CANADIAN IR PRACTITIONER PERSPECTIVE

If you’ve been in the investor relations profession for several decades, what is often striking is how little has changed about the day-to-day practice. We prepare for quarterly earnings and we have investor and analyst calls. We run roadshows, conferences and investor days. We coach our executives, develop narratives and messages, and deliver investor feedback to our C-suite and Boards. We all know the routine well. Sure, there has been some evolution. We’ve added new technologies to the mix – there are IR apps and better investor tracking tools. But really, the essence of what we do, day in and day out, has remained remarkably consistent. I am starting to think, though, that the next few years will bring major changes to our profession and alter how IROs will add value.

I’m not typically one for big prognostications, because what at first seems to be change is often just a point on a pendulum that will swing back. But I’m going to throw this idea out there because the evidence seems to be piling up: IROs will need to become experts in environmental, social and governance (ESG) factors to stay relevant to Boards, executives, and investors. More than anything else, this is the value IROs will bring in the future, and it will affect the kind of skills and competencies we need to develop today.

Here’s why I’m making this prediction:

1. Activists have driven the expectation that Boards will engage with investors directly. Ten years ago, it was the rare director who would speak with shareholders outside of the annual meeting. Now, it has become a part of the director role, particularly for chairs and committee leads. In this new regime of Board and shareholder engagement, the IROs who are at the top of their game are those who are facilitating that engagement and acting as the conduit for the Board.
2. This leads to the next point, which is that institutional investors, including activists, are increasingly focused on ESG factors. Yes, activists may be using governance and other non-financial matters as wedge issues to force an event, but nonetheless this means that in order to add value for shareholders and corporate Boards, IROs need to become experts in these areas.
3. The rise of passive investing – all those funds flowing into ETFs – means that there is a concentration of capital in the hands of fund managers who are not focused on the quarter, or even the year. These guys are not only long-term oriented; the biggest passive investors (BlackRock, State Street, et al) are vocally pushing companies to focus on the long term too. These money managers just want to be confident that their investments are in the hands of good fiduciary stewards who will not commit fraud, create an environmental disaster or cause a #metoo problem. For passive investors, it’s all about risk mitigation, which brings me back to points one and two. If these institutions ask for a meeting, it’s going to be with your Board and it will focus on ESG. So how does an IRO add value? The answer is – by being the expert.

If you think that there’s still no way ESG is going to be that important to IR, then your inbox looks very different from mine. I can’t go a week (a day?) without seeing another survey, report, or letter from Larry Fink about how institutions want to invest in companies focused on social purpose and good corporate governance.

Last month, RBC Global Asset Management delivered this survey finding: Ninety percent of institutional investors believe ESG integrated portfolios are likely to perform as well as or better than non-ESG integrated portfolios.

“This new data confirms that the majority of institutional investors and consultants have either adopted ESG principles or are actively looking at how to do so,” said Judy Cotte, Vice-President and Head of Corporate Governance and Responsible Investment at RBC Global Asset Management. “Importantly, many institutional asset owners now believe they have a duty to consider a responsible investing approach. This ongoing shift has significant implications for how large institutional asset pools are allocated, as well as the advice and service provided by consultants and asset managers.”

So I think now is the time to ask ourselves, as IROs, what skills and competencies do we need so that we remain relevant and valuable in an age where the big money is focused on ESG?

At a minimum, I think IROs should take the lead in developing key messages around corporate governance and supporting the Board in delivering those messages directly to shareholders, as well as through meetings and phone calls, and other means of interaction.

Ultimately, IROs will add value by helping companies obtain the support of shareholders for their proxies, which means not only understanding what shareholders expect, but advising your executive team and your Board on how to build support throughout the year (and not just during proxy season), and ensuring clear, candid communications around any deviations from guidelines.

Finally, at a strategic level, IROs can be influencers who help shape and guide a company’s culture, values and corporate social responsibility initiatives. In this way, IROs can have a direct impact on how attractive their companies look as a long-term investment.

Chaya Cooperberg is Chief Communications Officer and Senior Vice President, Corporate Affairs, AmTrust Financial Services, Inc.