Webinar Recap: How ESG is driving enterprise value

17 July 2017

By Lorena Reyes

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On July 12th, Q4 hosted a discussion on the rise in environmental, social and governance initiatives (ESG), and how it’s driving enterprise value for publicly-traded companies. Adam Frederick, SVP, Intelligence at Q4 hosted a jam-packed conversation between industry experts Rob Berick, SVP & MD at Falls Communications from Cleveland, OH; Petter Narvestad, Advisor at Crux Advisors from Oslo, Norway; and Lauren D’Oliveira, Communications at Detour Gold from Toronto, Canada. The conversation offered valuable takeaways for IROs looking to better engage with investors and create effective communication strategies that incorporate ESG initiatives.

#1 ESG is now mainstream

With more than $2 trillion poured into sustainable investments in the last two years, some of the largest investors in the world now view ESG as value-creating, and are actively analyzing it across all their portfolios.

 

In North America, the ESG conversation used to be secondary. Now, it’s part of the overall narrative as investors look for insight that helps them better understand the long-term value proposition of a company. As public companies across the US and Canada analyze their geographic footprint, they identify that they are less competitive outside their country, than let’s say European companies, because of their resistance to adopt ESG disclosure.

The overall takeaway for IROs, says Rob Berick, is not to wait for a stakeholder to ask about your ESG initiatives. It needs to be proactively incorporated into your investor communication. While the attitude from most IROs used to be that “if investors aren’t asking about it, I won’t talk about it”, in today’s landscape, waiting to be asked can result in many missed opportunities.

In the EU, ESG has moved past being a niche interest to being a critical part of the investment decision.

 

About 60% of all asset managers for EU investments incorporate sustainability investment strategies.

 

For investors, ESG is not just about a company’s long-term growth strategy; it’s also an indicator of how it handles risk (ie. environmental risk, legislative risk, etc.) and how it gets communicated.

#2 ESG reporting is integral to overall business strategy

The key to ESG reporting is transparency. ESG can no longer be a box to check off, but must be embedded in the company’s culture and business practices. There is a need and want from investors for companies to provide a complete picture, which includes risks and preventative measures the company is taking to ensure a low social and/or environmental impact.

From an investor’s perspective, ESG transparency reduces risk and increases understanding. “When you have one company that is transparent about their ESG initiatives, and another that remains silent, investors will be attracted to the company that communicates their ESG efforts publicly.”

“Above reporting, stakeholders want the ability to compare company to company, or “apples to apples” more efficiently,” shared Lauren D’Oliveira. For Detour Gold, they are beginning to report under the global reporting initiative (G4 Sustainability Reporting Guidelines). Using a systematic approach helps all stakeholders, including those that are not financially-literate, better understand efforts taken across the board.

#3 Regulations: What does the future hold for ESG investing?

Much of ESG investing is driven by European investors that invest globally, and U.S. companies will continue to face the same pressure from investors to remain competitive outside the U.S. According to Morningstar, Europe has twice as many assets in ESG investments as the United States.

European countries and particularly the Nordic region have been global leaders in setting the standard for mandatory ESG reporting. European countries are seeing a clear push from EU stock exchanges toward sustainable reporting, and guidelines on how to implement sustainable reporting.

In Norway and the UK there are regulations in the listing obligations as part of the stock exchange and the securities trading act. In Norway alone, there are 15 subsections within that framework covering the responsibilities that pertain to the board of directors, managers, etc., on how to manage ESG initiatives, which is very important to investors to have a clear understanding on.

 

As investors continue to become increasingly influenced by ESG factors, IROs face a growing need to understand and communicate their ESG story effectively. You can watch the webinar here for more best practices on incorporating ESG initiatives into your overall strategy, and how to best communicate non-financials with your investors.

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