ESG Investor Communications: Tying KPI’s to Your ESG Program

August 20, 2020

With increased environmental and social disclosures in an environment that lacks standardization, investors must decipher between a robust ESG program and one that markets an image of environmental and social responsibility.

Greenwashing is the corporate practice of spending more time and money on marketing the green nature of products and services rather than making them more sustainable. Think, Volkswagen cheating on its emissions tests while touting its low-emission vehicles.

While often this can be unintentional, a good rule for companies is not to offer ESG commitments without the key initiatives or metrics to support it.

The ESG landscape is quickly evolving, and investors are no longer willing to settle for vague policy statements or lackluster sustainability commitments. Investor stewardship teams are looking for companies to provide clear, concise, and digestible data to support a company’s ESG narrative.

Be sure it is clear to your board and your investors, which metrics are used to measure the key ESG risks and opportunities facing your business.

The following are a few guidelines to follow to stay on the right side of ESG reporting:

Internally identify ESG-related key performance indicators (KPIs)

In order to attract the optimal investor base and maximize buy- and sell-side perception, companies need to be intentional about which ESG indicators and disclosures they put out. These will vary by market cap, age, industry, and even business model, so it is imperative to choose the right ones to drive up ESG ratings. As technology is advancing, firms are using AI data scrapers to determine their ESG investment pool, so it is essential that companies publish concise and easy to digest data to ensure they are not overlooked. On that note, simply “checking the boxes” for E, S, and G categories will not cut it. The key is to tap into insights of company’s largest internal growth engine: their culture.

As a general rule of thumb, we recommend referring to the SASB Materiality Map to determine which metrics and categories relate to your business. For continued improvement, we encourage companies to put out employee and/or stakeholders surveys to self-identify areas of opportunity for further disclosure, increase employee alignment over the long-term, and improve management receptiveness of the company.

Disclose according to TCFD and/or risk/opportunity framework

The Task Force on Climate-related Financial Disclosures, TCFD, is a market-driven initiative aimed at developing various sets of proposals and recommendations for consistent and voluntary climate-related financial risk disclosures in mainstream filings. The TCFD arranges its recommendations around four, core thematic areas to best represent how organizations operate. The four areas are: governance, strategy, risk management, and metrics and targets. 

  • Governance, refers to the organization’s governance around climate-related risks and opportunities. 
    • Strategy, refers to the actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy, and financial planning.
    • Risk Management, refers to the processes used by the organization to identify, assess, and manage climate-related risks.
    • Lastly, metrics and targets are used to assess and manage relevant climate-related risks and opportunities.

These four broad categories are designed to provide investors with a more fundamental understanding of how reporting organizations evaluate climate-related risks and opportunities. The TCFD also provides guidance to all organizations seeking to develop their climate-related financial disclosures, by means of providing context and suggestions for implementing the TCFD’s recommended disclosures. In addition, the TCFD developed supplemental guidance for the financial sector and various non-financial sectors, in order to better highlight important sector-specific considerations as well as present a more robust understanding of the potential climate-related financial impacts in those sectors. 

Include these ESG KPIs in investor communication

Ultimately, to prevent greenwashing, let the numbers tell your story. Whether it is the increased number of women on your board or decreased amount of waste emissions, per UN Sustainable Development Goals, those numbers can show investors your dedication to ESG factors, and it is important to include them in various communications.

  • First, the investor relations website is a main source of traction for ESG content; some businesses even have their own ESG home page, linking to various resources.
  • Email letters from executives or social media is also a great way connect with current or potential investor contacts.
  • Lastly, ESG-specific materials like an annual CSR or sustainability report is a great way to have all of the company’s ESG yearly ESG data in one place. Companies have also started to make their reports even more up-to-date with online, not PDF, reports to update the numbers on a more regular basis.
  • Additional examples for sharing information the IR website can be found here Bulking Up your IR Website.
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