The gold standard in green reporting

ESG reporting is one of today’s most dynamic IR areas. With so many reporting frameworks and regulatory requirements, and so much investor demand and public scrutiny, the heat is being turned up on public firms.

For issuers still early on in their ESG reporting journey, it can be hard to tell your SASBs from your GRIs, or know how much time to spend on completing ESG surveys and data requests from index providers as opposed to shaping your company story. For IR teams more comfortable discussing financial and operational performance, disclosing often unaudited data about anything from employee engagement metrics to a firm’s carbon footprint can cause a degree of discomfort.

So what can IR professionals learn from best-in-class efforts to communicate with investors about ESG? The most recent winners of an IR Magazine Award for ESG communications/reporting are:

  • Best ESG communications – Europe: BASF, presented June 2018
  • Best ESG communications – Greater China: Delta Electronics, presented November 2018
  • Best ESG communications – South East Asia: City Developments (CDL), presented December 2018
  • Best ESG reporting – US: Cisco Systems, presented March 2019
  • Best ESG reporting – Canada: TD Bank Group, presented April 2019.

A recurring question at IR Magazine events in North America is how much investors really care about ESG. Many large institutional investors have made public pronouncements of their efforts to integrate ESG factors into their own decision-making processes but, beyond the headlines, a number of IR professionals feel ESG concerns aren’t raised on the earnings call or in investor meetings.

But three of the five award-winning companies say their ESG reporting efforts are, at least in part, due to a higher volume of investor interest. Gillian Manning, vice president and head of investor relations at TD Bank, says the IR team noticed a threefold increase in ESG questions from its investors over the last 18 months. At Cisco, the corporate affairs team had been leading ESG and sustainability reporting for some time, but the IR team started to notice an increase in investor questions in 2016, according to Emily Hunt, IR manager at the technology giant.

In Europe, meanwhile, BASF had been fielding questions from investors on socially responsible investment (SRI) for some time but, during the last two or three years, ESG questions started increasingly popping up in meetings with portfolio managers, not just SRI investors. It made the investor relations team realize that it needed to develop additional ESG messaging targeted specifically at its core investor base, a company spokesperson says.

Which frameworks are used?

Several ESG bodies – the Sustainability Accounting Standards Board (SASB), CDP, Global Reporting Initiative (GRI), and the Carbon Disclosure Standards Board – are working to find a more harmonious way of co-existing via the Corporate Reporting Dialogue, but the number of seemingly similar options open to issuers can still feel overwhelming.

Not so for CDL, however. The company issued its first GRI-checked sustainability report in 2008 and became the first Singaporean developer to adopt the International Integrated Reporting Council’s (IIRC) Integrated Reporting framework in 2015.

Integrated reporting – whether using the IIRC’s formal framework or not – is popular among our award winners, with BASF, Cisco and TD Bank all disclosing financial and non-financial information together. For all three, this means ESG information is included in their integrated annual reports. Like CDL, TD Bank and Cisco also use the GRI framework for their ESG reporting on past results, and TD Bank is monitoring the developments with SASB’s standards, Rachel Guthrie, the company’s head of ESG reporting and impact management, confirms to IR Magazine. BASF is the only award winner to use the CDP framework for reporting on past performance.

For forward-looking disclosures, four of the five award-winning companies – BASF, CDL, Delta Electronics and TD Bank – use the Task Force on Climate-related Financial Disclosures’ framework to begin their climate scenario assessment analysis. 

Integrated reporting, integrated thinking

As investors become more concerned with firms’ ESG performance, it becomes more likely that cross-functional working groups will have to be formed. At Cisco, the corporate affairs team had been producing a sustainability report since 2005 but – following the aforementioned investor questions – the IR team realized it needed to impress the importance of investor-relevant information to the corporate affairs team.

‘The IR team’s closer alignment with the corporate affairs team has driven deeper mutual understanding of the substance shareholders and other stakeholders seek in our ESG reporting,’ says Hunt. ‘The CSR report has evolved to include two distinct sections: ‘Our story’, which discusses our strategy for accelerating global problem-solving, and ‘The details’, which provides in-depth data on our ESG performance.’ As a result of including more ESG performance metrics and having the IR team champion the CSR report, web traffic to the digital version doubled between 2017 and 2018.

TD Bank has taken the collaboration even further, forming an ESG working group comprising the corporate secretary, the ESG team and the IR team. It works collaboratively to respond to investors’ ESG questions in a timely manner and to educate executives and board members on ESG trends. Forming this working group has also enhanced the presentation of the company’s sustainability report, Manning says. For instance, one of the opening pages of the report contains a matrix of material E, S and G factors that the company has identified. On one axis, these individual risks are ranked based on stakeholders’ perception of importance; the other axis shows the risks ranked based on the company’s assessment. The end-product is an easy-to-follow presentation of how the company and its stakeholders have identified the most material ESG risks to the company.

Additional benefits

All the award winners cite inclusion in ESG-focused indexes – including the Dow Jones Sustainability Index, the FTSE4Good Index, the MSCI Global Sustainability Index and others – as a benefit of the efforts they have put into their ESG reporting.

The five award-winning companies were also nominated in 10 other IR Magazine Award categories combined, with four of them nominated for best-in-sector awards. This is notable because of the way in which the winners and nominees are determined. All winners of the ESG communications and reporting awards covered in this article were identified by a panel of judges that reviewed materials submitted by the companies themselves, or on their behalf. The best-in-sector awards, however, are determined by an independent survey of buy-side and sell-side analysts and portfolio managers.

It isn’t clear whether companies that take the lead on ESG communications are viewed more favorably by their investors, or whether companies with best-in-class investor relations efforts are taking ESG reporting more seriously. Either way, it’s interesting to note that the same companies show up through two quite different methodologies.

 

A large-cap luxury?

A total of 31 companies were nominated in the best ESG communications/ reporting categories across five of IR Magazine’s regional award ceremonies (the award is not presented in Brazil or India). The overwhelming majority – 24 – of those companies are either large or mega-caps. Six mid-cap companies were nominated, with only one small cap making it onto any of the five short lists. At the IR Magazine Forum – Small Cap US last year in New York, one panelist described ESG disclosure as a luxury for small caps to consider, saying that most small firms have much more fundamental concerns.

 

This article originally appeared in the Summer 2019 issue of IR Magazine.

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Andy White, Freelance WordPress Developer London