The investor relations function is hectic. We have to keep up with news and follow the company’s performance, and we have our hands full communicating with analysts and regular institutional investors. In addition, you read about the growing activity of SRI investors and in some instances you get in contact with them on specific issues.
So how do you decide whether you should devote any time or effort to SRI investors on top of your busy agenda? It is important to take into consideration both external and internal factors. On the external side, the most important issue is to determine the importance of SRI investors in your free float base, a task you may discuss with your regular shareholder identification provider. Obviously if the weight of SRI investors is significant, the decision is easy to make.
On the other hand, if you find that SRI investors are not important in your current shareholder base, you may still consider starting a program aimed at increasing the interest of such investors in your company. SRI investors are usually long term, which gives stability to your shareholder base. If you have a good story about your company’s efforts on ESG matters, this is a great opportunity to attract a new type of investor to the company.
This leads us to the internal factors that need to be considered when making a decision on starting a dedicated IR program. It is important to diagnose how ESG topics are handled at your company, and the first step is to read thoroughly all the ESG material that’s made public. Then you need to interview the most important people handling these topics in the organization to get an insight into the strengths and weaknesses of the company and decide how to build a story for investors. It is not necessary for your company to have a well-developed ESG performance: as long as it has a solid and committed strategy on how to improve these aspects, the IR team still has a story to build on.
New beginnings
If you decide to start this new program, the first thing you have to do is to know the universe of analysts and investors. Despite the buy side’s efforts to include both financial and ESG criteria in their analysis, the latter is still a separate universe from your regular analyst and investor audience. Then you have to put together a story and a Q&A, and design a strategic communications plan that includes conferences, management roadshows and events. This part is similar to your regular IR tasks, but the people involved – both the buy-side analysts and company management – will be different from the ones you have been dealing with traditionally.
Be ready for a different type of dynamic. SRI investors are long-term focused, so they will be thorough in their questioning and they will follow your company’s performance very closely year after year. Be careful to consistently update the market with the company’s progress and be ready to answer long emails. Interacting with investors many times on the same single issue is more than probable.
Another aspect that might be different from regular IR tasks is the variety of sources investors may use in order to obtain information about the company. Unfortunately, these sources don’t always have a professional code of conduct regarding their publications about your company. Benchmarking with peers may also prove difficult because the criteria to rank companies have yet to be homogenized.
Despite all the challenges, having SRI investors on board will be worth it for your company in many ways. Not only are they long term and stable, but they are also very active in giving feedback, and the information they provide is a key input for management to improve on your company’s ESG performance.
Victoria Velásquez is deputy director of market intelligence and ESG at Repsol.
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