Stop Treating ESG Like an Afterthought

Written By Steve Adams, Managing Director, Chief of Staff

June 29, 2021

12 Ways to Weave ESG into Every Part of Your Investment Proposition

Many companies believe they are effectively telling an ESG story and conveying an enterprise-wide “commitment “to ESG because they have an ESG slide in their pitch deck. You know the one, it has those pretty green leaf icons and it is buried somewhere in the appendix.

The problem with this approach – which can be found in the overwhelming majority of investor-facing presentations we see – is that it positions ESG as a standalone issue. This is a major disservice to a topic that investors increasingly care about.

ESG issues are a top concern for today’s investors.

A 2020 CFA Institute Survey found that 85% of investors consider some form of ESG factors in their investment evaluation process. That’s more than four out of five of all investors in the market! According to the survey respondents, the main reason for factoring in ESG is to reduce investment risk.

And, it’s working. A Morningstar analysis found that three out of four sustainable funds outperformed their peer benchmarks in 2020.

For the IR teams that remain skeptical about whether investors really care about ESG like they say they do, these data should put that misconception to rest. It clearly matters, and it is time for IROs to integrate ESG into the broader story they are telling investors. But, if you struggle with how to integrate the concept into your overall narrative (as many IROs do), our framework can help.

Fit ESG into your investment proposition by making it front and center in your internal strategy discussions.

Embedding ESG into the investment story is deeply unfamiliar territory for many IROs. However, it can be achieved simply by asking the right questions of yourself and your team when designing a communication strategy. Start by breaking down your investment proposition into its components. While each company has a unique story to tell, the six main building blocks of those stories are rather universal, and each offers an opportunity to give ESG a starring role in your narrative.

You can thread ESG into all the key facets of your investment proposition by talking through the following 12 questions and using them to supplement your existing narrative.

Growth Strategy: As the core of your investment proposition, growth strategy articulates the strategic levers you plan to pull to grow the bottom line over the long term. ESG must be part of the equation here. You can work it in by asking questions such as:

  • How does enhanced ESG performance help the company attract more customers and generate more business?
  • How do our ESG strategy and corporate strategy evolve in tandem as the business grows?

Risk & Opportunity Preparedness: Investors want to be confident in your company’s ability to effectively identify and mitigate risks, while simultaneously identifying and exploiting opportunities, including (and, sometimes especially) those related to ESG. Consider:

  • Which key enterprise risks are mitigated by improved ESG performance?
  • How could capitalizing on new ESG-related trends open us up to greater attention from media, customers, prospective employees, and more?

Corporate Values & Brand: Values and brand are intangible assets with very tangible impacts on performance. And this is one of the easiest areas to work in ESG because what you are already doing to cultivate a positive atmosphere and experience for employees, customers, and suppliers is often directly related to investor hot buttons. Ask yourself:

  • How are ESG principles represented in our corporate values?
  • How could improving ESG performance elevate or strengthen our brand?

Competitive Differentiation: Investors care deeply about how you outperform competitors and differentiate your business from the rest of the pack. A stronger corporate valuation can be had by doing these things in an ESG-friendly manner. Think about:

  • What are we doing differently from an ESG perspective compared to our direct competitors?
  • How does our ESG performance make our expected growth trajectory more reliable compared to our competitors?

Strength of Leadership: The strength of a company’s leadership team is arguably its most important asset. Investors are keen to understand the skills and experience that an organization’s management team brings to the table, including ESG-specific capabilities that directly map to consistently good decisions for the business and its stakeholders. Ask your team:

  • How and why are our leaders putting ESG at the forefront of their strategic priorities?
  • How does our ESG performance help us attract the best and the brightest talent?

Performance History: The strongest growth forecast lacks credibility if it is not supported by a track record of achievement. Forward-looking investment narratives must point to past successes as collateral for investor trust and confidence in the future. All the better if ESG has played a role in your previous wins. Think about:

  • What are key, strategic ESG accomplishments that the business has achieved to date?
  • How have certain ESG initiatives positively impacted our ability to achieve strategic results?
ESG Prop

Unlock greater access to ESG investors.

Given the significance that today’s investors assign to ESG, it is a no-brainer to give these issues the attention they deserve. And doing so does not have to be complicated. It starts with a new way to think about your internal strategy discussions and ensuring ESG is always a part of the conversation. When you are able to do this consistently, ESG will naturally assimilate into your investment proposition, paving the way to reach new ESG-minded investors.

Need more ideas? We are happy to help. Reach out to learn how Clermont Partners can bolster every element of your critical ESG communications strategy.

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