Over the past year, buzz around ESG investing has grown significantly. From BlackRock’s January investor letter to the resiliency of environmental, social, and governance (ESG) funds amidst the COVID-19 crisis, these financial products continue to gain in popularity, and managers are becoming increasingly sophisticated in their analysis of companies’ ESG focus. And for good reasons: Consumers increasingly expect corporations to match their own values, and investors are aware of the long-term risks that ESG liabilities create for potential growth.
By understanding the criteria most commonly used to build investment funds and how key stakeholders are consuming this information, businesses can elevate their profiles and tap into the opportunity space ESG investing has created. As more companies are stepping up to take meaningful action on social responsibility, the challenge lies in finding the right balance between check-the-box reporting and self-promotional content. The goal: to identify an engagement strategy that allows your business to do well (with investors) while doing good.
Know your audience
Understanding the differences between the two primary stakeholders is key. First, the fund managers themselves and the research firms that support them (think MSCI or Morningstar) are focused on liability, risk mitigation, and maximizing shareholder return. They largely rely on a mix of data analytics, disclosure filings, media coverage, and brand awareness to drive their decision-making process regarding those companies best positioned to withstand future risks related to issues like climate change, human rights, and diversity. Research firms that support fund managers often highlight specific criteria and their methodology for ESG fund ratings, so taking into account data-rich reporting on carbon intensity, green and brown revenues, board composition, and other quantifiable ESG factors should be part of any positioning strategy.
The second stakeholder is the investor who cares about a company’s corporate values. To this cadre, brand reputation, public statements, and corporate social responsibility (CSR) efforts speak volumes. While ESG funds have traditionally been tech-heavy due to tech companies’ more modest climate liabilities, these investors are increasingly interested in funds that include companies with an active stake in the environment. Amazon’s recent announcement of a clean energy venture fund highlights that company’s awareness of this particular trend.
The opportunity in corporate reporting
While these audiences are distinct in the company messaging they are consuming, the foundation of effective communications to both is corporate sustainability reporting.
GRI, SASB, CDP: These are just a few of the many frameworks that exist for corporate reporting on ESG practices, and they are a key part of the index research ecosystem. While the frameworks themselves may feel daunting, the good news is there is no requirement that companies undertake sustainability reporting, only best practices to help guide the process and avoid green-washing. Reporting can be resource-intensive, which is why it is so surprising when the final products are often relegated to obscure web pages upon release. But if companies consider these reports as opportunities to communicate with ESG fund stakeholders, the return on investment can be huge.
For starters, sustainability reports are a foundational resource for an organization’s overall ESG profile. They can provide not only the data financial research firms rely on, but a reservoir of content such as adherence to UN Sustainable Development Goals and mitigation plans that both audiences want to understand.
Get the ‘Comms’ team on board
To leverage these products, consider first their media value. While data aggregators and analysts will pick up on media signals, investors will also look for these cues to drive their strategy. Younger investors are particularly interested in the headlines around CSR, which has significant implications for the future of portfolios given the transfer of wealth set to occur over the next two decades. By aligning proactive communications efforts to the news of the day, companies can boost their reputation and expand interest in their stock. Over the past several months, the COVID crisis and Black Lives Matter movement have created significant opportunities for corporations to do just that, resulting in a spate of stories in mainstream media.
These events and corporate engagement also created a swath of opportunity space for brand building and thought leadership. As hundreds, if not thousands, of companies got involved in both COVID response and the discussion around racial inequality, those that did so authentically were the most successful. Energy companies like NextEra suspended COVID-related disconnections and committed millions to emergency assistance; airlines stepped up to fly first responders to the cities in most need of help; and apparel company Gap Inc. not only re-upped a conversation it started around equal pay for men and women, it doubled down and committed to fixing any racial disparities in pay this year.
Beyond these high-profile efforts to capture the zeitgeist, companies’ sustainability reports continue to provide the most transparent insight into where they stand and where they need to go. The snackable, fact-based content around issues like diversity and community support found in reporting can provide powerful data to back up buzzy corporate statements in times like these.
Pieces of content in the form of infographics can do more than back up buzzy statements, too. They provide ways to engage with consumers, investors, data aggregators, and even employees where they live: in the digital space. When companies increase their online engagement with a variety of audiences, A.I. is more likely to pick up on and incorporate corporate messaging into its research. Beyond data mining, these pieces of content also reach the human eyes that are ultimately scanning for qualitative and quantitative points to help them determine their investment strategies.
With a solid foundation based on CSR efforts and reporting frameworks, corporations can effectively communicate their values and long-term profitability to analysts and ESG investors alike. Messaging along these contours already generates enthusiasm at the consumer level; there is every indication that it has similar effects at the investor level. With effective communications around this work, companies’ CSR work promises to yield even higher returns on Wall Street, showing just how good social good can be for business.
Lindsay Singleton is a CSR expert and managing director at communications firm ROKK Solutions, where she leads the company’s social good practice. Josh Goulding is cofounder and partner at 4J Wealth Management.