More and more investors are seeking higher quality information on a company’s sustainability. Earlier this year Larry Fink, CEO of Blackrock, called on S&P 500 CEOs to demonstrate how environmental, social and governance (ESG) factors influence commercial success in the long-term.
But new research by Corporate Citizenship in association with S&P Dow Jones Indices reveals that long-term thinking is still not the norm for many businesses:
· Over one quarter (26%) of companies studied made no reference to long-term value creation in their external reporting to investors
· For the almost three quarters (74%) of companies that did mention long-term value, many struggle to articulate the importance of ESG factors for long-term business success
· However, 100% of integrated reporters analysed made relevant mentions of long term value creation
Based on research and interviews with industry experts, the study identifies two disconnects that need to be overcome to enable more companies to demonstrate a link between ESG performance and long-term commercial success:
· The internal disconnect between Investor Relations and Corporate Responsibility / Sustainability teams means many companies find it difficult to define, measure and communicate ESG performance.
· The external disconnect between companies and their investors. The resulting lack of alignment on the material ESG factors between both parties’ means there is very limited disclosure of these issues in traditional corporate communications to investors.
In order to maximise long-term value creation, more businesses must communicate effectively on their vital social, environmental and governance issues.
The report identifies a framework for improvement on how companies can bridge these two disconnects through a series of practical actions. It forms part of the launch of The Long Term Value Project, a new initiative by Corporate Citizenship looking to bridge the gap between IR and CR. We are calling on interested parties to work together to help us identify better ways for companies, and sustainability professionals within them, to find common ground with their investors.
Peter Truesdale OBE, Director at Corporate Citizenship, commented:
“Over the last twenty years, we’ve seen investor interest in sustainability grow in volume, scope and depth. But those running publicly listed companies have failed to get to grips with communicating ESG issues to investors. Our research suggests that companies have to up their game. In order to maximise long-term value creation, more businesses must communicate effectively on their vital social, environmental and governance issues. They must convince investors that, far from being a niche interest, these topics shape long-term commercial success.”
The report entitled ‘Getting on the Right Track: How to Demonstrate the Value of Sustainable Business to Investors’ can be downloaded here