How to Message Your ESG Strategy to Investors
In 2020, 85% of investors said they consider ESG factors when making investment decisions1, up from 16% in 20092. Investors look at ESG performance in relation to investment risk – both in terms of how to avoid it and how to mitigate. Now, the key sources of potential investment risk are going to be material topics. Materiality is another way to assess the potential impact on a company’s operations, financial performance, or reputation. Understandably, these are the topics that investors are typically most interested in learning more about. In order to accurately identify a company’s material topics, a company must engage with a broad set of stakeholders, including investors.
Here are a few ways that ESG performance can affect investment risk:
- Competitive positioning and innovative strategy – Companies with strong ESG performance tend to attract higher-quality talent. And a smarter, more creative, more capable workforce can go a long way toward enhancing a culture of innovation and, in turn, enabling a company to gain market share.
- Input costs and supply chain reliability – While responsible sourcing may sound more expensive, it actually makes for a more reliable supply chain and lowers input costs over the long term. This means greater margins and more consistency in product offerings.
- Business ethics and regulatory intervention – Companies with strong governance practices are far less likely to commit business ethics violations or require regulatory intervention. Not only does this protect the sanctity of a company’s image and brand, it also prevents legal fees and regulatory fines.
- Corporate reputation and consumer preferences – Data shows that companies that are ESG-friendly develop a more positive public perception and foster greater customer loyalty. This improves a company’s ability to market itself, acquire new customers at lower costs, and sustain lifelong customers with ease.
Investors have a different set of needs compared to other stakeholders. Below are a few ways to tailor ESG information for investors.
- Integrate components of ESG into all facets of your investment proposition.
- Tie ESG into your investment narrative and don’t simply treat it as an afterthought. Showcase how ESG interacts with your corporate strategy, improves your competitive positioning, and allows for financial gains in the long term.
- Root your ESG messaging in quantitative data.
- By nature, investors are keen to numeric data. Evaluate your ESG goals and show off the improvements you have already made or committed to and make the numbers front and center within your ESG narrative.
- Convey measurable, future-focused goals.
- Investors want to understand the path you are taking to achieve the goals. Having key performance indicators tied to your longer-term goals will help you stay on track, while showing your progress along the way to achievement.
- Focus on material topics that are relevant to the business.
- If you have done a materiality assessment, start with the results and identify the material topics to prioritize. If you are newer to ESG, look at the SASB standards for your industry and home in on the topics listed. The standards for your industry likely overlap with the material topics your investors will evaluate.
- Leverage frameworks for comparability and consistency in reporting.
- Investors are imploring corporate leaders to be more consistent, company to company, in their ESG reporting. Many have publicly endorsed ESG frameworks such as SASB and TCFD and have expressed expectations for portfolio companies to report in compliance with these frameworks.
How ESG Infinite can help.
With ESG Infinite, you can quickly identify which ESG issues, frameworks, and ratings your top investors prioritize. Additionally, you can see how your peers have publicly communicated this information. Use the platform’s policy checklists and guidance for how to develop the ESG disclosures your current and prospective investors are including within their investment decisions. Contact ESG Infinite today to learn more about how the platform guide and inform your ESG disclosures.
1 ESG investing enters mainstream phase – report, Pension & Investment