Communicating sustainability to investors – why are companies getting it wrong?

Demand for quality ESG information exists but corporate communications are still not effectively engaging with investors on these key value drivers. Rita Sampainho identifies what it takes to have a strong ESG communications strategy.  

The established links between corporate sustainable strategies and increasing financial returns has resulted in a growing number of investors now considering environmental, social and governance (ESG) factors in their investment decisions. For instance, the PRI, the world’s leading promoter of ESG incorporation into investment practice, now has more than 1750 signatories, representing around US$70 trillion. The ESG performance of companies has thus shifted from a niche topic of interest for socially responsible investors to a mainstream movement within the global investment community.

As a result, investors and analysts are now searching for relevant ESG data on corporate digital communication platforms. But despite this fast growing interest, most companies are lagging behind in terms of innovation and creativity when it comes to conveying sustainability messages to the broader investment community.

Recognising this gap in the mainstream Investor Relations (IR) communication platforms, Corporate Citizenship conducted research into the best ways in which IR teams can communicate clear and effective sustainability messages to investor audiences.

We found that companies that excel in various areas of sustainability have already spotted the potential of using multiple communication channels to talk about their ESG issues. But it is not just about using the right channels. It is about conveying the messages effectively and creating a compelling story that demonstrates that ESG investments are delivering long-term shared value for both the companies and the communities they serve.

One such company is Unilever, which uses mainstream communication channels to attract the interest of investors: a dedicated IR webpage, the annual report and accounts, conferences and presentations as well as financial reports. While such channels represent the traditional points of interface with the investment community, what is innovative about Unilever is the way in which messages are communicated, truly reflecting a holistic view of the business where sustainability is central to business growth.

We have reviewed Unilever’s IR channels and identified a number of criteria to create a best practice communications model, against which other companies could be benchmarked. A strong ESG communications strategy will have some or all of the following features:

1. Reference to sustainability throughout, demonstrating the commitments to responsible business and making links between sustainability and overall performance.
2. Information on relevant ESG risk factors, assessing how they influence the business strategy, and providing information on how to effectively manage them.
3. A sustainability plan, developed around goals and targets that provide a forward looking view of the business.
4. The integration of the Sustainable Development Goals into the business strategy, thus increasing credibility in sustainability efforts.
5. Case studies of ‘consumer-facing’ programs that evidence achievements in sustainability and demonstrate how these programs delivers value back to the company and its stakeholders.
6. Sustainability leadership from the top with quotes from the CEO and Chair that reiterate the importance of sustainability as a vehicle for long-term value creation.

Looking at many FTSE100 or Fortune500 companies, it is surprising how few come close to addressing these aspects in seeking to effectively engage with investors. Even among the leaders, several are disappointingly missing out on investment opportunities by not making the most of their communications.

So why are companies struggling to articulate their sustainability stories to prospective investors? Effective ESG communications benefit from a solid sustainability strategy, a culture of leadership, and one of collaboration. But, truth be told, getting these right is not that simple.

Common challenges in achieving these, and thus in developing an effective communications strategy include:

1. Lack of understanding of businesses impacts: Understanding business impacts is an essential part of a solid sustainability strategy, since it allows for the identification of relevant ESG areas that should, in turn, be communicated to investors. Although measuring impacts is becoming a common trend amongst responsible businesses, the majority still struggle to account for impacts that extend beyond their own operations to the wider, complex value-chain. As such, the breath of ESG areas that are disclosed to investors may not be representative of the companies’ whole operations.

2. Lack of understanding of the sustainability ‘business case’ at board level: Convincing senior managers of the sustainability ‘business case’ can be a challenging task. For example, creating a sustainability plan requires agreement between various levels of management, and cannot be implemented until it gets official sign off from a board member. Whilst CR teams are often keen to put these plans into practice, they can face obstacles from those who are pre-occupied with quarterly financial results. Sustainability must therefore be supported by the most senior employees who have greater leverage to drive change. Companies that are best equipped to do this are able to demonstrate the benefits of sustainability efforts in terms of value to the business and communicate this to their investors.

3. Lack of collaboration between CR and IR teams: One would think that in an era of responsible investment, these two teams would work together to translate ESG data into meaningful information for interested audiences. However, this is not the case. Previous research from Corporate Citizenship has shown that there is often a structural divide between these two teams that prevents them from working together to effectively communicate with investors. CR teams are able to see the bigger picture and know that ESG performance drives long-term business value. In contrast, IR teams are often pressurised by companies’ shareholders and tend to focus on more easily quantifiable, short-term financial performance metrics. Bridging this divide is key to success.

As the number of responsible investors continues to grow, companies should reach out to them, making use of the many communication platforms they have available. Most companies would benefit from a more structured approach to ESG communication. The first step to achieving this is to implement internal changes in the business culture so that sustainability becomes an integral part of discussions about corporate performance in both the short and long term. Getting this thinking embedded is the starting point for planning effective ESG communications to mainstream investors.

Rita Sampainho is a Senior Environmental Researcher at Corporate Citizenship.