Ivan Peill Joins Leading Experts on Sustainability to Discuss How ESG Impacts Valuation and Brands

On September 3, 2020 Ivan Peill, Senior Director and member of InspIR Group’s ESG Integration practice joined leading experts Bonnie Nixon, Sustainable Brands and former Director of Global Sustainability for Mattel, Walmart and HP and Elaine Salewske, Director of Sustainability Integration, Takeda Pharmaceutical Company to discuss how Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG)  impact your valuation and your brand hosted by Laura Moreno Lucas, CEO of Pandocap.

Following is a Q&A with Ivan and links to the discussion on the 4@4 Forum.

 

Why is ESG important to investors?

More and more clients of institutional investors are demanding that their money be invested with companies that are environmentally responsible, socially responsible, and that have sound corporate governance as well. Hence the term ESG.  This is a very strong trend and one that will accelerate even more, as millennials earn and invest more in the coming years. Women are also strong drivers of this investment trend. So the institutions that are managing their money – such as pension funds, mutual funds, among other asset managers – are increasingly focused on the ESG performance of the companies they consider for their clients’ investment portfolios. They are looking at a lot of the things that both Elaine and Bonnie have already mentioned. And already, nearly 50% of all assets under management globally have ESG mandates of one kind or another, with impact investing and sustainability-themed investing growing the fastest in this category.

 

How does a company get started with addressing ESG as regards investors?

To succeed, we recommend formulating a robust ESG strategy based on a thorough materiality assessment, which is a subject in its own right. Make clear how your ESG strategy fits within your overarching corporate strategy, and keep investors apprised of your company’s progress against your ESG strategy over time. That requires robust disclosure of ESG metrics and related information, ideally on an annual basis, so investors can measure and assess your progress.

 

What bearing does ESG have on a company’s financial strategy?

That’s a good question, Laura.  It has a strong correlation with a company’s cost of capital. Because investment capital is increasingly being directed at companies that have strong ESG performance, companies that don’t perform well in this regard will see a drop in demand for their shares or their debt. That means they’ll end up raising capital at an unfavorable price, in the case of equity offerings, or with higher interest rates, in the case of debt offerings. With regard to bonds, a recent Merrill Lynch study found that the cost of debt for companies with high ESG ratings was a full two percentage points lower than for companies with poor ESG ratings. So you can how if your company is a strong ESG performer, it can actually benefit your company financially and with regard to its overall financial strategy. Your company is more likely to have a rich market valuation, and interest expenses will eat up less of your operating profits, just to illustrate that point. And to expand on it, today, Citibank announced that it will measure what level of carbon emissions are associated with its loans. If I’ve been clear, everyone can infer from this news that companies that want to borrow from Citibank will likely end up paying higher interest rates if their carbon performance is subpar. In other words, good ESG lowers your company’s cost of capital, which is one of the important goals of a financial strategy.

 

What are your thoughts about how Covid-19 has impacted the financial markets as it relates to ESG, in a positive or negative way?

At InspIR Group, we have client companies that have benefited from the pandemic in ways that we hadn’t expected and others, like many companies, that have suffered. But what I think is important here – and Bonnie and Elaine have touched upon this – investors really want to better understand what the risks are in the current environment and how a company’s management is managing those risks. At the end of the day, when investors assign a value to your company – whether it’s your stock or debt – a big component of that is risk and understanding the risks. This has been top of mind with investors, in the current environment. In addition, of course, understanding how companies are protecting their employees and companies that make up their supply chain. That is a good way for helping investors get a good grasp of the risks and how well management is addressing those risks.

 

With regard to investors, what thoughts do you want to leave the forum regarding ESG?

ESG is path well worth taking. For the reasons I mentioned earlier, companies would find it very financially rewarding, in terms of having greater access to capital, whether in the public equity markets or private equity markets, such as venture capital. Also raising capital on more favorable terms. I encourage folks out there who are at the helm of companies to keep that in mind. Again, I think they would find it a rewarding experience. I encourage them to follow that path, for the reasons I’ve mentioned and those that Bonnie and Elaine have mentioned.

Following are links to the discussion on the 4@4 Forum.

Facebook
https://www.facebook.com/4at4Forum/videos/890005678194209/

YouTube:
https://www.youtube.com/watch?v=Aluav28DG74

To learn more about ESG

InspIR Group regularly posts blogs on ESG, among other topical investor relations and capital markets issues. You can read our blogs here: https://inspirgroup.com/en/insights/

To learn about InspIR Group’s ESG practice: https://inspirgroup.com/en/esg-integration/

To contact InspIR Group about your ESG Integration needs:

Please call or email us to if you would like to learn how InspIR Group can help on your journey to achieve best practices in ESG reporting and integration.

Ivan Peill, New York – ivan@inspirgroup.com, +1 212.710.9296

Fabiane Goldstein, São Paulo – fabiane@inspirgroup.com, +55.11.98103.0201

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