What ‘good’ might look like for listed companies in 2024...
… in respect of sustainable investment & ESG
In earlier posts, I asked:
- What might ‘good’ look like for sustainable investment & ESG in general in 2024?
- What might ‘good’ look like for asset managers in 2024?
- What might ‘good’ look like for (sustainable) investment research providers in 2024?
In this post, I extend my analysis to what ‘good’ might look like for listed companies in 2024.
What ‘good’ might look like for listed companies
IMHO, it will be ‘good’ if … by the end of 2024:
1] A critical mass of companies have developed and are operating pro-active programmes of direct communications with investors on sustainability issues
This should include a majority of the companies in sectors with significant level of sustainability transition exposure (positive or negative).
Ideally … and typically … the development of such practices will be incentivised by competition amongst sector peers (if Stellantis and VW host ESG investor days, Toyota will be more inclined to do so)
These programmes should be aligned with or even embedded within the companies’ ‘mainstream’ investor communications programmes. As such they will require, the designation of responsibility, the identification of objectives, the creation of a sustainable IR plan etc.
None of which is difficult to do. Much of which is done by some companies … but there is still a long way to go to reach the ‘critical mass’ whereby this ‘best practice’ is considered ‘expected practice’
2] Companies are twice as efficient in their communications to investors on sustainability as they were in 2023
One essential outcome of a pro-active programme is that achieves the twin objectives of:
- Achieving more (effective sustainable investor communications) with
- Less resource (primarily staff time)
On this point, we are fully confident and advise companies to target – at least – a ‘factor four’ improvement from proactive sustainable investor communications whereby DIRECT communications enables them to:
- Double the reach and impact of their sustainability communications to investors while
- Halving the time it takes
While this may seem like a bold ambition, experience typically shows it to be rather conservative. This is not because the processes that we recommend are particularly innovative. (Mainly, they align with ‘mainstream’ IR practice.) It’s because the processes currently being deployed are staggeringly artificial and mind-bendingly inefficient.
3] A leadership cohort of companies have established – in their messaging on sustainability to investors - a clear line-of-sight between the sustainability factors that they face and the key value drivers of their business
If investors are to integrate sustainability factors into intrinsic valuation, they are going to need information from companies that is material to their investment case communicated - typically – via:
- Results presentations and capital markets days to ‘mainstream’ investors and financial analysts
- Presentations to ‘sustainability specialist’ investors and analysts
Some companies are already doing this well; some companies are doing it poorly and some companies are not doing it at all. The evolution of practice in this regard is important and will be interesting to watch.
Progress made recently
In this respect, SRI-Connect contributed a lot in 2023. As commissioned by WBCSD, we:
- On pro-activity and efficiency: Published practical guides on how companies can organize effective ESG investor roadshows and capital markets days and target investors and analysts
- On integrated messaging: Published a guide on how to prepare messages and data for investors and analysts and on how investors integrate sustainability factors into intrinsic valuation
- … and we also prepared a very interesting analysis of the different ways in which sustainability is incorporated by companies within their ‘equity stories’ (Publication expected in Q1’24)
Beyond this, we supported a number of companies on a practical basis, we delivered sustainable investor relations training to companies listed on two stock exchanges and to individual firms and we maintained www.sustainable-ir.com as a free-to-air hub of ideas, support and best practice.
For discussion
- Which companies do you think operate the best (most pro-active) programmes of sustainable investor communications?
- What characterises such programmes?
- What causes inefficiency in communications between companies and investors?
- Integrated messaging: Which companies are best at creating a clear line-of-sight between their sustainability exposures, their business strategy and the impact of these on their valuation?
Discuss below or via: Communications: Between companies, investors & analysts
