understand key ESG measurement tools?
With continued growth in investment professionals incorporating ESG into their decision-making, companies need to take the time to understand how investors measure ESG factors and evaluate risks. Investor Relations professionals should take the time to understand current trends and performance measurement tools to ensure they are communicating on relevant metrics and being fairly valued.
There continues to be a disconnect with reporting and investor needs as 13% of ASX200 companies still do not provide any meaningful reporting on sustainability factors.
4. Are you maximising the return and minimising your risk with your ESG program?
As a tool to mitigate risk, protect reputation, and increase operational and financial returns, creating an optimised ESG program needs to be a key priority for senior management. To ensure your company maximise the return on efforts made in ESG, it is important to take the time to develop the right strategy and use available data to inform decisions. Linking the ESG strategy to business objectives, clearly communicating how this impacts your bottom line and engaging with all stakeholders will lay the foundation to a strong ESG program and minimise risk.
A strong ESG program allows you to engage with your stakeholders beyond your core offer. There is a powerful connection between the greater purpose of ESG and your business’s purpose beyond money making that can help you stand out from the crowd. Enriching your purpose through ESG strengthens your business and reputation enabling you to succeed through good times and bad.
How is your business placed to achieve ESG best practice?
Designate can work with you to understand the next steps relevant for your organisation and industry to set you on the path to ESG best practice. Contact us now.
Miriam Dalgety & Kate Saulenas