Sustainable Investor Access: Highs, lows and lessons learned
Through 2021, InterAxS managed a Sustainable Investor Access (SIA) programme to test the concept of efficient direct communications between companies and investors. We offered a subsidised programme of sustainability-focused corporate investor access to 10 companies*.
The good news is that it works! … but it is a bit more complicated than that.
Direct communications between companies and investors are beneficial for both sides because the approach:
· enables a focus on material issues (in ways that questionnaires and ratings don't)
· allows sustainability issues to be planted firmly within the context of a company's real business operations
· gives companies the opportunity to gauge analysts and investors' understanding of their business, clear up existing gaps in knowledge and prevent other misunderstandings from developing
· Finally, using a third party to organise the process, gives massive leverage and increases efficiency hugely - although we would say that wouldn't we!
Given the rise of ESG and sustainable investment and regulation, we expect that most listed companies will now be considering how to communicate their sustainability exposures and management practices to investors over the year ahead.
So, to help all of these companies with their own planning and execution for 2022, we share some of the situations that we encountered and the solutions that we found.
We plan to extend our programme of work in this area into 2022. So, do get in touch if you would be interested in working directly with us.
"But will direct communications really help our sustainable investment communications?"
Situation encountered: At the outset, we encountered some nervousness and a little scepticism from companies about the process of direct communications on sustainability with analysts and investors. While many companies know that their current communications activity is not as efficient or effective as it might be, it still takes some confidence to try a different approach.
Solution found: Ultimately, experience is the only thing that really helps in this respect. For the first companies in the programme, the process was experimental - but as the programme progressed, we were able to highlight to newcomers the positive experiences of their predecessors. Specifically, we were able to give clear (and current) answers on how investors and analysts are identified, how message development is supported, how logistics work etc.
“Who is the audience?”
Situation encountered: While companies know that there is growing interest from investors in their sustainability exposures and management practices, they often don't understand the full range of investor and analyst interest. Typically, they will know about ESG ratings agencies and some of the ESG interest of the asset managers that already hold them. However, we found that they often don't know about the interest of 'sell-side' firms, of credit ratings agencies and of many of the larger and more integrated asset managers.
At an individual level, most companies know the mainstream financial analysts that cover them. Few companies, however, know the names of the ESG / sustainability fund managers or analysts that cover their sector or company in particular.
Solution found: Some parts of this were easy - we started with a Register of SRI Interest provided by SRI-Connect. These 'Registers' list - for each company - the investment firms that hold them and that might be interested in them and - for each of these, the analysts that cover their industry sector.
Some parts were harder - as some asset managers and research firms don't disclosure who covers which sectors and issues. In these cases, there is (unfortunately) no substitute for time spent on emails and on the phone chasing and chasing and chasing again.
It is worth noting here that the volume of assets that are managed according to sustainable investment principles is growing rapidly, there are new funds being created almost daily with analysts and portfolio managers moving between asset managers. Knowing who is where can feel like a full time job (and we understand why it is not one that companies want to do themselves).
Although the tracking can be hard work, it is ultimately a positive process.
Investors were willing to take meetings and companies were keen to broaden their touchpoints within the institutional investors they already hold a relationship with as well as engaging with new potential pools of capital.
“Today’s schedule has been terrific with incredible engagement across the board, you pulled together a day of meetings with some of the most influential investors in the sector.”
“We felt the 1x1 investor meetings in particular were very rewarding; really engaging and insightful conversations (two ways!), with investors eager to learn more and understand the process and strategy more than anything.”
“This was a great first ESG roadshow. And we have come away feeling encouraged that we are on the right track, and more deeply engaged with some of our largest investors.”
“How do we tell our story?”
Situation encountered: Although most companies already have sustainability or CSR activity to tell investors about and are generally keen to engage directly with them, many have questions and concerns around how best way to convey messages and to tell their story. They worry about the enormous range of topics under the E, S and G umbrella and are concerned about how they can encourage focus on the issues that are most material to their business.
“What if I am asked questions on topics where I don’t know the answer”.
Solution found: With a number of companies, we found that our first job involved advising them on messaging and on how to focus their meetings on the most significant issues for them and for investors. Typically, these meetings took an hour and involved us guiding companies to combining any recent strategy presentations with any recent sustainability material … and sharing a little trick we have learned about the tactical use of appendices.
"Who should present from our side?"
Situation encountered: Many companies didn't know whom to put forward as presenters.
Solution found: This one was easy. All the roadshows on the programme consisted of virtual meetings were headed by the Head of Sustainability and the Head of Investor Relations. This was well received by investors - as this enabled them to ask more detailed questions on sustainability themes and issues than they are typically able to in 'mainstream' roadshows.
To other companies, we would suggest thinking about involving a Head of Inclusion and Diversity or heads of other key areas within the wider CSR team.
We don't think there is need for senior 'C-suite' executives on these roadshows unless they actively want to be involved, unless the roadshow is specifically focused on corporate governance or unless the company faces sustainability challenges or opportunities of a scale that makes it appropriate for the C-suite to demonstrate their level of commitment to sustainability issues.
“Show me the money”
Situation encountered: One company on the programme said they found it hard to reach out pro-actively to sustainability-orientated pools of active capital. They had frequently experienced sustainability investors focused on downside risk but challenged us to ‘show me the sustainable money’ - in other words, identify the investors that they might attract for the first time by highlighting their sustainability activities.
Solution found: This request led us to extend the project significantly to create a listing of asset managers that are actively allocating capital towards sustainability solutions or substantive sustainability transitions. For more information on this, please see the report published by SRI-Connect here: Show me the (sustainable) Money
"At ESG agencies, who is responsible for my stock and how do I reach them?”
Situation encountered: Companies often don't know the names of the analyst that covers their company at each ESG agency. Their primary point of contact is often the 'issuer relations team'. This is great if the company wants to understand the process deployed by the ratings provider. However, it is not so useful if the company wants the ratings provider to understand their firm and their activities. For this, they need the lead sector analyst.
Solution found: Finding the lead analysts on sectors at ESG ratings agencies was - initially - challenging. However, as we delivered more meetings that these analysts found valuable, we were able to build relationships at these agencies such that we now know the analysts on many sectors and get support from them to identify their colleagues on other sectors.
Situation encountered: Having been through one iteration of sustainability roadshowing, companies have asked "What's next?"
Solution found: "What's next?" is exactly the right question to ask. One of the main lessons that - we think - companies have taken from this experience is that relationships matter in sustainable investment communications just as much as they matter in 'mainstream' investor communications.
As a result, we advise all companies to use the first year of communications to lay foundations for a sustained level of investor communications over the years ahead. We strongly discourage companies from embarking upon massive programmes in year one and then to fall silent in year two.
Overall, we think that the Sustainable Investor Access project enabled participant companies to maximise the impact of their outreach to investors and research analysts on sustainability issues and did so at little time or financial cost to them. (In fact, it is more likely that it delivered time- and cost-savings once you take into account the time saved correcting ratings and organising ad hoc investor meetings).
More significantly, we think direct communications changes the quality of communications structurally (from box-ticking to strategic dialogue).
“This was a great opportunity to not only tell our sustainability story, but also establish an active dialogue with investors.”
Corporate access has always been a key element in the investment decision process and now within this evolving sustainability landscape, it has been revitalised.
We hope that the answer to "What's next?" is "More of the same, please".
For any company thinking about sustainability communications, please contact us: email@example.com
* The Sustainable Investor Access Programme
Through the Building Bridges programme commissioned by the World Business Council for Sustainable Development and funded by the Gordon and Betty Moore Foundation, InterAxS Global and SRI-Connect offered 10 companies with exposure to the food & fibre value chain a subsidised programme that included investor & analyst identification, preparation support and the organisation of a one-day virtual roadshow with sustainability investors alongside a webinar with ESG agency analysts.
Challenges of using social media to communicate ESG messages (part I)
In the past 10 years IR has become multi-dimensional and uses many different communication channels, including social media. As an investment analyst this can present a challenge in terms of where to look for company information, including latest corporate developments on ESG policies, initiatives and performance. And it’s getting time consuming to wade through all these ESG information sources; which one is for me, and how do I navigate the various social media channels…?
We now have a blurring of lines across the target audience spectrum, from a single, formal presentation on company websites which is business-like, to thousands of ‘tweets’ on a company Twitter feed which are less formal but still information rich. What now classifies as investor information that influences capital allocation, what’s for NGOs, what’s for Joe Public? Is IR now about trying to reach everyone - with different messages for different interest groups - or does the same message underpin all communications on sustainability...? Is it getting a bit messy and muddled, or is it great we have more transparency and real time information and wider access to and participation in company communications, on ESG matters?
Nowadays access to corporate data is totally different, every man, woman and his / her dog can get some kind of audience, with a multitude of possibly relevant sustainability personnel, via LinkedIn for example. LinkedIn at least has a strong business orientation, but there’s still a lot of random advertising on it and thousands of other corporate messages, and what about other social media such as Twitter, Facebook etc… Very modern grandparents are on Twitter, Facebook and Instagram, sharing photos of the latest present bought for Little Johnny, but so are the biggest companies in the world on Instagram et al…does every company IR team need to be on every social media platform, just because that’s the way of the world now?
- What are the appropriate channels for sending IR / sustainability messages these days?
- Is every available online platform suitable, just because they are available?
- Or should IR and CSR people be more selective in their choice of media?
- Are mass media outlets and extra transparency and inclusivity to be applauded? Is Instagram access to company communications now just as important as IR messages sent to a top shareholder?
A big question… perhaps for discussion at our next breakfast club. Message us for further details.
COP26 - key takeaways
COP26 on Thursday heralded a strong shift towards the UK economy becoming greener, with 60 FTSE 100 companies signing up to the United Nation’s Race to Zero campaign – the largest international alliance pledging to achieve net zero carbon emissions by 2050. The pledges are backed by independent experts and organisations to ensure participants in the Race to Zero are following through on their targets. Pledges have increased four-fold since November 2020 and represent a total market capital of over a £1 trillion and combined turnover of £700 billion.
At the global level more than 5,000 companies have added their names to the UN Race to Zero, including transport, technology, manufacturing, retail, and finance sectors. Around half of these firms are UK enterprises, with the UK private sector demonstrating leadership on efforts to tackle climate change.
Race to Zero acts as a catalyst for companies to improve their environmental credentials, to develop new green technology, kick-start new industries and attract private investment.
One of Wednesday’s major announcements was that a significant proportion of global financial assets managed by banks, insurers and pension funds, totalling USD130 trillion, is to be committed to 2050 net-zero goals and the target of limiting global warming to 1.5C. This implies that the power of the international finance community will be directed towards green technologies that reduce and eradicate carbon emissions, and away from so-called brown holdings (investments in coal, oil and gas).
The objective of the initiative - chaired by former Bank of England Governor Mark Carney - is to bring about radical change within financial markets. In theory this means that finance previously going into oil exploration or coal mines is diverted to renewable energy, energy efficient homes etc. Low carbon finance is already happening to a degree, with loans for environmental investments attracting "greenium" (funding cost advantages).
Tuesday’s major announcement - a promise to end deforestation by 2030
World leaders will pledge to end and even reverse deforestation by 2030, in the first significant international commitment to come out of COP26. Importantly, the deal covers 85% of the world’s forests, with Canada, Brazil, Russia, China, Indonesia and the Democratic Republic of the Congo signing up. Sceptics would argue that such announcements are vacuous; similar proclamations in the past have done nothing to arrest deforestation. But at least this time there is funding of £14bn to help implement the deal.
Furthermore, major investors are on board, with over 30 of the world's biggest financial institutions, among them Aviva, Schroders and Axa, also committing to end investment in activities linked to deforestation.
Carbon Forward 2021
The 6th annual environmental markets conference Carbon Forward 2021 will take place on 6-7 October. Key speakers will examine what the onset of the Paris Agreement era means for global ambition and how fast-rising carbon prices are becoming the key global commodity to watch. Against the backdrop of the accelerating climate crisis and to push others to take their full responsibilities ahead of COP26, the EU has adopted a new Climate Law. It makes climate neutrality by mid-century a legally binding commitment. The EU is now also walking the talk with the 'Fit for 55' package, a set of thirteen legislative proposals to deliver the emission cuts aimed for, and this package includes a tightening of the EU ETS.
The EU’s benchmark carbon price surpassed 50 euros for the first time ever earlier this year, having stood at around 20 euros before the coronavirus pandemic. Analysts and traders believe this record-breaking rally still has plenty of room to run. In Europe CO2 prices may rise more than 50% by 2030, EU draft impact reports show. The price of polluting in the European Union may rise to as much as 85 euros a metric ton by the end of the decade as the bloc tightens its carbon market and forces a swifter shift to clean energy.
For corporates, this will bring extra pressure to manage their carbon risk in the near to medium term. For investors, due to rising prices and high volatility, low costs (annual registry fees), and good liquidity, European Union Allowances (EUAs) are likely to be an attractive asset. Apart from corporate entities with compliance obligations (such as factories or large power generating facilities) typical carbon market participants include financial institutions such as banks, hedge funds, pension funds and individual investors. New sectors including shipping will come under the purview of the EU’s Green Deal. And while it may take up to two years to ratify the changes, InterAxS Global is positioning itself to support companies and investors as they navigate this strengthening of the EU ETS.
[One note on The Carbon Border Adjustment Mechanism - the CBAM does not target particular countries, but specific goods. It conveys a policy signal to EU partner countries to introduce carbon pricing at home and for foreign producers to lower the carbon contents of the products they export to the EU. The best outcome would be that the CBAM induces effective carbon pricing mechanisms around the world. This is designed to stop ‘carbon leakage’ in the System so EU firms will still have to contend with the stricter regime].
This code offers our contacts 20% ticket price for Carbon Forward 2021, purchased by following this link: https://lnkd.in/ehruU9rC
Sustainability stories from around the web
Sweden's Clean Motion is developing an EV delivery van with a solar panel roof, which is expected to be available next autumn. The Re:volt van has a 400 km range, including up to 130 km from the solar roof, 2,500 litres of cargo space and 450 kg of cargo capacity. Clean Motion is seeking partners that can adapt the van to their requirements.
The Driven | 28 September
Reinsurers around the world have most likely underestimated their exposure to physical climate risk by 33-50%, according to S&P Global Ratings. S&P said that if reinsurers do not account for climate risks it will result in volatility in earnings and implications for the cost of reinsurance products which will impact profitability. S&P says that for more recurrent extreme weather events such as a one-in-50-year return period its likely risks are undercalculated, but for return periods beyond one-in-50-years there is no data in recent history, so it is difficult to tell if there is underestimation.
insurancenews.com.au | 27 September
Arla shares CO2 footprint of its dairy farms, targets future cuts
Milk from Arla’s 1,964 UK dairy farms is produced using half the global average of CO2, according to the cooperative’s report, A Sustainable Future for British Dairy. It highlights action by farmers to cut emissions and the emission-reduction technologies being piloted. Data collected will be used to inform future decision-making, while providing consumers with “better food education”, Arla said. Cow digestion and cow feed are the highest emitting activities, accounting for 83% of the total. Arla targets cutting 30% of its farm-level emissions per kg of milk by 2030, as part of a net zero strategy.
Co-op News | 23 August
Over 60 organisations and fashion retailers, including ASOS, Marks & Spencer and Primark, have joined WRAP’s Textiles 2030 initiative. Signatories commit to halving emissions by 2030 and aim to achieve net-zero emissions by mid-century. Members must also cut their water use footprint and expand their circular economy efforts beyond single collections of products. Additional pledges include increased use of recycled materials and product recyclability and reducing upstream waste. Several signatories, such as Boohoo, have been called out for their approach to environmental issues. Over 50% of UK consumers believe the fashion sector generates "severe" environmental impacts, according to WRAP research.
Edie | 25 April
The European Commission has published part of its sustainable finance taxonomy, which outlines to investors the economic activities the EU deems "green" and the conditions that qualify activities as such. The taxonomy, which will apply from 2022, aims to help finance flow into areas that support the EU's climate goals and avoid greenwashing. Following substantial lobbying from industry and governments, natural gas will be addressed in a second set of criteria later this year. Rules on nuclear will also be released separately. The published criteria on bioenergy and forestry were criticised by green groups and some EU advisers.
Reuters | 22 April
Oxis Energy has confirmed that it will commence commercial production of its quasi solid-state lithium-sulphur (Li-S) batteries at its Port Talbot site, and launch its Brazilian operation in 2023. Li-S systems are less flammable than lithium-ion batteries, and do not feature materials such as cobalt or nickel. Oxis Energy has said it aims to ship batteries with an energy density of 550 Wh/l to Japanese client Sanyo Trading by summer 2022, followed by the delivery of 700 Wh/l batteries in autumn 2023. The company has a target of 900 Wh/l by 2026.
PV Magazine | 21 April
Global carbon dioxide emissions, which fell by 5.8% in 2020 as a result of the Covid-19 pandemic, began to rise at the end of last year and are set for further increases, according to the International Energy Agency (IEA). In December 2020, emissions were 2% or 60 million tonnes greater than in December of the previous year, due to increased activity in major economies. China, the world’s leading greenhouse gas emitter, was the only country to see an emissions increase in 2020, with a 0.8% or 75 million tonne rise from 2019, the IEA claimed.
IEA | 2 March
US plant-based meat substitute company Beyond Meat has secured major supply deals with McDonald’s and Yum! Brands, the owner of KFC. Under a three-year deal, Beyond Meat will supply McDonald’s with meat-free burgers as part of the company's developing McPlant line. The deal follows a trial partnership in which several McDonald’s outlets in Canada sold meat-free sandwiches during 2019 and 2020. The deal with Yum! Brands will see Beyond Meat develop a range of plant-based protein products for chains including KFC, Pizza Hut and Taco Bell.
Business Green | 1 Mar
Majid Al Futtaim, the company overseeing Carrefour branches in the Middle East, Africa and Asia, will begin using IBM Food Trust to track food at Carrefour stores using blockchain. The programme will first focus on Carrefour's fresh chicken products and the company's microgreens, which are harvested in-store. Customers will be able to obtain product information by scanning a product's QR code using their smartphone. Changing consumer demands and the Covid-19 outbreak have led to a need for greater trust in food supply chains, claimed Majid Al Futtaim CEO Hani Weiss.
Gulf Business | 22 Feb
Coca-Cola has begun trialing a paper-based bottle prototype, “AdeZ”, in Hungary as part of efforts to reduce waste. Developed in partnership with The Paper Bottle Company, the product will feature a strong paper exterior, a thin recycled polyethylene terephthalate lining and a plastic cap. The drinks retailer is the largest plastic polluting firm in the world and has a plastic footprint of 2.9 million mt each year, and has committed to recycle 100% of the cans and bottle products it sells and eliminate waste entirely by 2030.
The Independent | 16 Feb
Sargassum seaweed, which poses threats to marine habitats, is being converted into marketable paper pulp by the St Barths-based Sargasse project, in efforts to dispose of and repurpose the seaweed into a functional biomaterial. St Barths and other Caribbean islands have struggled with the ever-growing accumulation of the seaweed since 2011. The produced pulp carries the same cellulosic qualities as paper and can be further developed into cardboard. Sargassum is a form of micro-algae that can kill some species and pose risks to coral reefs. It also releases odorous gases when dried, which can induce headaches, nausea and respiratory difficulties.
Springwise | 14 Feb