My New Year’s resolution is to be even more proactive about sustainability
How could companies talk about sustainability so that it resonates better with investors? Here are my thoughts on the topic in the form of a personal professional New Year's resolution.
Some years ago, a friend of mine asked a US hedge fund portfolio manager what kind of role sustainability plays in their investment decisions. The answer was something along the lines of “come on, this is Wall Street, not a charity association”. While this might have been the status quo in the investment community until quite recently, times they are a-changing also on this front. ESG investing covers over a quarter of all professionally managed assets and the pressure and interest for environmental, social and governance issues is continuously increasing (as covered by e.g. Forbes).
Surely this is then the central topic of our discussions in investor relations?
During 2019, we had more than 200 meetings or calls with people making investment decisions. That’s a pretty sizable sample, but I must be brutally honest in that ESG would not make it to our list of the most frequently asked questions. Topics are focused on the usual suspects, such as profit and topline drivers, latest financials, market trends, margins, services, M&As and automation. While CEOs of global investor organisations already have a very strong sustainability message, it is not yet always as visible in meetings with e.g. portfolio managers.
So, not surprisingly and for good reason, investors are looking for profit. The way in which profits are created is however becoming more important. ESG is not a reporting exercise, hygiene factor or appendix of the annual review. To truly impact the company and society it is and must be a real business opportunity in the heart of the company’s strategy, that drives top-line and bottom-line performance. I believe this is the perspective that really excites investors, who would then have an incentive to also better understand those sources of value-creating potential.
For companies, this is to some extent a question of speaking the investors’ language. And right now, a lot is lost in translation. Current ESG reporting is company-specific, difficult to compare and often does not answer investors' questions, which are more about understanding the company’s value creation abilities. This lack of common language and standards is one side to it, but most importantly I believe that ESG should be tied to a company’s equity story for it to really become an integral part of the investment case.
I have recognised that both investors and customers see port automation in Cargotec as a great ESG opportunity, as it is improving efficiency, cutting emissions and energy consumption and increasing safety. It is also fair to note that almost every company is speaking about ESG opportunities today: for example, the Norwegian Financial Supervisory Authority has already warned investors about greenwashing.
My New Year’s resolution at the start of a new decade is to be more proactive in ESG communications. Investor relations is not only about answering the questions you receive. Companies have a great opportunity to drive discussion in the right direction - it’s time to be even more proactive in ESG communications!