MAIN TRENDS FOR GROWING INVESTOR RELATIONS SERVICES

Over the last years the impact of changes on IR functions has been very deep, and IROs are facing new demands at different levels

Especially in the last two-three years, the impact of changes on IR functions has been very deep, and IROs are facing new demands at different levels, such as more focus ESG reporting requirements, while maintaining enhanced dialogue with investors – both new and existing, and all other stakeholders.

The increasing requirements for information and mandatory reporting on sustainability issues as a result of the EU taxonomy are absorbing a steadily growing proportion of activities.

Going forward, the expectation is clearly one of ongoing challenges and a need for IR functions to evolve and adapt as necessary.

A good and successful investor relations strategy can have a positive effect on perception of the company, share price performance, company’s rating, and other capital market activities.

A growing investor relations support the image of a company in the  financial market.

Diversifying their efforts to connect with investors

Overall in 2023 IPO volumes fell. While there are positivity emerging, the persistent uncertainty has impacted businesses and capital allocation strategies.

Listed companies are diversifying their efforts to connect with investors. The majority has increased engagement with international investors, while others have strengthened interactions with retail investors, and others have focused on smaller investors, hedge funds, or intensified their engagement with passive investors.

So we are certainly facing several reasons driving the expansion of diversified investor outreach – such as limited free float, liquidity constraints, and a proactively approaching investors in response to diminished broker coverage.

The concerns around capital markets dynamics and investor engagement are shared at board level with respondents emphasising valuation, liquidity, and investor engagement as primary concerns. This ongoing trend persists from previous years.

Still more focus on ESG themes overall.

There has been some scepticism in 2023 over the relevance of ESG. One of its original proponents, BlackRock’s Larry Fink, stopped using the term, saying that it has become too politicised. In Europe, where adoption is further advanced due to the various legally binding targets across the region, the focus on these issues is always vey high.

The CDR survey found indeed that companies are still as committed to ESG as before.

Over 90% of respondents indicated that they had either seen an increased focus on non-financial metrics or no change in priorities in the current climate, indicating that for the vast majority, the focus on non-financial metrics alongside more traditional financial metrics is here to stay.

Unsurprisingly, many of the respondents called for standardised reporting frameworks and questionnaires to reduce the time spent responding to ESG data requests, a task which is increasingly falling within an IRO’s remit.

As expected, increased attention on governance…

There is growing focus on the governance of ESG issues. Almost two thirds of respondents reported having a sustainability committee at board level, up from over 55% last year.

IROs transitioning to a broader role –  encompassing other areas of responsibility.

IROs are taking on roles including corporate communications, ESG, strategy, and finance.

There is mixed opinion as to whether this shift is a positive for IROs. While some believe expanded duties enable them to assume a more strategic role in shaping corporate narratives, others feel these additional responsibilities, often taken on without a corresponding increase in resource, are diminishing the quality of service and added value IROs can provide – due to very oftef to budget constraints.  

Small team resource and budget growth poses a risk of compromising the service quality that investor relations teams can provide, potentially impacting investor outreach quality, constraining technological advancements, and hindering strategic initiatives.

Of those who increased their budget, higher third-party and consultancy fees are cited as the main driver. Selecting an external IR Advisor is more often a good way to remain flexible while engaging top level consultancy.

It makes it difficult for IR teams to fulfil heightened expectations in communication and stakeholder engagement. Therefore corporations of different sizes clearly need to invest more in IR.

See also CDR’s 15th  Annual Global IR Survey.

Citigate Dewe Rogerson (CDR) has been investigating trends in investor relations since 2008, providing insight into how companies have adapted to both major crises and more subtle changes in their market environments. This year’s Investor Relations survey comes at a time of significant change in capital markets. The impact on IR functions has been profound, with teams juggling new demands such as ever-more-granular ESG reporting requirements and the need to adopt new technologies while also maintaining enhanced dialogue with investors, both new and existing, and other stakeholders.