All signals point towards increasing interest and demand for ESG data from companies. However, this is not just about ESG information anymore – it’s about access to capital as ESG shifts from a niche cottage industry to mainstream institutional investment. The signals pointing this way include: the doubling of issued ESG labelled debt in 2021; the increase in funds flowing into ESG equity products; and investors increasingly adopting net zero aspirations and looking for ways to deploy capital that aligns with this.

Given the backdrop, how do companies position themselves and get started on this journey when connecting with investors? There are many touchpoints and opportunities for issuers to convey their commitment to ESG.

Take Stock of Your Investor Base

If you are struggling with where to begin, start with what you know: your investors. Issuers already know their top shareholders but are they aware of what ESG data sources shareholders are using or how their ESG teams are structured? If you survey your largest shareholders, you will get a sense of how they are utilizing the main ESG data providers. This will help issuers narrow down how they use their valuable time and energy engaging with these data providers.

The ESG data market is exploding with new entrants but there are some foundational players that most investors utilize to some extent regardless of their model. Sell-side research has also expanded its coverage of ESG in recent years, so ensure your teams are aware of this research, as it is being absorbed by the broad market.

Also, take a few minutes when you are meeting with your shareholders to understand how ESG information is flowing into investment decisions. Are the portfolio managers directly responsible for this or is there a specialist team that supports them? Again, this will help you know whom to target for engagement and may save you some time talking to the wrong decision-makers.

Do Not Fear the 100 Page Sustainability Report

There may be stakeholders that like lengthy ESG reports with extensive case studies and stock photos, but investors are generally not among them. Most investors are looking for data, so do not assume that an extensive (and expensive) report is needed. A healthy amount of qualitative information is helpful to support the quantitative but many issuers overestimate what is required. Especially where budgets are tight, focus on the data that you can share. This can easily be added to a website without the fanfare of a glossy report, as you build your capabilities. Finally, find your industry’s SASB standard (https://www.sasb.org/standards/download/), which is a publicly available set of metrics that have been deemed to be financially material. This is a great starting point even if you can only report on a few at first.

Initial Steps are Not Costly

Some of the easiest ways to start conveying ESG information also happen to be low budget. Some planning is required but look for low-hanging fruit like incorporating ESG into quarterly earnings calls, IR roadshow materials and investor days. According to FactSet, 150 companies cited ESG topics on their earnings calls in Q2 of 2021, based on the S&P500 universe – almost triple the number in Q2 of 2020. This practice will allow you to proactively highlight your efforts and, whenever possible, demonstrate improvements in performance.

Start with Climate

Climate has been and is likely to remain a high priority for investors, given its systemic impact on the economy. Securities regulators recently completed a consultation on a mandatory disclosure regime for Canada, so we can expect final rules by the end of 2022. It would be wise for issuers to start preparing now. Familiarity with the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations is prudent, along with a gap assessment of your current disclosure.

As you approach strategic conversations in your business this year, consider how climate change affects choices or decisions you are making. Integrating this into current processes is ideal, rather than establishing entirely new ones, which will be more time consuming. The same is true for your Enterprise Risk Management process, as climate can be incorporated into these discussions. Ensure that you know the extent to which your company is exposed to climate transition risk and physical risk.

Human Capital Also in the Spotlight

Given what we have learned during COVID, workforce issues have become more prominent. This matters for all companies and it could be a great place to start. Most public companies already have data that could be shared with investors, including on workforce diversity, turnover, and employee engagement, for example. Talent is in high demand and the work experience is changing rapidly so investors are interested in how companies are attracting, recruiting and retaining scarce talent.

Approach ESG as Strategy

I can’t tell you how many times I have heard companies say that they just need to tell their story better. Sometimes this is exactly what is needed but often the issue is a disconnect between the story and the core business strategy. Marketing and promotion can only get a company so far. What investors are looking for is how ESG differentiates a business and how it drives value in the organization. In order to answer these questions, ESG must relate to business strategy and not be simply an add-on that does not resonate with how long-term value is created.

My final piece of advice is be prepared to listen to your shareholders. There may not always be complete agreement but the best Investor Relations teams I have met over the years are those that are good listeners. As you listen, watch for the trends that emerge, as this will provide guidance on next steps – even if they are baby steps.

Jennifer Coulson is Vice President, ESG, Public Markets, at BCI.