As investors increasingly integrate environmental, social and governance (ESG) criteria in their decision making processes, companies need to cater to this information need. Developing and transmitting a clear ESG Equity Story is key in this: communicating about the firm’s ESG approach and performance in a coherent and transparent manner toward investor audiences. Finch & Beak has assembled a pilot benchmark as a probe for the current status quo, assessing 21 companies’ sustainability programs (‘Be Good’) and their ESG Equity Stories (‘Tell It’). A striking finding is that companies appear to engage in ESG ‘greywashing’ (antonym of greenwashing), by underleveraging their ESG performance in the communication towards investor audiences.
Following the rise of ESG interest by investors, several sustainability frontrunners started to develop ESG Equity Stories, defined as the activities conducted by a company to communicate its ESG approach and performance towards investors. At the same time, other companies seemingly remained behind in proactively approaching capital market audiences through integrating non-financial performance into their core financial communications.
Be Good & Tell It: Assessing companies’ sustainability programs and ESG Equity Stories
This development was a motivation for Finch & Beak to assess the status quo of ESG Equity Stories. In order to do so, a first pilot benchmark study was initiated during the summer of 2020. A total of 21 companies across 8 industries were assessed on the quality of the companies’ sustainability programs (‘Be Good’) and their ESG Equity Stories (‘Tell It’):
- Quality of the company’s sustainability program – Using Finch & Beak’s assessment model for ESG performance based on the research from our book Winning Sustainability Strategies, rating the company’s Direction, Speed and Value Creation with regard to its sustainability program.
- Quality of the company’s ESG Equity Story – Analyzing the extent to which the company succeeds in embedding ESG aspects coherently in its corporate and IR communication channels.
Key observations of the first pilot benchmark:
- “Being Good” is a prerequisite for effectively “Telling it”: Strong sustainability foundations are the starting point for companies’ ability to deliver an effective ESG Equity Story. An up-to-date and focused materiality matrix is an essential first steppingstone in this process. Companies with an above average score on materiality were found to be 3.5 times more likely to have an above-average quality ESG Equity Story.
- Companies engage in ESG "greywashing" through underleveraging ESG performance: With an average score of 48 points, the assessed companies still have great potential for further maturing their ESG Equity Stories. In fact, 42% of assessed companies that were found to have an above average quality of sustainability program, were rated below par in terms of quality of their ESG Equity Story. This suggests that there is unleveraged value for companies in presenting a better, more representative image of their ESG approach to investors.
- Stand-alone ESG Equity Story presentations are still a rare sighting: Only 14% of the assessed companies published a stand-alone document that specifically addresses investors and analysts’ needs for ESG information.
Download the report in the download section at the top of the page for the full results.
Recommendations for companies to build a winning ESG Equity Story
Following the analysis, Finch & Beak has formulated the following three recommendations for companies:
- ‘Be Good’: Do the assessment model for ESG performance and work on your company’s sustainability fundamentals (Direction, Speed, Value Creation).
- ‘Tell It’: Fill the gaps in your ESG Equity Story and integrate ESG across the various Investor Relations-communication channels.
- Ensure broad ESG understanding at executive level: Make sure there is a broad knowledge of ESG at executive level and enable a common understanding of ESG risks and opportunities.
Join the webinar and engage in the wider conversation
During the ESG Acceleration Webinar: Effective ESG Equity Stories webinar on Tuesday 1 December, key findings of the benchmark will be shared. The outcomes are complemented with an investor's perspective on effective ESG engagement between companies and capital markets coming from guest speaker Adrie Heinsbroek, Principal Responsible Investment at NN Investment Partners.
Last-minute registrations are still accepted for those who meet the target audience’s profile. If you are not able to join live at the time of the webinar, you are still welcome to register: we’ll send you a link to the recording afterwards.
Moving forward, the methodology will be sharpened in wider engagement with corporates and investors, integrating different perspectives to come to a more enriched research model. The objective is to develop a longer-term view on the effectiveness of ESG Equity Stories and the trends going forward beyond 2022.
Ready to improve your company's ESG Equity Story?
If you are looking to strengthen your sustainability program or develop a coherent ESG Equity Story towards financial stakeholders, get in contact with Josée van der Hoek, Director, via email@example.com or +34 6 82 04 83 01 to discuss how Finch & Beak can support you.