- By Patrick Hughes, Director, Advisory Services EMEA, Nasdaq Corporate Solutions
This past summer, Nasdaq IR Intelligence hosted a number of ESG events in conjunction with investor relations associations in Italy, Spain and Switzerland. We had the opportunity to moderate and participate in lively discussions about the latest ESG trends and how companies are adapting. Speakers included IROs and investment stewardship professionals from Enel, Swiss Re and Telefonica and were joined alongside with buy-side professionals from BMO Global Asset Management, T. Rowe Price International (UK) Ltd. and ESG ratings provider Sustainalytics.
After the first half of 2020, which was beset with much uncertainty, it is somewhat reassuring Environmental, Social & Governance (ESG) factors continue to be integrated into the investment decision-making process, and despite the apparent challenges, corporates are adapting by leveraging best practice and ensuring the long-term sustainability of their businesses. Some key themes and takeaways from our panel discussions include:
The COVID-19 crisis has opened up the materiality of “S” and “G”
Companies that quickly realised that the Social component of ESG was an important part of their business’ resilience have proved to be more successful at navigating the COVID-19 crisis. Research from Nasdaq showed that on recent company earnings calls, 89% of companies talked about their social story.
“There is an increase in the importance of S,” said Chris Menth, Head of Shareholder Engagement at Swiss Re. “Employee wellbeing is crucial in this environment, meaning that people can safely work from home and that data privacy and security is assured. The latter is also very important to our clients and investors.”
As a result, investors want to see enhanced disclosure around how companies are taking care of their workforce and how they are managing and monitoring this over time.
We’ve spoken to a lot of companies about their supply chain management process and workforce protection.
Daniel Jarman, Vice President Responsible Investment, BMO Global Asset Mana
“COVID-19 has highlighted the importance of protection and safety of the workforce, and the onus is on corporate issuers to enhance their disclosure and tell their stories better to the Street. We think we will see more enhanced disclosure on this topic ahead,” summarized Meagan Tenety, ESG Advisory Senior Analyst at Nasdaq.
Understanding and navigating an evolving ESG landscape
Another challenge for corporates is the number of different stakeholders that want different information or metrics, which can leave IR and sustainability teams feeling that they are always playing “catch up.” Having a strategy around your ESG story and ensuring you have looked that the entire ESG landscape can help to address this challenge.
“Questions around ESG are really varied,” commented Monica Girardi, Head of Investor Relations at Enel. “Sometimes they come from early movers into the ESG world. Other times, questions come from structured alliances that know little about the sector or the company. Sometimes ESG questions can come from our most important shareholders; this is when you understand that there is a path you must walk together: ESG is still a world that is ever-changing.”
Nasdaq’s Meagan Tenety addressed this challenge by suggesting companies evaluate themselves relative to a peer set. “It’s crucial to have a good understanding of what your peers are doing in terms of ESG disclosure and strategy,” said Tenety. Corporates should also take into account the various stakeholders in the ESG space. These include investors and ESG ratings agencies, but also the various frameworks that focus on sector-specific materiality, such as SASB, TCFD, GRI and the UN Sustainable Development Goals.
“When corporates are evaluating their ESG strategy, it is really important to take into account all of the different ways in which they are being evaluated,” said Tenety. “Investors are not looking for any one company to be perfect. They want to know that every company is evaluating its own business model through these ESG risks. That companies are taking risk assessments seriously, and they are making moves towards increasing disclosure, defining metrics and an improvement over time.”
The focus on financial materiality
Finally, our panelists discussed some practical tips for IROs to consider regarding the ESG strategy ahead. Maria Drew, Director of Research, Responsible Investing at T. Rowe Price, spoke of the importance of focusing on which ESG topics are financially material to a company’s business.
“We put a huge focus on financial materiality,” commented Drew. “What is the impact of that E, S or G factor going to be on the business model of that company; that’s not something that we see as having changed as a result of COVID-19.”
Practical ESG tips for IROs
We asked our panel speakers to provide some practical tips for corporates and below are the top five:
- Ensure ESG data and strategy are easy to access and find in one single place on your website. “You want to get credit for all of the great work you are doing.”
- Discuss your ESG positioning internally and share this positioning with your peers in the market. Try to lead the discussion with your stakeholders. Revert that feedback internally and start the cycle again. “That is how you run the extra mile.”
- Understand your company’s ESG positioning and how it is being evaluated relative to a peer set. Have a good understanding of what your peers are doing in terms of ESG disclosure and strategy. If you are not at parity, there are probably areas of improvement you can make to elevate your ESG strategy.
- Engaging with an ESG ratings agency should be seen as a learning process; ESG ratings have been developed based on interactions with investors and the companies themselves. Understand which ESG ratings are most important to investors and ensure they have the correct data available.
- ESG is creating a new language that we have to learn and somehow develop. Financial markets are fast-moving, and we need to move with them. If there is a new language that we have to learn, we must learn it.
Click here to learn more about how Nasdaq’s ESG Advisory program helps companies analyze, assess, and action ESG programs.