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Jun 14, 2019

ESG engagement widespread among governance pros, study finds

Involvement particularly common at larger companies

Most corporate governance professionals, particularly at larger companies, are now dealing directly with investors on ESG-related matters – underlining the importance of the area for shareholder engagement, a new study shows.

More than two thirds (68 percent) of corporate governance professional respondents have had a personal interaction with investors about ESG over the past year, according to the ESG & Investor Engagement report published jointly by Corporate Secretary and sister publication IR Magazine. The report also looks at the experiences and views of investor relations officers and investors.

ESG-related engagement by governance officials is more widespread at larger companies, the research finds. Among respondents at issuers with a market cap of more than $5 billion, just 21 percent have had no contact in this area over the past 12 months. By contrast, almost half (44 percent) of those at companies with a market cap below $5 billion have had no involvement with investors on ESG in the past 12 months.

Corporate Secretary polled 109 North American governance professionals in Q2 2019.

Overall, of the range of issues covered by ESG, governance issues crop up most frequently: 62 percent of all respondents have discussed governance matters with investors at least quarterly. By comparison, 35 percent of professionals talk to investors about environmental issues at least quarterly, and 37 percent do so about social issues.

The E and S of ESG get more attention at larger issuers. Almost half (44 percent) of respondents at companies with a market cap of more than $5 billion talk about environmental issues with investors at least quarterly, compared with 24 percent of those at smaller firms. Similarly, 48 percent of governance professionals at large companies discuss social policy matters quarterly while 27 percent of their peers at smaller issuers do so.

The most frequently used forms of interaction with investors are ESG-focused conference calls (24 percent of respondents have used this method over the past year), group meetings with ESG analysts (23 percent) and ESG-focused conferences (22 percent). Almost half (45 percent) of governance officials at large companies have taken part in ESG-focused conferences in the last 12 months, compared with just 13 percent of those at smaller companies.

In addition to finding the right level and means of engagement on ESG, companies must also decide which among an array of requests for information from ESG rating agencies and index providers they will respond to.

According to the research, companies respond on average to 7.5 information requests/questionnaires from ESG rating agencies/index providers every year, or roughly one every seven weeks. Larger companies, which are targeted more frequently but also have more resources to respond, file on average 7.8 reports per year, while smaller firms file on average 7.4 responses annually. Twenty-seven percent of respondents overall – and just 11 percent of large companies – don’t respond to any information requests.

For companies, disclosing ESG-related information creates potential benefits and disadvantages. Respondents’ comment on the benefits tend to relate to satisfying investors’ interests, seizing control of the company’s story and enhancing its public standing.

There is a clear rise in the demand from our shareholders for robust ESG dialogue and disclosures,’ Rishi Varma, general counsel of Hewlett Packard Enterprise, tells Corporate Secretary. ‘They understand the relationship between ESG and business value, and the integral role ESG considerations play in forecasting performance, measuring risk and assessing a company’s ability to sustain competitive advantage over the long term. And importantly, ESG issues are key drivers in our strategy, purpose and philosophy. Articulating our corporate narrative without ESG considerations would be telling an incomplete story.’

On the negatives side, respondents’ comments tend to relate to the quantity of data involved and ensuring its accuracy and relevance, as well as dealing with the variety of metrics and standards in the industry.

‘One of the challenges in focusing ESG disclosures is that ESG concerns vary by investor and stakeholder, and although helpful guiding frameworks have been proposed, there is no universally adopted standard for measurement or disclosure,’ Varma says.

You can read the full ESG & Investor Engagement report by clicking here.