At this year’s National Investor Relations Institute Annual Conference, a few topics that have been discussed for years were finally shown to be disruptive forces in the everyday world of the IRO.
If you were unable to attend the conference, we have compiled the biggest trends and learnings from this year’s event.
The single biggest takeaway at NIRI was that IROs are increasingly being inundated with survey requests and investor questions related to ESG. Furthermore, navigating a world of acronyms and conflicting information about ESG is prompting confusion from IROs who already have busy workloads. Not surprisingly, IROs said they have been fielding a high number of requests for completion of surveys, but don’t know which ones to complete first, as no consistent investor framework has yet emerged. IROs likewise don’t know which ratings agencies carry the most weight in this area and whether investors are even using them. Therefore, figuring out what to focus on is crucial.
A recent study of the buy-side by Clermont Partners found that 40% of respondents said they use MSCI ratings, followed by ISS and Sustainalytics, to come to their ESG conclusions. Fund managers are also relying on company-issued materials, such as your investor presentation, annual report or IR website. We have been helping IROs navigate this confusing landscape of identifying what issues to focus on, what platforms to tell their ESG story, and what rating agency scores to invest time into improving.
But even for IROs attempting to integrate ESG into their investor programs, getting buy-in from their management team is often a struggle. One of the biggest questions we heard at NIRI sounded familiar to us because we hear it from current and prospective clients all the time: “I know ESG is important, but how do I get my CFO and CEO on board?”
Helping management teams understand the financial benefit of an ESG program is crucial in garnering their support for it. If citing the $22 billion invested in ESG-related ETFs doesn’t convince them, this might: for many companies, over two-thirds of their shareholder base may be integrating ESG into their buy and sell decisions. Your biggest shareholders – from State Street to Fidelity – expect this.
The Growing Buy-Side – Corporate Connection
Although for years NIRI has addressed the decline of the sell-side’s influence, this year it seemed as if IROs’ decisions around conferences and corporate access were finally starting to reflect this shift. Sell-side conferences were on the wane, self-sponsored roadshows on the rise, and there was a lot of chatter about buy-side sponsored corporate access arms now found inside large asset management managers such as T. Rowe Price.
The diminishing role of sell-side intermediaries also seems to increasingly call into question the traditional role of the quarterly earnings call. Many IROs were wondering why they are spending so much of management’s time prepping and recording a conference call dominated by sell-side, only to have to spend hours in the following days doing 1-on-1 calls with the buy-side. Buy-side analysts are increasingly frustrated with long, repetitive earnings calls that feel like a rehash of the financial statements.
Many smart IROs are responding accordingly. They are considering shorter earnings calls in which management chiefly provides color around the numbers, versus essentially restating the press release. In addition, more are pre-recording calls and keeping Q&A sessions to less than 30 minutes. Others are considering a potential move to twice-yearly earnings reports, with just an 8K released on a quarterly basis.
Artificial Intelligence (AI) on the Rise as a Tool to Assess Management Credibility
Since analysts are looking for all the interpretive data they can get, it shouldn’t be a surprise that more of them are trying to figure out how to use AI to generate an edge. And it isn’t just hedge funds anymore – even long-only generalists sitting on panels at NIRI admitted that their funds are using this kind of advanced data. One panel at NIRI discussed how institutions use a variety of comparative factors, including technology that analyzes changes in executives’ tone and choice of words in earnings call that might signal catalysts.
IROs discussed pre-recording calls to help control management’s perceived tone, improving scripting of Q&A sessions and conducting rigorous mock Q&A prep like we always suggest our clients do. In some cases, IROs are even doing away with live Q&A sessions all together in favor of more in-depth written Q&A documents.