I started my career in sustainability as an environmental, social and governance (ESG) analyst in 2005. Witnessing the mainstreaming of ESG investing in the past two years has been truly exciting. Today, I help companies integrate sustainability across their business, and it has never been more critical for companies to effectively engage their investors on ESG issues.
In the United States, ESG investing has entered a new era. The infamous annual letters of BlackRock CEO Larry Fink, and majority votes for climate-change-related shareholder resolutions at ExxonMobil and Occidental Petroleum are already strong signals that investors care about sustainable and long-term growth. Beyond this anecdotal evidence, ESG investing in the United States represents a quarter of assets under management, compared to less than 18 percent in 2014 (PDF), just five years ago. Between 2016 and 2018, ESG investing grew by 38 percent. According to a US SIF (The Forum for Sustainable and Responsible Investment) survey of 141 asset managers, client demand is cited as the leading motivation for incorporating ESG criteria into investment decisions.
In Europe, this trend is not new. There, ESG investing has represented about half of assets under management since 2014. But times are no less exciting. Last year, the European Union announced an ambitious sustainable finance action plan. The EU is building a taxonomy to define what constitutes sustainable investing, creating EU labels for green financial products and enhancing corporate reporting requirements.
In this context, companies that are not engaging investors on sustainability are missing an opportunity to attract and retain investors focused on long-term value and ESG.
From the point of view of companies, engaging investors on sustainability can seem daunting and confusing. Companies are facing a growing number of requests for information from investors and ESG rating agencies. As with any stakeholder group, investors are not a homogenous group and present a diverse set of objectives, investment time horizons and expectations. One of the most common questions I hear from BSR members is which ESG questionnaire they should be answering.
Recently, BSR published an update of one of its most popular reports, “Five-Step Approach to Stakeholder Engagement,” which provides practical guidance to define and implement a stakeholder engagement plan. There is huge value in applying a structured approach to engaging your investors. Here’s how you can apply our five-step approach to this particular stakeholder group:
Step 1: Build your engagement strategy
Set a vision and level of ambition for engaging your investors. Review lessons learned from previous engagements with investors and build out the business case for engaging investors. You will also need to set up a team of champions internally made up of both investor relations and sustainability teams. There are a number of ways in which sustainability and investor relations teams can work together to proactively engage investors on sustainability.
Step 2: Map your stakeholders
Identify and prioritize stakeholders, and select engagement mechanisms. The team of champions builds a long list of asset owners, asset managers, ESG rating agencies, sell-side research, etc. The team analyses and ranks the investors across three criteria: the influence of the investor; the credibility of the investor; and the level of resources needed to engage the investor. Put these stakeholders on a 2×2 matrix. The stakeholder map will allow you to select an engagement mechanism (such as monitor, message, advocate or consult) tailored to the specificity of that investor.
Step 3 and 4: Prepare and engage
You are now ready to select the engagement format tailored to each stakeholder. Engagement formats will range from sending ESG reporting annually, to distributing invitations to investor days or ESG road shows, to engaging in direct dialogues.
Step 5: Create an action plan
Your work does not stop here, as you still need to translate the findings and insights you’ve received from your investors and feed them back to your organization. For example, you will want to tell your marketing teams if your investors want to know about your customer satisfaction rates.
This is a bite-size summary, but our report provides much more depth and nuance. Applying this approach will help companies focus their time on the investors that matter the most — which drives mutual benefit and value.