FAQs

Sustainability issues are factored into investment decisions in three different ways:

• Not at all … because some asset managers, of course, have made little progress in this respect
• Systematically … as asset managers apply sustainability factors to valuation or portfolio construction via rules-based processes that operate before, after or alongside fundamental investment decision-making
• Fundamentally … in which sustainability analysts work together with their 'mainstream' investment analyst colleagues to make holistic investment decisions that fully integrate sustainability and financial factors using fully integrated processes

The growth of sustainable investment has led to a plethora of information providers (particularly conferences and news publications).

Those with the longest track record in the industry are:

• www.responsible-investor.com - which is a subscription-based news publication and events organiser that updates subscribers on the latest news and market developments in sustainable investment practice and regulation
• www.sri-connect.com - which is a free-to-join online research marketplace and communications channel that enables companies to track market trends and investor interest in sectors and sustainability issues and research themes. (It also enables companies to contact analysts and investors directly)

The IR team at most companies will maintain a running record of their largest investors - sometimes supplied by their bankers. Such information can also be provided by financial data providers such as Bloomberg, FactSet or Refinitiv.

It depends how precise you want to be. If you want a rough-and-ready idea, you can use SRI-CONNECT's free-to-access Directory. Typically, if an asset manager has an SRI analyst registered against its profile, then that asset manager is interested in sustainability.

Small cap companies face particular issues in finding the budget to engage on sustainability at the level implied necessary by investors are research providers.  This blogspot proposes a low cost service that may be of interest.

Asset managers typically receive their information from three sources:

• from companies' published reports;
• from information gathered by ESG ratings agencies;
• from their own contact with companies.

In respect of the second, ESG agencies gather their information from company reporting, from media monitoring, from specialist data providers and from other sources such as government agencies.

Their interest is increasing rapidly. In 2016, the UN PRI noticed a lack of interest in sustainability by credit ratings agencies and took the initiative to engage with them. The CRAs responded rapidly and materially such that in 2019, the PRI hailed the progress made by the three major ratings agencies as a 'race to the top' … and the race continues apace…

Companies that are already actively involved in sustainability communications to investors can realistically (we believe) be looking to spend about half as much time on ESG/SRI investor relations as they currently do - provided that they take control and improve the efficiency of their process significantly. Overall, companies…

In format, not at all. Companies should adopt the same combination of published reporting and direct communications. In frequency, there is rarely a need (excepting in the cases of major controversies) for companies to communicate to sustainable investors more than once a year. In content, sustainable investors tend to be more interested in the long-term strategic direction of the company and less interested in the noise of quarterly numbers.

ESG/SRI investors and analysts want to focus on the sustainability issues that are likely to have most impact on companies' financial performance. To support this, they need to understand the company's core strategy. Accordingly, we recommend the following structure:

Sustainable investors and analysts are primarily interested in the sustainability issues that have most potential to impact the financial performance … and hence stock price of companies.

As with all investor communications, companies should prioritise the asset managers that hold their shares and then those that might buy these shares.  After this, companies should prioritise the research providers that influence those asset managers.

Extensively!

Sustainable investors & analysts like to meet companies directly but they also like to avoid CO2 emissions. Even before COVID-19, sustainable 'corporate access' used webcasting and videoconferencing technology extensively. It should be a cornerstone of any company's sustainable investor outreach.

To help companies prioritise the risks and opportunities of responding or not responding to questionnaires, ESG Global Advisors recommends that a company addresses the following questions:

• What are the ESG interests of top current or potential investors? Does the questionnaire relate to an information source that that is used by these investors, or an engagement activity that they support?
Read more

Yes - it has become a concern in some sectors over the last two years.  Whereas previously, 'negative / exclusionary screening' that was applied to individual funds was too small to have any impact on a company's cost of capital.  However, 'policy-based' divestment  has seen a number of sizeable investors withdraw all investment in certain companies or sectors - typically those most exposed to climate change.

Not really - although some investors pretend that there is.  From a companies' point of view, investors expressing an interest in 'SRI' or 'ESG' are typically all interested in the environmental, social, economic and ethical / moral exposures, practices and performance of companies as well as their market positioning, strategic choices and financial performance.

It depends. Some investors believe that 'environmental', 'social' and 'corporate governance' issues are best considered as an integrated whole. Others believe 'sustainability' issues are structurally-different from 'corporate governance' issues and should therefore be considered separately.

Investors don't care. Provided the information is available to them and is verified and audited where appropriate, investors rarely care what format it appears in.

ESG stands for Environmental, Social and Governance and covers the following issues of interest to investors:

• Environmental issues such as: climate change, biodiversity loss, local air quality, resource consumption etc.
• Social issues such as: human rights, employee welfare, local community relations etc
• Corporate governance issues such as board and ownership structure, investor communications and remuneration

The UN SDGs are the UN Sustainable Development Goals. The 2030 Agenda for Sustainable Development provides "a shared blueprint for peace and prosperity for people and the planet, now and into the future". At its heart are the 17 Sustainable Development Goals (SDGs). Investor interest in the SDGs …

Engagement comprises a spectrum of activities ranging from 'constructive engagement' approaches - whereby a single investor shows deep interest in the exposures and practices of a company they are invested and collaboratively suggests ways for further improvements in their sustainability programme through to 'shareholder activism' approaches - whereby investors take oppositional motions to company AGMs proposing actions not previously planned by management.

The EU taxonomy is a technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation or adaptation, while avoiding significant harm to  four other environmental objectives. Asset managers operating within Europe are being required to report on the exposure of their portfolios to issues identified in the taxonomy.

Ideally, IR managers should manage the whole investor communications process - from investor and analyst targeting through message development, data publication, investor engagement and feedback gathering. Importantly, their role should be to MANAGE THE PROCESS.

Ideally, CSR / sustainability managers should support their IRO colleagues with information and subject matter expertise while IROs should manage the process of investor communications. However, too often, CSR / sustainability managers do not receive the support that they need from IROs and end up managing all sustainability communications to investors.

The Principles for Responsible Investment has become the de facto industry body for asset managers and institutional investors ('asset owners') who are interested in responsible investment worldwide.  The organisation promotes industry development, monitors trends in the industry, evaluates asset manager progress and lobbies governments on legislation and regulation on sustainable development of interest to investors.

The organisation also promotes and co-ordinates 'engagement' activity by investors with companies - in which respect the company is a lead partner on Climate Action 100+

Companies should set broad but simple objectives covering their communications with their largest investors and influential research providers. These need to be easily tracked and refreshed on an annual basis. Typically, these will include measures of:

The same issues as the rest of the world is focused on: COVID-19, climate change, equality (gender and race), biodiversity, plastics and economic recovery.

Two types of SRI/ESG conferences may be of interest to companies:

• Industry conferences - where companies can learn more about developments in sustainable investment
• Broker-organised conferences - where companies can meet with investors and present their sustainability practices

The ESG ratings agencies that are most highly-rated by asset managers are listed in the (annually-updated) IRRI Survey 

Until recently, Northern European markets led the world in respect of their level of sustainable investment engagement with growing interest in Canada, some parts of the USA, Australia, southern Europe and Japan.

There is no consistency … and significant misinformation on this point. Most investors ask for more granular and comparable sustainability information from companies. So, companies are keen to provide this. However, companies …

Seven different categories of research providers now publish ESG / sustainable investment research on companies.  Companies, however, tend to focus on one only.

About half of European brokers are actively publishing sustainability research as part of their investment research output. Some of these also have global or Asian coverage. Some of these have global reach and, therefore, publish on North American, Asian or Australasian markets.

Successful sustainable investor communications involve the investor relations team and the sustainbility / CSR team. The IR team should manage the process and the CSR team should produce the content.

For four reasons: Primarily, because their clients (both institutional and retail investors) demand it of them; secondarily because regulators are demanding it (and requiring reporting from asset managers.

This is a 'chicken and egg' problem.  Companies typically don't make themselves available to address these issues on roadshows so the analysts and portfolio managers that are interested don't attend the meetings … so the companies conclude that the whole firm isn't interested.

The ESG/SRI research industry is relatively young (compared to investment research) and the inputs, techniques and outputs that it uses, deploys and produces are still evolving and there is still competition between different providers on all three points. More significantly, companies have not yet imposed their own disciplines on the process.

IROs who are used to communicating directly with sell-side analysts are often surprised that SRI analysts (from ESG ratings agencies) do not appear to respond to similar approaches. In reality, some SRI/ESG analysts from research providers really welcome direct dialogue with companies while others fend it off.

It seems highly unlikely. Sustainable investment grew steadily through the dot-com bubble of the late 90s; it grew consistently through the financial crisis of 2007 - 2008 and it appears to be continuing to grow through the COVID-19 crisis.

Analysts and investors like to communicate with different people at different stages: with CSR / sustainability managers for broad information on sustainability programmes; with technical specialists for specific aspects of practice; with members of executive management for issues of significant financial materiality; with non-executive directors for corporate governance related matters.  The key thing is finding the right communicator for the right message.