How to incorporate ESG into a compelling equity story & where to find best-fit ESG investment

In a joint webinar with CMi2i on 28 April DIRF members were presented to two of the most critical responsibilities of IR teams in the ESG-focused environment we now find ourselves in. Firstly, we got an introduction to how IR teams can incorporate ESG into their equity story in a way that speaks to investors.  What are the main metrics investors are interested in?  How do you strike the balance between financial performance and ESG commitments? And what does a compelling ESG-integrated equity story look like? Secondly, Audra Walton went on to demonstrate how and where to look for new investment, and how to profile your current investors to understand the level of ESG incorporation in their investment mandate. 

Ninety per cent of all investors now expect ESG to be addressed – it is not optional, and it is the broad spectra of investors, not just ESG investors. To investors it represents an investment opportunity and a way to reduce financial risk. Both asset managers and portfolio managers are under pressure to report on ESG alignment. Just having a very long sustainable report will not give favourable ratings; it must be pinned down to the important KPIs for your sector and included in your equity story.

What are the main communication mediums for ESG and equity stories

• Quarterly results presentation
• A stand-alone equity story presentation – include what differentiates your share and values
• CMD presentation – great way to start to provide an ESG presentation
• ‘Why invest’ website pages – very simple and powerful tool
• Roadshow presentation – good starting point if you do not already have an equity story with ESG included

What to include and how

• What is relevant to your investment case; NOT all from the sustainability report, as it does not suffice. Take out the relevant bits and explain how they are relevant to your investment case. List the most relevant arguments. Can your company play and active role and have product opportunity?
• Net zero commitment plan is a must; communicate the necessity of this communication internally
• Sustainability progress; how you are reducing waste, water etc. to minimize risk and costs
• With the EU taxonomy ahead explanation of data on climate adaptation and mitigation is huge i.e. a game changer for investor evaluations.
• Reporting and KPIs; give the investors the information they need and engage

Incorporate all input to an ESG equity story in its own section or presentation or a stand-alone webpage. What differentiates your company in terms of market share and market position? How are you performing financially and why? How are you performing none-financially (ESG) and why? How are you addressing risks and challenges? What are the opportunities and how are you going to capitalize on them (even if you are not a natural green company – focus on how you are trying to become best in class and outperform peers, put in the context when and where you can by using data and charts to back it up, and avoid green-washing?

You are including the relevant data and elements of each of the following sections to increase value:

• ESG/Green revolution market opportunity
• Net Zero Plan
• Sustainability (use reference to initiatives and goals on the the SDG s)
• Social policies and impact initiatives
• Climate change adaptation
• Management and governance
• Reporting, performance and awards

Try and get information and data on the above points – the more you can include, the better. This is the best opportunity for IR to work across management teams, sustainability teams and other relevant stakeholders internally. Investor communication is often down to the readability of the presentations – make it easily digestible and readable, preferably online.

Finding best fit investors – YOU CAN DO THIS YOURSELF!

Pre-select investors to target and focus on those who would potentially create demand for your stock for the long term and minimize the risk of shareholder action and activist demands. Very important to ensure not to end up with unhappy investors, minimize the risk with thorough targeting to start out with. Find the funds who can potentially invest in your company, set up filters by looking at peers. Then make a general targeting list based on qualitative assessment to balance key variables – there is no ONE formula – work out your own best match and know your audience.

Summary made by Tina H. Pedersen, DIRF