New to the Game: Determining ESG Focal Points as an IRO

Written By Jeremy Apple, Managing Director

October 13, 2021

Understanding critical ESG topics for your company to address can be a lot to tackle if it’s your first time. With so many potential issues, where do you focus?

If you’re not sure where to start, consider the following touchstones, which, once evaluated, should be woven into the larger investment proposition to build up your ESG narrative.

Determine Your Risks

Evaluating operational risks (both internal and external) and understanding how management addresses them can be an excellent starting point. Consider these risks through an environmental, social, and/or governance lens, asking the following questions:

  • How do ESG-related topics affect the business?
    • Can these impacts be quantified?
  • What are the steps our team has taken to mitigate ESG-related risks?
  • How does our work to mitigate ESG risks then reduce an investor’s perceived investment risk for our stock?

Building out responses to each of these questions can serve as a first step to determine your company’s ESG strengths and opportunities for improvement. If you’re stumped, consider downloading the SASB standards for your larger industry. These standards identify the most relevant ESG issues for 77 separate industries to assist companies in determining ESG risks and disclosing financially material sustainability information to investors (and they’re publicly available, free of charge).

Understand Investor Concerns: What They Look at, What They Look for

Once the initial facts have been gathered, turn to your shareholders for input. Understanding the topics of greatest interest to investors will not only help guide your next steps on issues to tackle but can also help drive internal buy-in to get the job done.

  • Leverage publicly available information: Institutions (both large and small) are increasingly disclosing ESG expectations for companies they invest in.
  • As two of the world’s largest asset managers, BlackRock and State Street provide ESG-related considerations informing investment decisions.
  • If there are critical points noted by investors you have not yet considered, add them to your list.
  • Engage top shareholders to give them a chance to voice questions, comments, and concerns around their expectations for your company’s ESG practices and ask them what they might like addressed.
  • Consider involving management or board members in these calls to underscore your company’s commitment to responding to any concerns voiced on these calls.
  • If launched during the fall, this engagement can also help your company get ahead of potential issues raised by investors well before proxy voting season.

Peek at Peer Disclosures/Framework Alignment (Spoiler Alert – It’s Not Cheating)

Don’t forget to research what your peers are doing as well – your investors certainly are! Use a platform, like ESG Infinite, that does the research for you and collects peers’ ESG disclosures and the frameworks they align with. Then, spend time reviewing peers’ IR websites, CSR reports, and ESG webpages to understand what other key players in the industry are doing to move the needle on ESG disclosures.

  • Avoid recreating the wheel where possible – peer disclosures can often be leveraged or repurposed to build out materials specific to your company, saving time and resources. And taking from peers is a standard part of corporate disclosure, so there’s no need to feel guilty.
  • Keep an eye out for framework adoption among peers. If a specific framework is commonly adopted, consider taking steps to do the same, otherwise your company might be the odd one out down the road. If there is a framework or disclosure commonly adopted among peers that your organization doesn’t have, get ahead of the curve and prepare talking points around rationale, and steps your Company is taking to develop said disclosure.
  • Use your peers as a yardstick for success. Knowing how and where to outperform peers is important – as is keeping up with the Joneses.

To learn about how you can benchmark your company’s ESG priorities relative to other companies – namely those in your industry – reach out to us.

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