Targeted ESG communication essential for investor relations

With ESG considerations gaining increasing credence in investment decisions, companies must reimagine their investor relations communication strategy

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Net zero targets, escalated financial risks owing to extreme climate events, the impact of inequitable policies on a company’s employer brand and reputation – these are just some of the everyday concerns for modern-day organisations. Even as the tribe of responsible consumers preferring companies that offer sustainable products is growing, an increasing pool of individual as well as institutional investors is closely scrutinising company credentials and its performance on Environmental, Social and Governance (ESG) issues before committing their investments.

In such a scenario, companies, big and small, need to invest in ESG communications and make it an important element of their investor relations strategy.

Sustainability-related risks weigh on investment decisions

Consider this: Three-quarters of the respondents in PWC’s Global Investor Survey 2023 stated that how a company manages its sustainability-related risks and opportunities is vital to investor decision-making. Investors want better information on a company’s roadmap for - and cost of - achieving its sustainability commitments, and also on how its actions impact society and the environment.

Need to avoid greenwashing

Crucially, 94% of investors surveyed by PwC believe that corporate reporting on sustainability performance contains at least some unsupported claims - or what’s popularly known as greenwashing – making it imperative for organisations to be truthful and transparent in their ESG communications to win the confidence of skeptical investors.

While new disclosure requirements imposed by regulators are conducive to more consistent and comparable reporting on sustainability, sharper ESG communications could help bridge this trust deficit.

Understanding investor expectations

Companies must not only engage with investors on ESG but also tailor the communication to meet investor expectations. For this, they must start by understanding what investors want. According to a McKinsey survey of chief investment officers, institutional and other long-term investors don’t just want to know about a company’s sustainability actions but they also want to learn how these will impact its cash flows in the future or how the company will tap the market opportunities arising from ESG. In short, they want to gauge the long-term value that the company will derive from its ESG investments – and hence the future potential value of their own investments in the company.

Defining the ESG communications strategy

A well-defined, robust ESG communications plan is at the core of an effective ESG strategy. The ESG communication plan is rooted in the company’s overall communication goals and spells out its key ESG theme and outreach plan.

Investors seek information beyond generic statements. It is important for a company to define its overall ESG purpose as well as the specific ESG goals and roadmap for achieving them. The company must also clearly communicate and convey its ESG approach and achievements through compelling story-telling to enhance engagement.

For ESG communications to be meaningful, it must include improved transparency. Investors today access information from multiple sources and cross-check facts. Companies must be transparent on ESG data and metrics and also be open about their successes and failures if they wish to build management credibility. This is important to manage risks and reputation. The use of standardised reporting frameworks can also make it easier for investors to compare companies on their ESG performance. Mapping the company’s progress on, say, its sustainability or gender parity commitments is also important as investors want visibility on their investments over the short, medium and long term.

Reimagining ESG communication

Many sustainability decisions are linked to the broader business strategy. ESG communications too must be integrated with overall communication across platforms. Companies should leverage technology, including video content, for effective story-telling. They must showcase their ESG stories across platforms including their own website and social media and also by roping in other stakeholders such as their employees. Organisations must be consistent in their overall ESG stories to all stakeholders: employees, investors, government, regulators. And they must be in constant touch with their investors.

The ESG landscape is evolving continuously with new risks and opportunities emerging on the horizon. For optimal investor relations, ESG communications has to be effective, with transparency and consistency being key factors. This requires expertise in communicating.

 

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