Investor Relations Must Get Up to Speed on Sustainability

Our most recent sustainability report, Investing for a Sustainable Future (part of a collaboration between MIT SMR and The Boston Consulting Group) highlighted the shift of investor interest in sustainability and the fact that many executives are behind the curve, none more so than managers in the investor relations (IR) function. While 75% of investors in our survey say sustainability performance is material to investment decisions, only half of IR professionals thought sustainability was important for business. This is a significant gap, and one that deserves additional attention.

What might explain this IR gap? One issue is that company functions are often siloed and staffed by specialist professionals with limited time and ability to consider a bigger picture beyond their own function. The IR function is no different, with extensive obligations like preparing quarterly disclosures, meeting with current investors, and so on. This specialization has meant very few IR professionals are either involved with sustainability decision making or familiar with what the sustainability side of the company is doing. Nearly 40% of IR professionals who responded to our survey said they aren’t given direction on sustainability communication with shareholders.

On the other hand, operational managers and sustainability professionals who work on sustainability issues usually have a very limited understanding of what the IR function does. They have limited knowledge about the investment community and little interaction with shareholders. As the official spokespersons for the company, it’s the top of the house that has access to investors, not sustainability managers.

Because of this arrangement, investors don’t call sustainability professionals directly for information about corporate responsibility initiatives. When investors do call, they reach out to the IR department, which is unable to engage in the kinds of nitty-gritty sustainability conversations investors are looking for. Given this situation, it shouldn’t be a surprise that nearly 80% of IR managers say they don’t include sustainability talking points in their investor conversations.

In addition, when investors do speak with company executives, they often use different terminology for sustainability activities. Sustainability managers can be dealing with roughly 100 different Global Reporting Initiative (GRI) indicators, each with its own unique terminology. Investors are not usually immersed in this jargon. So when they call a company, instead of asking things like: “How many IUCN Red List species populate your facility grounds?” their questions may be more general: “Tell me, how’s that plant doing? How’s the energy consumption? What’s the impact of fuel prices?”

So what can be done to build a company’s ability to engage investors on sustainability? Our research indicated that companies in which the IR department and the sustainability function form a partnership can create a formidable team for communicating with investors. European companies are at the forefront of this integration, largely because shareholders of European firms tend to be more proactive on sustainability issues. Where shareholders of U.S. oil giants ExxonMobil and Chevron voted against 2016 climate change proxy measures, shareholders of their European counterparts Shell and BP overwhelmingly approved them. By 2017, all European companies will have to comply with an EU Sustainability Disclosure mandate for sustainability communications.

The partnership between sustainability and IR can start out with the sustainability function acting as a supplier of information, helping to respond to specific investor requests as they arise. This can establish a relationship between the functions and help managers on both sides learn about the other’s area and responsibilities. Once confidence grows, sustainability professionals can be invited to join conference calls where analysts or investors are asking for sustainability-related information.

Best practices emerge when the IR and sustainability functions establish a true partnership with regular meetings to co-develop an equity story for their organization’s sustainability initiatives. This usually requires first identifying the three or four sustainability initiatives that are both material and moving the needle for investors. Then the partners can co-develop a presentation showing how the company’s sustainability investments in these areas are contributing to investors’ concerns about efficiency, risk, and growth. This will allow the company to take the lead on bringing shareholders along, and converting them into a stakeholder group that can help forward corporate sustainability.