The Intersection of ESG and IR Best Practices: A Management and Board Imperative

 

The ESG performance of companies is a major factor in the investment decisions of equity and fixed income investors across the world that manage approximately $40 trillion of capital in the aggregate, a performance factor that’s being weighed by a rapidly growing number of portfolio managers, including mainstream investors that do not have an ESG-specific mandate. For corporations, understanding how ESG performance is interpreted and ultimately integrated into investment decisions is therefore essential to competing for capital and minimizing the cost of capital. This was the impetus for the partnership formed by InspIR GroupThird Economy, one that combines world-class expertise in investor relations and sustainable investing, respectively, to help companies achieve and effectively integrate best practices for ESG and investor relations.

The benefit of best ESG practices has been quantified by Bank of America Merrill Lynch, which found that the cost of debt for S&P 500 companies with the highest ESG ratings can be nearly two percentage points lower than those with the lowest ratings. Given their implications forattracting capital and its cost, best ESG practices and reporting have become a board imperative. As BlackRock’s Chairman and CEO has publicly cautioned, this $7 trillion asset manager is “increasingly disposed to vote against management and board directors” of companies that do not make sufficient progress with their ESG performance and disclosure. Other asset managers are also voting accordingly, while ESG has become a relatively new target of shareholder activists for similar reasons. Consequently,  ESG is falling under the responsibility of more company boards, with some appointing a director who has a level of technical expertise akin to that of an audit committee head that enables them to effectively engage shareholders on ESG matters.

Strong ESG performance alone does not mitigate the risks associated with access to capital, funding costs, shareholder votes and even activism. As experienced practitioners of investor relations know, financial metrics alone do not explain a company’s value proposition. The same holds true for ESG in thenew paradigm of today’s capital markets. In other words, a company needs to provide a sufficient level of ESG disclosure and transparency, as BlackRock has made clear. This approach initially began with Third Economy’s founder, Chad Spitler, and others who comprised BlackRock’s Corporate Governance & Responsible Investment Team that he eventually led as its Chief Operating Officer.

Together, InspIR and Third Economy help companies understand the impact and importance of communicating effectively to the financial community the sustainability factors that drive long-term profitabilityand, therefore, their market valuation.Our new partner is a sustainability advisor to institutional investors and is at the vanguard of sustainability ratings on mutual funds and Exchange Traded Funds, thus well suited to advise corporates on best practices for ESG. Third Economy’s extensive work counseling institutional investors coupled with decades of investment banking, corporate finance and investor relations experience behind InspIR Group’s investor relations counsel and support, also helps companies effectively communicate their ESG strategy and the initiatives behind it to achieve and maintain best practices to become financially sustainable over the long term. Beyond creating a world-class sustainability report, this means crucial ESG information becomes effectively integrated into a company’s earnings calls and press releases, investor roadshows and shareholder engagements throughout the year.

Given the accelerating shift in global capital flows toward companies with best practice ESG and disclosure (the subject of our next Insightsblog), the ability of a company to establish and explain its ESG strategies and performance has become an imperative for management and the board. To learn more about how InspIR and Third Economy can help your company elevate its ESG performance and communications, please contact:

 

Monique Skruzny, San Francisco – monique@inspirgroup.com, +1 917.913.4493

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