Having recently delivered a number of ESG comms mini-audits and worked with other companies on their broader sustainable investor communications plans, I am constantly surprised by how much time companies spend on reporting (months) and on data disclosure to ESG/sustainable investors (weeks) relative to the amount of time they spend finding out who all of this reporting and disclosure is actually for (typically, somewhere between no time and a few hours).
(If a company can’t put a name and a face to the 1, 2, 3, 10 … individual analysts and portfolio managers that it believes it is communicating with, how can they know that they are communicating the right stuff rather than just the stuff that conventional wisdom, standard setters and ESG ratings agencies assume might be relevant to investors?).
How many investors & analysts actually matter to each company? I reckon it’s 58
For all of the talk about “what INVESTORS want on sustainability”, the reality is that – for any specific company, there are a specific group of individuals at investment firms and investment research providers. For an average company, I reckon there are 58 individuals who can be identified as the primary target audience for the sustainability information provided by companies for material investment action.
Of course, there is no such thing as an ‘average company … of average size … in an average geography … with average exposure to sustainability issues’ … which is why we encourage all companies … before embarking on their sustainable investor communications in any given year to create / update their Register of SRI Interest.
However, the generic process discussed below should help all companies progress from the scary and paralysing prospect of “what capital markets want on sustainability” to the more accessible (and real) “what Lisa from Investor A, Iason from Ratings Agency B and Juan from Data Provider C want on sustainability’.
Here is how we identify the priority 58.
(NB - all of these analysts and investors can be identified for free using the SRI-Connect Directory)
Lead (sector) analysts at current major holders (7)
The first priority group is, of course, the specialist sustainability sector analysts at any current major holders. These are the individuals who have nominated responsibility for covering your company’s sector within the investment firms that actually hold your shares.
If we assume that ‘Top 20’ is a workable cut-off for ‘major’ holders, European and North American firms should be able to identify between 8 – 10 of these analysts. Outside those regions, the number may drop to 4-6. So, we’ll take 7 as an average.
Issue analysts at major holders (+2 = 9)
Some asset managers (strangely IMHO) don’t allocate coverage responsibility based on sector (as they do for ‘mainstream’ research), instead they allocate by sustainability issue. Let’s say there are 2 such investors within each firm’s top 20.
Heads of research at major holders (+4 = 13)
Then, in some cases, a company won’t be able to identify a sector- or issue-covering specialist. In these cases, the company will need to use the Head of SRI/ESG research as a proxy contact until they can identify the right coverage analyst. We have added 4 to our total as an average between an expectation of 6 such analysts in EU & NAM and 2 elsewhere.
(Heads of SRI/ESG Research … please take note. Encourage your analysts to update their sector and issue coverage on SRI-Connect via here (and/or do it on your own website). Otherwise, you inevitably become the de facto contact point for companies).
Overall, companies should be able to identify an average of 13 specialist analysts interested in their sustainability performance. Yep, that feels about right.
Analysts at target investors (+10 = 23)
Then, I have never met a company that does not want to expand the pool of capital available to it. So, all firms will want to include the relevant analysts from a target group of firms. Let’s not be greedy, let’s say a company has a target list of 20 investors and half of these have an interest in sustainability. (Again, companies should prioritise sector specialists over issue specialists and both over ‘Heads of SRI/ESG research’.
Sustainability specialist investors (+10 = 33)
Beyond the largest institutional investors, there are about twenty investors worldwide that have developed advanced and specialist expertise in sustainable investment that differentiates them from the broader approaches being adopted by other (often larger) institutions. Such investors used to be identifiable as those with specialist and thematic funds; then they because the pioneers of fundamental integrated analysis and are now those most enthusiastically embracing ‘sustainable economic transition’ and ‘impact’.
If a given company wants to engage with at least half of these, that adds 10 individuals to the target list.
Issue-focused thought-leading investors (+3 = 36)
Beyond this, there are typically a few opinion-leader investors who are globally-vocal about the issues facing your sector even if they don’t and may never hold your company. Their views are part of the sustainable investment debate; you want to be part of that same debate; add them to the list. (NB this does not mean every investor with a perspective on climate change. Rather it means the (typically two or three) driving forces behind research or campaigns of particular relevance to your company.
Analysts at research and engagement service providers (+22 in total = 58)
- Finally, we come to the research providers – who probably should be prioritized at roughly the same level as investors. Certainly not more (as it’s the investors that actually buy, hold or sell companies’ shares) … but not less either (as research providers reach (with their distribution) (smaller, non-target and quants) investors that companies can’t realistically expect to reach.
From these we suggest that companies need to identify (rationale below):
- A => 10 x lead sector analysts from ESG Ratings Agencies’
- (3 x ‘big guns’, 3 with regional focus, 3 from the CRAs + 1)
- B = > 5 x sustainability specialists at sell-side brokers
- … because they produce contextualized RESEARCH (as opposed to data and ratings), integrate into valuation and have broad distribution reach (including to ‘mainstream’ investors)
- C => 3 x analysts at credit ratings agencies
- … for the same reasons as sell-side brokers … but in fixed income
- D => 1 x influencers from data providers
- … because the analysts that work for ‘insights’ teams contextualise raw data in a way that makes it usable by investors
- E => 2 x analysts at ‘engagement service providers’
- … where these have a particular focus on issues of relevance to your company
- FG => 1 x analysts at ‘for impact’ or ‘grant-funded’ research providers
- … where these have a particular focus on issues of relevance to your company
- Grand total = 58 …
… relevant individuals at significant organisations … all of whom have names and faces and parents and likes and dislikes … but may not be called Lisa or Iason or Juan.
In short, they are human beings whose specific sustainable investment needs and priorities can be understood and met by companies.
BUT…
(Much as I abhor the Trumpian (Trumpish? Trumpesque?) capitalization, it is a big ‘BUT’)
… while these 58 individuals can usefully be identified as priorities in the communications purposes, I do not for so much as one second suggest that this should be done to the exclusion of other investors or research providers. Having identified the priorities, companies should then take steps to ensure that all sustainability information is provided equally and openly for the benefit of all investment users and that all investors and research providers to participate in an annual sustainability performance update webinar.
(Finally, please note that I don’t purport to represent what other stakeholders need. There are lots of audiences that companies need to communicate with. I don’t pretend to know about these audiences or what they need. My focus is on understanding and communicating about the investment value chain.)
Discuss…
(Like almost all quantitative data in sustainable investment) … 58 is a meaningless number.
What is meaningful and interesting is the process by which it is generated. Do you agree with this? Have I missed any categories? Have I over-prioritised some? Do companies actually go through this process? Do they need to?)
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