Key Takeaways from IR Magazine / Corporate Secretary ESG Integration Forum
Don’t wait, as investors are always ahead of regulation
While new SEC rules for climate-related disclosure are forthcoming and will allow some measure of time for compliance, public companies should already be working toward enhancing their ESG disclosure and adopting best practices given the rapidly growing number of investment firms that are increasingly incorporating this information into their analysis, not just those allocating capital to ESG mandated funds. Also think of this in terms of improving your ability to compete for capital.
It won’t be easy
The complexity and demands of ESG disclosure will grow, requiring more robust systems and controls for collecting and processing data to effectively report various performance measures. As every IRO knows, information silos exist within companies, making the timely gathering of information to share with investors and other stakeholders a challenge. The challenge is greater when it comes to obtaining data and other information from suppliers and other areas of the value chain. Your company will need a data strategy and roadmap to produce credible information that meets investor and regulatory demands.
Form an ESG steering committee
Comprised of key decision makers, including the CEO, such a committee can prioritize resources. Importantly, the CEO needs to set the tone and directive for the entire organization in order to secure the necessary cooperation.
ESG manifests financial impact
Given that ESG performance is increasingly being viewed by investors as financially material, robust ESG reporting conveys that management is planning for the long term. Investors need to know that ESG is not ancillary to a company’s strategy and goals and that it is integral at the operating level of a company. Accordingly, ESG performance and reporting should be the purview of strategy and finance inside companies.
Climate change visibly material to many investors
Many companies need to consider climate change in their financial equation: be it airlines having delays due to weather and losing money, or companies located in geographical areas with lower water, for example. Extreme flooding and extreme heat are also coming in as relevant elements. Climate changes may have an effect on consumer preferences and therefore considerably alter risks and opportunities.
Get shareholder input
Engage shareholders to understand what ESG actions should be taken and what ESG disclosure is important to them. Many investors will engage with companies and give an assessment. Many use the materiality lens.
Benchmarking is critical
Beyond a materiality assessment, employ peer benchmarking to determine what ESG information should be disclosed.
Don’t let perfection be the “enemy of good”
There is an innate fear that transparency around ESG performance can work against a company. But what’s most important to investors is that you’re finding a way forward, setting ESG goals, defining a clear plan to achieve them, and making progress. Equally important is providing context to the ESG decisions that management is making. Think of ESG as a journey.
It’s not just data
Build a narrative around the ESG information you disclose. It’s important to communicate how ESG fits into your company’s strategy and how it makes your company financially sustainable.
Remember that not all investors are the same
Investors have always taken different approaches to investing. The same applies to ESG analysis. Consequently, not all of them are focused on Climate measures and performance. In other words, be as thoughtful with disclosure related to your company’s Social and Governance performance.
The CEO’s ‘stamp’ should be on ESG communications
For investors to have trust in a company’s ESG data and information, they need to know that the CEO is behind the ESG strategy and targets. They want to see C-level commitment. Treat the stakeholder letter in a sustainability report the same way you would a shareholder letter.
Assurance is essential
ESG disclosure must be credible. Apply auditing as you would with financial reporting.
Employ a materiality standard for corrections
Given the many challenges we’ve pointed out, mistakes are inevitable. To determine if a correction needs to be made publicly, determine if it’s material, just as you would for conventional financial reporting.
InspIR will take your ESG communications to the next level. Contact our experienced team today to discover how we can support your ESG journey.
Zelmira Silva: zelmira@inspirgroup.com | +1-917-865-9799
