December 26, 2018

by Gregg LaBar

Back in June 2016, I wrote a blog post asking, “How do investor relations and sustainability keep missing each other?”

The issue was that investors and investor relations teams were not all that interested in sustainability and corporate social responsibility (CSR) performance and communications about that performance. And sustainability and CSR folks had their hands full addressing the reporting expectations of customers, communities, employees and the alphabet soup of ratings organizations.

This was true even though there was growing investor interest in closely related topics such as enterprise risk management, intangibles, and long-term vs. short-term thinking. The conventional wisdom from public companies was often “we never get questions about it on our earnings call; investors don’t care.”

Today, it’s safe to say that IR and sustainability have found each other, and neither one will ever be the same. For the investor world, sustainability and CSR have morphed into ESG (environmental, social and governance) investing, aka impact investing. Everything has changed:

  • Shareholder resolutions have demanded action on climate change, Board diversity, gun safety and more; even when the resolutions fail, the company response is almost always to do more and be more transparent.
  • High-profile investment firms such as Vanguard and BlackRock (which own shares in just about every public company) have made game-changing public pronouncements about their ESG expectations around Board diversity, climate change and being purpose-driven.
  • Companies are being bombarded with questionnaires, and tough questions about their Bloomberg, ISS, Glass Lewis, MSCI and Sustainalytics ratings.
  • Investors of all types – large investment firms, specialty firms, passive investors, activists and hedge funds – are now quietly looking at companies’ publicly available sustainability information and making investment and risk decisions.

ESG-oriented investors are no longer confined to just a few specialty firms and socially responsible investment funds. Globally, there are currently more than 2,200 signatories to the UN Principles for Responsible Investment. The first principle is: “We will incorporate ESG issues into investment analysis and decision-making processes.” In November 2018, BlackRock CEO Larry Fink predicted that all investors will be using ESG metrics within five years.

And, going forward, companies and their investors will be able to speak the same language. In November 2018, the Sustainability Accounting Standards Board (SASB) announced ESG reporting standards for 77 specific industry sectors – from Agricultural Products to Wind Energy. The SASB standards, which are voluntary and available for free download on SASB’s website, are the world’s first set of industry-specific sustainability accounting standards, which are designed to address sustainability factors that impact financial performance.

SASB Chair Jeffrey Hales said the intent was to provide investors and businesses with “universal concepts … for measuring, managing, and reporting on sustainability factors that drive value and affect financial performance.”

The public rollout was prominently featured at ESG-related events (sponsored by SASB and IR Magazine) in December as part of Sustainable Finance Week in New York City.

The launch of the SASB standards does not mean that sustainability reporting will suddenly become standardized and simpler. After all, SASB standards are designed to address only investor expectations and are tailored for specific sectors. Company-specific materiality, management approach, the Global Reporting Initiative (GRI) Standards and United Nations Sustainable Development Goals (SDGs) will remain highly relevant.

Investor interest and SASB standards provide another layer of expectations and more tools. To help newcomers navigate this landscape, we recommend creating a two- to three-year roadmap to efficiently manage the responsibilities and expectations. Click here to talk with us about what should happen next on your journey.