The NIRI Annual Conference, an event hosted by the National Investor Relations Institute – the largest professional investor relations association in the world, with members representing over 1,500 publicly held companies and $12 trillion in stock market capitalization – brought together professionals from companies around the world. This year's conference included a significant focus on the growing influence of Environmental, Social, and Governance (ESG) factors on investment decisions and how companies can effectively respond to the mounting investor demand for ESG information. As with last year, the top ESG issue on the agenda was climate change and the impending greenhouse gas (GHG) reporting requirements emerging around the world.
As a trusted partner of NIRI, Persefoni understands the evolving needs of investor relations practitioners in this rapidly changing landscape. We take pride in supporting the NIRI Annual Conference and assisting investor relations professionals by providing them with the necessary expertise and technology solutions to measure, manage, and report their GHG emissions with confidence. In this blog post, we will delve into key insights from the NIRI conference, sharing some of the compelling discussions, innovative strategies, and actionable insights we heard at the conference. We believe these insights will play a role in shaping the future of sustainable investing.
1. Investor Relations Teams as ESG Champions
Investor Relations (IR) plays a pivotal role in today's capital market landscape, particularly in communicating ESG strategies to investors. The role of the Investor Relations professional has evolved significantly over the last several years, tilting more to non-financial information that complements the company’s financial data. This trend is not surprising, given that 97% of institutional investors evaluate non-financial disclosures when considering an investment. IR teams are increasingly focused on effectively communicating ESG strategies and aligning corporate messaging with sustainability goals.
2. Embracing Three Themes: Integration, Stewardship, and Innovation
NIRI suggests that IR professionals focus on three aspects of an effective ESG strategy: Integration, Stewardship, and Building New Products. Integration involves incorporating ESG data into valuation models, which can help investors and analysts understand the financial impacts of ESG factors on the company and its prospects. Stewardship involves investors engaging with companies to influence their strategies and raise ESG standards. In turn, IR professionals stand to build stronger relationships with their institutional investors and analysts by engaging in these discussions with a mature understanding of how ESG factors impact company strategy. Building New Products refers to developing innovative products or services aligned with ESG principles and taking advantage of emerging market opportunities.
3. Prioritize Material Risks and Sustainability Over Jargon
Look beyond ESG labels and focus on the risks and opportunities that are material to your company. These might include climate risks, water scarcity, and biodiversity loss – the risks that matter to stakeholders. By addressing concrete climate risks and opportunities, companies can enhance their long-term value and solidify their place in investors’ portfolios. The data bear this thesis out. Companies that address material sustainability concerns observe better stock performance and cash flows, according to Ceres.
4. Demystifying ESG Ratings and Rankings
ESG ratings and rankings are widespread, but it is the underlying data that are crucial for investment analysts. It is essential to understand and address these data and to control your company's ESG narrative. For example, analysts may evaluate factors such as board diversity or disclosure of scope 3 emissions to benchmark performance and make investment decisions. How your company incorporates these issues into its long-term strategy is critical to balancing the narrative assigned to your company by third parties.
5. Employ Structured Frameworks to Communicate ESG Information
Be methodical in identifying and prioritizing the ESG information you communicate. Leveraging frameworks like the Sustainability Accounting Standards Board (SASB) and the International Sustainability Standards Board (ISSB) to structure your disclosures can help you to narrow your focus on what is most important in your industry, and to communicate more effectively with investors.
6. Integrate ESG for Long-term Value and Risk Mitigation
Recognize the importance of ESG integration as a driver of long-term financial success. Firms with good ESG practices have yielded higher equity returns, according to McKinsey. Some factors that can lend to value creation include building a diverse workforce, understanding the company’s community impact, addressing the company’s climate risks and opportunities, and otherwise aligning business practices with sustainability goals.
7. Prioritize Substance Over Labels in Addressing ESG Issues
Focus on ESG issues that are integral to your company’s success—irrespective of labeling. Factors such as employee welfare and resource management can have a profound impact on your company's performance. Harvard Business School found that companies focusing on material sustainability issues had better future financial performance compared to those that did not.
8. Engage Investors on Critical Issues Like Climate and Water Risks
Be proactive in engaging with investors on significant issues, including climate risk, water risk, biodiversity loss, and building inclusive economies. Understand their expectations and exhibit your adeptness in managing and mitigating these risks. For instance, Climate Action 100+ is an investor initiative aimed at ensuring the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
9. Dive Deep into Underlying Data for Valuable Insights
Explore underlying data such as environmental risk metrics and GHG disclosures to gain insights into your sustainability risks and opportunities. Relying solely on accolades from ESG rating agencies is not enough for a comprehensive outlook. In 2021, 90% of Fortune 500 companies reported ESG data, albeit in different formats. Companies need to understand the metrics used by investors and provide meaningful data. Moreover, understanding and explaining to investors how the data contributes to strategy and value creation can give you credibility and real business resilience.
10. Keep Pace with the Escalating Tide of Sustainable Investing
As sustainable investing gains momentum, it is becoming increasingly important that companies tie sustainability goals with financial returns. Investors are increasingly factoring ESG performance into their investment decisions. Companies that can demonstrate strong sustainability practices may attract more investment and access to capital, as investors recognize the potential for long-term growth and reduced risk. Conversely, companies with poor ESG performance may face higher borrowing costs or reduced access to capital.
Persefoni, in collaboration with NIRI, is committed to supporting the investor relations community in navigating the sustainable investment landscape. By embracing best practices for ESG integration, companies can meet the diverse and rapidly evolving ESG information requirements of the global investment community.