Over the past year or so, I have undertaken 14 ESG communications mini-audits for companies.

I have absolutely loved undertaking these because:

  • I get paid … which – I’ll be honest - is nice when you work for a small business
  • I have grown to love the challenge of fixing the communications plumbing in sustainable investment*
  • It has exposed me to so much innovative thinking in the way that companies communicate on sustainability to investors and because …
  • … this innovation is so accessible to any companies who are prepared to try something a bit different in the way they communicate on sustainability to investors.

I am indebted to WBCSD’s CFO Network and to the Gordon and Betty Moore Foundation for the opportunity to develop this process.  So, while I clearly can’t share the specifics of individual innovation by client companies, I can share some of the general experience for wider benefit.

What is an ESG communications mini-audit

The objectives of an ESG communications mini audit are to identify:

  • for 'beginner' companies – … some 'first steps' towards establishing a sustainable investor communications programme
  • for 'improver' companies – … some ‘ongoing actions’ that can be taken to improve the reach and efficiency of an existing sustainable investor communications programme
  • for 'leader' companies – … some ‘improving refinements’ drawn from global best practice / innovation to refine their sustainable investor communications activities for the future

The commitment & cost involved are: 45 minutes to participate in the process and perhaps an hour to read and absorb the resulting report.  The cost to a company is GBP 1,500 + UK VAT.

Lesson learned #1: Companies MUST drive the sustainable investor communications process

As the shape of sustainable investment / ESG evolves, it is becoming clear that companies face a choice over whether to centre their investor communications on sustainability around:

  • Reacting to incoming requests or
  • Communicating proactively

Self-evidently, with the former approach companies lose any control over timetable, priorities, message context, agenda etc.  By contrast, the simple act of undertaking an audit and forming a basic communications plan on the back of it (takes a couple of hours) gives company all of this control with the benefits described here: Why companies must drive the sustainable investment process

Lesson learned #2: ESG ratings often start at the centre of a company’s focus but move rapidly to the periphery

Most companies start an ESG comms mini-audit with the objective of “improving / correcting / understanding our ESG ratings”.

However, when pressed on “Why?” this concerns them, almost all companies give two answers:

  • “Because it is what their CEO / Board focus on” and
  • “Because it’s what we think our investors use”

The realization that the larger and more sophisticated investors have their own research analysts who actually derive information from multiple sources and are able to engage directly with companies typically causes companies to re-prioritise ESG ratings thus:

  • Our investors or potential investors are priority #1
  • Research providers that influence these investors are priority #2
  • ESG ratings are important insofar as they influence investors (Priority #2a)

It’s not a big shift … but it is a hugely important one.

See: 58 influential sustainable investors: Do you know who they are?

Lesson learned #3: Every company faces one unique issue … and many generic ones

Companies have tended to commission an ESG comms mini-audit when they face a specific issue:

  • For one, it was the desire to improve the reach of their ESG investor day
  • For another, it was because of a misaligned understanding between ‘sustainability specialists’ and ‘mainstream investors’ over sustainability impacts in their supply chain
  • For a couple of others, it was specific misunderstandings by ESG ratings firms in the shape of their business (actually, quite a common problem expressed is that analysts understand sustainability ‘performance’ but don’t understand the business context that determines the materiality of this ‘performance’)
  • For one, it related to a pending sustainability-related AGM resolution was one of the motivators
  • For a couple of others, it was the sense that they fundamentally have an upside-orientated ‘sustainable equity story’ but that investors were overly focused on (managed) downside risks.

In almost all cases, however, the solution to the specific (acute) problem lies in developing the broader communications practice – to create the foundation from which specific issues can be discussed directly with relevant investors.

Lesson learned #4: Interesting practice everywhere but no monopoly on good practice

Because companies (counterintuitively perhaps) experience ESG / sustainable investment in a diversity of ways.  (Chronic issues are experienced by all companies – but acute ones tend to be different), good practice has developed in different places at different companies.

  • ·        Some are good at managing sustainability resolutions at AGMs
  • ·        Some are good at hosting webinars and ESG investor days (See case study in Organising ESG investor roadshows guidance note)
  • ·        Some are good at developing messaging (See case study in Preparing messages guidance note)
  • ·        Some are good at handling ESG ratings agencies (and some have some quite devious tricks 😉)
  • ·        Some have a good at integrating sustainability messages into their mainstream investor communications
  • … but no single company is good at everything.

So, my perennial answer to the frequently-asked question: “What company does this all really well?” is “You tell me the practice you’re interested in and I’ll give you some examples of companies that do it well … but across the board … nobody!”

This is why we organise SR-IR Breakfast Clubs and this is why we constantly exhort companies to start comparing notes with their peers – especially their sector peers!

Lesson learned #5: More consultants / service providers needed

Obviously, I would love to keep delivering ESG comms mini-audits to companies.

(Hopefully) obviously, hundreds of companies need the confidence and the ideas that these deliver.

Self-evidently, these two things are not compatible.

So, the market needs more investor relations consultants and service providers to step in and deliver this kind of support.  They are not (I am afraid) big earners – because they only take a day or two to do.  However, they are nice lead generators as companies typically reinvest the time-saving delivered by this proper planning process into expanding their reach towards sustainable investors.

Lessons learned #6: Lots of little lessons

… and – just as every company faces an unique issue or two, so every company throws up a new need for innovation.  The following – in particular – caught my eye:

  • Work is needed to clarify how ESG research providers can/should treat holdings companies, conglomerates and investment companies
  • The investor groups and initiatives set up to address net zero transition are missing as much of an opportunity as they are capturing (Spoiler: It’s not a ‘risk’ it’s ‘transition’)
  • There is a ‘quick win’ available to most companies in developing SRI/ESG ‘info centres’ on their websites … that focus on contacts and timetable first, information second and data third (most companies aim to do it the other way round so haven’t published anything yet)
  • Sustainable thematic investors / sustainability transition investors … need to make themselves a lot more visible to companies
  • The sell-side and credit ratings agency analysts interested in sustainability need to make themselves MUCH MUCH more visible to companies
  • … and many more …

Now, hopefully, you see what I mean.  Every company seems to throw up:

  • One set of issues that can easily be resolved by reference to best global / sector peer practice
  • One proper head-scratcher of a specific issue for each individual company
  • One issue that challenges a different aspect of the sustainable investment industry

It’s a privilege to do this work.  Please do get in touch if you would like me to do some of it for your company.

As ever, I'm keen to hear other (esp. opposing) views on this topic: Via SRI-Connect here or via LinkedIn here


(* Although I am still a research geek who is deeply motivated by uncovering stock price drivers through scrutiny of sustainability exposure and response of companies, I have come to recognize my (or anyone else’s) ability to do this depends on improved communication between companies and investors on sustainability issues)