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Increased Investor and Board Focus on ESG Reporting

4 September 2020
Dalla Governance alla Comunicazione – parte 1)
19 November 2020

Increased Investor and Board Focus on ESG Reporting

Over 65% of companies in Citigate Dewe Rogerson’s 12th Annual Investor Relations Survey report increased investor interest in social issues. In response, almost 2/3 of IR teams intend to improve ESG disclosure over the coming year; it was less than 50% twelve months ago.

We believe that COVID-19 pandemic has accelerated the long-term shift towards sustainable investing, particularly outside North America. This is a critical time for listed companies, many of which are dealing with a myriad of challenges at present. In general, companies are pushing ahead with their ESG agenda, looking to enhance their narrative and leverage ESG accomplishments also to get some differentiation from their peers.

Research highlights continued ESG agenda  – Nearly 80% of IROs report an increase in ESG related questions from investors.

Disclosure and guidance – In response to COVID-19, 40% of IR teams started to provide more detail in routine disclosures to give additional context and clarity around financial and business performance. To prevent investors from drawing inaccurate conclusions in times of significantly heightened uncertainty, over 30% have issued statements to the market more frequently.

While the future remains unpredictable, many Corporates decided to withdraw guidance – which is understandable – meaning analysts are finding it more challenging to establish estimates.

From Citigate Dewe Rogerson 12th Annual IR Survey – Investor Relations Officers (IROs) from leading companies around the globe were invited to participate giving their views on how the latest trends in global markets were affecting their investor relations strategies, with a particular focus on changes in reporting and engagement resulting from COVID-19 and the growing focus on ESG narrative. Approximately 375 IROs contributed to the survey, representing companies from 55 countries, with a combined market value of over $3 trillion.

IR budgets have been impacted by the economic crisis caused by the pandemic. At the same time, there’s always room and need for additional IR services – the necessity of saving budgets open more opportunities for external IR consulting.

Investor engagement – It has happened before in the history of business that some positive change may emerge from times of crisis. The technology in place for businesses has allowed the flow of information between corporates and investors to not only continue, but also thrive. Consequently, the way in which companies engage with their stakeholders has transformed, perhaps permanently.

Interesting opinions from Jessica McDougall, VP at BlackRock Investment Stewardship and Corporate Governance, to IR Magazine about her preferences for engagement and ESG reporting.

What are BlackRock’s engagement goals in 2020? “Over the last four years our engagement priorities have been roughly the same. We cover five broad ESG topics: board quality, environmental risks and opportunities, corporate strategy and capital allocation, compensation that promotes long-termism and human capital management. These priorities were stated in 2017 as the team was expanding and we were trying to provide more transparency about the type of conversations we were having with companies.”

Despite the short-term emphasis on financial resilience and viability, COVID-19 is widely expected to bring increased focus on non-financial performance over the next 12 months.

Growing pressure for companies to enhance board oversight of ESG performance is driving a shift in board composition. This is evident in the percentage of companies that have formed Sustainability Committees. Moreover, dedicated ESG events are expected to play an important role in highlighting ESG achievements, and satisfying the information needs of various stakeholders including ratings providers, as companies seek to set their own ESG agenda.

As already stated in our Blog Moving forward: Life after the crisis”:

  1. Momentum around climate change has rapidly shifted to a focus on human and social capital as a result of the crisis
  2. The CEO/CFO should be able to understand the impact of ESG on their business and in the creation of long-term value; IROs should play an important role in these communications
  3. There is strong appetite for convergence towards one global set of standards for ESG reporting; currently there are too many ratings agencies and frameworks.

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