Five ways to strengthen your ESG communications
By Rowena Crowley
As Environmental, Social, and Governance (ESG) performance is becoming a bigger factor in the investment criteria and stewardship duties of investors, there is a compelling case for companies to strengthen their ESG communication and reporting.
Companies are responding to this trend by attempting to integrate ESG issues into their financial reporting, board agenda, and wider communications. However, this is proving to be difficult, as there is still much uncertainty around materiality, legislation, terminology, and data requirements. Telling a relevant, timely and credible ESG story to corporate audiences in a time of extreme public cynicism only adds to this challenge.
Still, none of these hurdles are insurmountable. We believe that companies should see communicating ESG issues and performance as an opportunity to build trust, demonstrate their social relevance, and attract investors who are prepared to reward them for creating long-term value for society.
Below are five recommendations for strategically and effectively communicating ESG performance:
Define your purpose
Purpose and ESG performance are inextricably linked, as they both focus on long-term value creation and the role of a business in society. Larry Fink’s recent Letter to CEOs stressed that purpose is what helps companies understand their role in society. As companies can’t exist outside of - or without - society, using purpose as a company’s lodestar is beneficial. Investors recognise that a clear purpose and strong stewardship can lead to long-term value creation, and ESG performance plays an important role in broadening the scope for value creation.
Focus on material issues
This push towards greater ESG transparency has resulted in many corporate communication teams grappling with how best to communicate their ESG credentials in a credible and meaningful way. While ESG data and the how this needs to be presented and monitored are still being defined, it is vital that companies identify and focus on the issues that they believe to be most material to their specific business. Much like purpose, material issues should be rooted in a company’s unique strategy, stakeholders, and industry context.
Financial audiences will be looking for analysis into how a company could benefit from, manage, or mitigate risks associated with material ESG issues, and evidence that ESG considerations have been incorporated into the strategy, business model, and governance. Explaining how those issues may impact the business - through legislation, stakeholder relations, licence to operate, employee turnover, and so on - will be important. Providing a candid, long-term view on ESG trends, ideally for the next ten years, will also help build trust and stakeholder confidence.
Review your approach to corporate reporting
Corporate reporting needs to respond to investors’ demand for a holistic picture of the business, its value drivers, and its ESG performance. That said, a challenge for many companies is that their sustainability communication has traditionally been created for non-investor audiences. A vague commitment to ‘sustainability’ won’t cut it with investors or other corporate audiences.
We advise companies to take a critical look at their corporate reporting and assess how effective it is in communicating ESG performance. From our perspective, sustainability and ESG content should be the same thing - when sustainability reporting is done properly, it identifies and addresses material issues that may impact long-term business strategy and financial and operational performance.
To meet investor requirements, companies will have to provide clear and transparent targets and performance data to facilitate easier comparisons and understanding. While there isn’t a global consensus on the requirements for full ESG disclosure and some ESG issues don't lend themselves to precise measurement, investors typically refer to the following frameworks:
- The Sustainability Accounting Standards Board (SASB)
- Global Reporting Initiative (GRI),
- The CDP
- The UN Global Compact,
- The Climate Disclosure Standards Board
- The International Integrated Reporting Council (IIRC)
- The FSB Task Force on Climate-Related Financial Disclosures
Build internal understanding
Having a clear purpose is a vital way to unify a company, and it’s important that an organisation’s shift towards long-term value creation is communicated and embedded internally - from your employees, right through to the Board.
ESG risks, opportunities and commitments need to be understood by internal stakeholders, and ESG issues must be on the boardroom agenda to bring about change. To present a holistic picture of ESG performance to the outside world, it’s also critical that teams such as HR, IR, Sustainability, and the Company Secretary collaborate to build and present a more comprehensive ESG picture. Traditionally, corporate communications activities are managed by different functions, but as ESG covers such a wide range of issues, a more joined-up approach is required.
Evaluate your communications framework
While ESG has become an investment term, a company’s approach to - and performance in relation to - environmental, social, and governance issues is relevant to a much wider group of stakeholders, including customers, employees, journalists, sustainability experts, and regulators. Articulating your ESG performance and what you mean by long-term value is not a once-a-year update, but rather a year-round communication effort.
We recommend reviewing your communication framework to assess if it will enable you to clearly explain how ESG risks and opportunities are identified, understood, managed and measured. Once that is complete, it’s time to build a communications plan. The plan will need to consider all digital and offline channels, including the specifics of how you will engage stakeholders in dialogue about these issues. ESG reporting should not be a substitute for dialogue with stakeholders, it should act as a starting point. The revised UK Stewardship Code reminds investors that their responsibilities go beyond using ESG criteria in investment decisions and must instead continue throughout the lifecycle of a holding, which is why engaging in stakeholder dialogue will be increasingly important.
In summary, communicating ESG performance provides an ideal opportunity for companies to differentiate themselves, demonstrate their long-term value to society, and build stakeholder confidence. There is no one-size-fits-all formula to follow at this stage, but presenting material environmental, social and governance issues in a timely, accurate, and transparent manner based on existing global frameworks is the best way to start doing so.
If you’re interested in reading more about ESG, take a look at our insights on why 2020 is the year for ESG information on corporate websites.
If you would like help strengthening your ESG communications, please get in touch.