Strategy & planningPerspectives

Joss Tantram: Talking transition

  • The gap between the sustainability dimensions of strategy and plain sustainable strategy is shrinking.
  • Companies that want investors to recognise and reward their sustainability ambitions and performance must ensure that Investor Relations plays a central role in communicating sustainability to investors.
  • The need for sustainable transition - in the strategies, business models and performance of companies - is growing, with the carbon transition being the first of many global issues that will drive change in corporate and investor focus and practice.
  • Companies and investors need to demonstrate how sustainable enterprise value and sustainability impact are central considerations in their thinking. Progress requires discussions about strategic sustainable transitions as well as improved communication efficiency and data supply.

This website is one of the key resources to support improved communication between companies and investors on sustainability issues built under WBCSD´s Building Bridges program, with funding from the Gordon and Betty Moore Foundation.

By design, much of the website addresses the process issues relating to how companies embed sustainability information into their engagement and communications with investors. However, we must remember that subject matter challenges also exist. These relate to:

  • the provision of sustainability data, and
  • the provision of information about strategy in the context of fundamental sustainability transitions.

Much attention is paid elsewhere to the data that sustainable investors request. However, alongside the pure supply of data, companies must convey (and investors must absorb) information about the strategy and direction of companies. Investors need to understand companies' intentions and capacity for responding to significant sustainability challenges - notably those requiring fundamental transition.

Time for transition

WBCSD’s newly released Vision 2050 Refresh highlights that the journey to sustainability including reaching the Sustainable Development Goals and Paris Agreement requires a reinvented response to environmental and social megatrends and challenges to drive the development of resilient and regenerative companies and economies.  This requires a number of specific corporate and wider sectoral transitions.

The transition to zero-carbon is perhaps the most advanced of these shifts and the implications that it will have for energy and transport sectors (and the knock-on effects for all sectors) are becoming better understood. However, other sectors face other sustainability-driven transitions. Most notably companies face significant transitions related to:

  • their impact on nature and biodiversity,
  • their resource utilisation and the adoption of circular economy principles, and;
  • their need to be able to demonstrate their contribution to greater social equity and cohesion.

Not only do companies need to focus and communicate around these - but investors also need to respond to ensure that these transitions are supported by capital markets which value and reward the most sustainable companies.

Alignment for transition

There has been a longstanding lack of confidence within many companies in understanding how their sustainability efforts can be translated and communicated to match the interests of investors.

In particular, there is concern that discussions between companies and investors can lead to separate or divergent conversations:

  • On the one hand, sustainability specialists within companies discuss specific points of sustainability in detail with specialist SRI or impact investors.
  • On the other hand, mainstream investor engagement - undertaken by investor relations staff and senior management - may include only some (or sometimes no) elements of sustainability.

Specific issues such climate change exposure, water performance, gender pay gaps and representation may be discussed in either conversation.

However, more needs to happen, especially with regard to sustainability issues that represent sources of strategic risk and opportunity for companies, and which go to the heart of their future viability and resilience. Therefore the conversations need to be combined.

Companies (particularly sustainability professionals and their colleagues in Investor Relations) need to be able to be more comfortable and confident in understanding how their approaches to sustainability relate to overall enterprise value creation, future prospects and the material issues that are of interest to any investor, whether they are an ESG specialist or a 'mainstream' financial analyst or investor.

Conclusions

WBCSD has supported the development of www.sustainable-IR.com to respond directly to these challenges.

We recognise that there is work to be done to drive the consistency and standardisation of formal ESG disclosure and the data demanded by passive and quants-orientated investors.  Work to do this is gathering pace through our own collaboration with the PRI as well as recent initiatives / announcements by the Acting Chair of the SEC as well as the IFRS, IOSCO and the current review of the EU’s Non-Financial Reporting Directive (NFRD).

However, this should not obscure the work that also remains to be done by companies to communicate to investors how they are responding strategically to the current and forthcoming challenges of sustainability and demonstrating how their approach and performance drives both their enterprise value creation and a reduction on social and environmental risk and impact.

If we regard sustainability as simply requiring a managerial tweaking of known indicators, we will fail.

If we regard it as a fundamental shift of value - as we are being encouraged to do by Mark Carney, Partha Dasgupta and many others, we will open up transition pathways that will prove profitable and sustainable for progressive companies and investors alike.