Effective investment communications from companies typically contain three parts:
- Operating context
- Company story
- Supporting data
In sustainable investment, however, there is an unhelpful tendency to focus excessively on the last of these (data) at the expense of the former two. There is equally strong encouragement to focus on comparability of data - where no logic to such comparability exists.
We encourage companies to resist this trend and to communicate - as they would to mainstream investors: context, story and data.
Steps to take
Primarily, companies should take control of the narrative and, themselves, shape the sustainability message that they want to communicate to investors. This message should be placed within an articulation of:
- The operating context of their business (value chain and competitive positioning)
- The context of sustainability issues that affect their business
It should address the company's specific exposures to sustainability issues (both positive and negative) and the way that these are being managed to maximise shareholder value.
Then data should be provided in evidence of all of the above factors.
Importantly, companies should do all of this - on their own terms - before even opening the first questionnaire sent by an ESG ratings agency. This approach will ensure that the company's own business and message are central to the communications - which should therefore be closely allied to the company's real and specific priorities. (The alternative is having the agenda set by a succession of well-meaning but less-well-informed analysts).
Factors to consider
The critical differentiator between sustainability investors and other stakeholders interested in sustainability is that investors are interested in the financial materiality of sustainability exposures and company performance. For this reason, companies should focus messages specifically on the sustainability factors that are most likely to be investment relevant.
To determine the key messages for SRI investors, companies should cross-reference between their strategic planning function, investor relations team and the CSR/sustainability department to answer the following questions:
Fundamental factors
- (External): Which five external factors are most important to understanding the company’s markets and strategic positioning?
- (Internal): Which five internal performance factors give most insight into the company’s long-term business prospects?
Current drivers
- (External): Which five market / external indicators are ‘mainstream’ financial analysts currently watching most closely?
- (Internal): Which five internal performance metrics are ‘mainstream financial’ analysts focused on currently?
Sustainability factors
- (External): What external social or environmental factors have and will have most impact on the company?
- (Internal): What are the company’s five priority areas for sustainability management?
Overlap
- How (if at all) do the sustainability factors identified above overlap with the fundamentals and current drivers?
- How is the company’s sustainability programme being directed to reduce business risk and capture commercial opportunity?
- What key metrics exemplify this?
The answers to these final questions should then form the basis of the company's core message to sustainability investors.