Many find the topic of sustainability annoying. There aren't many IR managers who enjoy listening to yet another of the hundreds of speeches on sustainability, ESG, CSR, SRI and the like. IR professionals have been able to push the topic to the back burner, until now. Lawmakers have seen to that. Sustainability is no longer an annoyance, but a mandatory obligation.
The CSR Directive is now in effect, requiring listed companies to make statements on a wide range of non-financial topics. Capital market oriented companies as well as credit institutions and insurance companies with more than 500 employees are affected by the new directive.
And many of these companies are now asking: How do we adapt? How do we obtain the necessary information? And who is interested in what we have to say about sustainability? What good does this information really do?
Here are 5 answers:
1) Sustainability reduces risks
Investors want to minimize risks. Sustainability and transparent communication can greatly reduce investment risks, particularly for manufacturing companies, energy suppliers and the like. Greenpeace demos, boycott calls, nuclear waste - no asset manager wants to read about these in connection with his or her investments. In addition to effective, sustainable action, transparent communication is essential. If an investor does not know whether a company is acting sustainably or not, uncertainty persists and grows.
Less risk for the investor means that the investor is satisfied with a lower risk premium. Ratings are liable to improve and capital costs decrease. Lower capital costs lead to more profit remaining in the company. Sustainability communications, while certainly costing something, also increase a company’s overall value.
Sustainability can pay off.
2) Sustainability opens up new target groups
Specialized ESG investors, sustainability analysts, eco-funds. Sustainable investment is becoming more and more important, providing a pivotal opportunity to companies who haven’t yet positioned themselves accordingly. With sustainable action and sound communication, companies can tap into these key new target groups. As a result, companies attract new investors who were previously unknown to them or who couldn’t invest in the company because it hadn’t yet met sustainability criteria or information requirements.
3) Sustainability creates a positive image
A green and socially conscious image is good for everyone. Corporate confidence is created when employees are satisfied and speak positively about the company. And finally, company trust and a positive image also reward analysts and investors. Among other things, it is the task of IR to sharpen this image and to convey relevant messages to investors and analysts.
4) Sustainability is in demand
How do you ensure fair working conditions in developing countries? How is environmental compliance monitored? Investors and analysts ask these questions and companies ignore having solid answers at their own peril. For IR professionals, that entails gathering information, advising board members and raising awareness of social and environmental issues. It can be tedious, but is ultimately rewarded on the capital market.
5) Sustainability is psychologically important
Humans are social beings and inherently want to do good. Buying shares in wind turbines feels better than buying shares in tobacco and armaments companies. Stock markets reflect psychology, regardless how much investors and analysts tout valuation models and key figures. This holds true for private investors to a fair degree but increasingly also for large corporations guided by social consciousness as well as rationality. As a result, marketing is key and an ecological, socially responsible image is indispensable.
These 5 points show that sustainability is by no means a soft topic. It moves share prices and billions in assets. Companies should therefore consider the CSR Directive not only as an annoying requirement, but as a real opportunity. Professional sustainability communication is essential and pays off.