There is more and more evidence showing that companies who combine strong financial performance with sound environmental, social and governance practices have greater potential to outperform over the long term.
To kick off the 2014 CIRI Annual Conference, I sat down with Michelle de Cordova, Director, Corporate Engagement & Public Policy, NEI Investments/Ethical Funds, to discuss the opportunity for IRO’s to play a pivotal role in investor/shareholder engagement.
Here are four key things Michelle shared during our session, Under the Microscope: Why Companies Need to Prepare for Engagement.
Engagement isn’t just for ethical funds anymore
Socially responsible investment funds have been involved in corporate engagement for a long time. However, over the last couple of years more mainstream investment institutions have started to take an interest in environmental, social and governance (ESG) issues.
“This is partly because there has been some change in interpretations of fiduciary duty that those investment institutions are following,” said Michelle. “They’re focusing not only on financial performance, but also the environmental, social and governance issues that might have an impact on the long-term value of investments.”
Not engaging is risky business
“If a company is very resistant to talking to its responsible investors then it gives an idea that maybe there’s something to hide,” said Michelle. “Whereas companies that are responsive to engagement gives the impression of transparency and openness.”
In addition to potentially eroding a company’s corporate reputation, companies that are unresponsive to investor engagement also run the risk of being excluded from the holdings of certain investors.
“The number one reason that companies get excluded from Ethical Funds’ universe of holdings is that we can’t find the ESG information that we need in order to conduct the evaluation,” adds Michelle. “Given that desirable investors are interested in this type of information, it’s a pity to get excluded from a universe just because of not responding to outreach from an investor.”
ESG information requires immediate disclosure
While companies have traditionally shared ESG information through annual corporate responsibility reports, the TMX released guidelines earlier this year that state this information needs to be treated the same way as material financial information in terms of immediate disclosure via news releases – something Michelle says is valuable and important for investors.
“We are monitoring companies all the time, not just when we’re making the decision on whether they can be admitted to Ethical Funds,” said Michelle. “If something is happening, good or bad, we want to hear it from the company.”
Continuous disclosure also gives companies the opportunity to own the story you want to tell. “If you don’t put out the story, someone else will put out the story for you,” adds Michelle.
Use proactive investor engagement to get creative
While traditional communication vehicles such as corporate responsibility and annual reports are still important parts of the IR communications pie, IRO’s have the opportunity to leverage the growing importance of disclosing ESG information to get creative and set their organizations apart from competitors.
“The more traditional communications are still happening, but we are also seeing interesting innovations,” said Michelle.
Consider new and innovative ways to communicate, such as publishing regular blogs that focus on the environmental and social aspects of the company’s work. Michelle cites Goldcorp’s Above Ground blog as a best practice; the company uses the blog to discuss problems they are facing but also talk about positive developments.
Special sessions during investor days or webcast events featuring senior management, board members or other specialists within a company working on specific issues can also go a long way in engaging investors and other stakeholders.
As investor engagement grows in importance more IRO’s will be developing creative, proactive ways to communicate ESG information. What are some of the creative ways your company has proactively engaged investors on ESG information?
