Skroupa: How can a company organize and structure the morass of ratings, rankings, indices and listings? How can companies systematically integrate environmental, social and governance (ESG) policies?
Wallace: Primarily for any IRO, you are already receiving a variety of content in your inbox. A quick analysis of these active investors, the ones that are most interested in ESG is not difficult to achieve. Briefly scroll through the hundreds of signatories of the CDP and PRI to see who is interested in these topics, indicating the institutions that are also probably doing some due diligence on you. Compare the list of signatories against your own largest shareholders: this investigation provides a sense of how involved your shareholders are in these issues. See if a formal engagement effort with these interested parties–in order to share your ESG information–would be advantageous. The next step would be to turn to your Bloomberg Terminal, most CEOs and CFOs have one at arms length. Look up your company, but not only that, look up your industry using the ESG tab. Focus on the peers in your industry at a global level to see what sort of ESG information already exists in the marketplace. Bloomberg subscribers number over 325,000 across the world–many are the signatories we’ve shown you in the CDP and PRI lists–they now have ESG information at the click of the button. Many companies are leveraging their ESG disclosure to benefit from the rising tide of investor interest and activity. Asset owners make their investment decisions based off this data, so use your subscription at Bloomberg to see what information you have in the terminal already.
Skroupa: What is the best approach a company can take when assessing this field and responding to this demand?
Wallace: Recognize that the market demand for quantified, credible and verified ESG information is growing exponentially. Also realize that this demand isn’t limited to these active investors, but customers, employees, local and national regulators are increasingly asking companies to report on sustainability performance. Understand that not disclosing on such issues sends its own message to the markets about overall governance, as well as general awareness of modern market conditions. Be aware of the current workforce trends and the growing competition to attract and retain top talent. Millennials are very interested in sustainability issues and want to know they are working for a company that treats its own people, local and distant communities, suppliers and customers responsibly and with respect.
Publicly traded companies should compare their largest investors against the lists shared above and assess how much capital is oriented toward ESG issues. Realize that even though these issues may not present themselves at the annual general meeting, that doesn’t mean investment analysts aren’t reviewing and integrating ESG performance into their analysis. Assess industry peers on their ESG disclosure and sustainability reporting activities.
Note that most sustainability reports refer to the Global Reporting Initiative (GRI), and leverage this ‘crowd-sourced’ global roadmap for disclosing sustainability information. GRI is 20-year old, global, non-profit organization that developed the world’s most widely used approach for measuring, managing and reporting on sustainability information. The freely available guidance has circled the globe and GRI Reporting is now being written into laws, integrated into stock exchange listing guidelines, expected by the world’s largest asset owners and managers and demanded by customers. GRI also maintains the world’s largest database of known GRI reporters–Sustainability Disclosure Database–which allows any company to understand the reporting dynamics in its country, sector and of its customers and suppliers.