The Growing Importance of ESG Reports for Investors
October 31, 2019
ESG reports – which focus on an organization’s environmental, social and governance aspects – are becoming more prevalent. Just a few years ago, only about 1% of public companies prepared them, but that number is now roughly 25%. The reports are often considered risk management tools by boards of directors. They offer stakeholders greater insight to how investments are stewarded and what types of impacts their dollars are creating beyond just the bottom line. In the event of a market downturn and a flight to quality, ESG reports may also help differentiate and elevate a brand.
The National Association of Corporate Directors’ Northwest Chapter recently hosted an informative event in Seattle: “Managing Risk in an Environment of Evolving Shareholder Engagement.” An impressive panel of thought leaders – Randall Hopkins of NASDAQ, Weyerhaeuser Company’s senior director of investor relations Beth Baum, and HomeStreet Bank’s investor relations officer Gerhard Erdelji – offered valuable insights for companies undertaking the formidable task of creating an ESG report:
- Establish an internal ESG committee. Have a team oversee and create the report, as its breadth and depth is typically beyond the capacity of one individual.
- Communicate the ESG report initiative companywide. Each department should be aware of the report’s development and understand their role. Certain departments will be key resources to build the content: facilities and production for environmental, human resources for social, and investor relations for governance, for instance.
- Establish metrics in key areas. The ESG reports are based in fact and should illustrate performance. Individuals within departments must determine how results will be measured and be dedicated to tracking and reporting them over time.
- Keep investors in the loop. ESG roadshows, which are growing in use, inform investors about how their dollars are making an impact. Importantly, these roadshows give companies a chance to learn more about what their investors value. Additionally, more traditional investor presentations may be strengthened by including elements from an ESG report.
- Prepare board members to carry your messages. In addressing concerns from investors, it’s valuable to prepare board members to speak to investor relations issues, leveraging documented findings in a company’s ESG report. Passive investors tend to gravitate toward governance issues, while active investors want to know more about environmental and social aspects.
As investors demand more accountability and transparency from public, and even privately held, organizations, ESG reports will likely become more common across all industries. Investing time and resources into creating an ESG report creates an opportunity to keep important stakeholders engaged.