There’s a bit of a disconnect between how executives and investors view sustainability strategies. While three-quarters of investors think sustainability performance should be considered in investment decisions, executives haven’t gotten the message. Only 60% think investors care about sustainability performance. And C-suite ambivalence is reflected in the actions of most Investors Relations (IR) departments responsible for shareholder communications.
Shockingly, only 24% of surveyed investor relations (IR) professionals are asked by their organizations to explain the value of sustainability to the company’s bottom line to investors. Close to 40% aren’t given direction on sustainability reporting at all. Nearly 80% fail to include sustainability talking points in investor presentations, and almost half of respondents from IR departments don’t believe that a sustainability strategy is necessary to remain competitive in their industry. The IR function has not aligned around sustainability goals and companies need to quickly build up IR departments’ ability to communicate sustainability value to investors.
Once you have an IR organization capable of communicating sustainability, the next question is, “what should you be communicating?” The answer is simple. You need to speak to your investors’ urge. No, not that “urge,” but “ERG,” which stands for efficiency, risk, and growth. Investors recognize that if you improve efficiency you squeeze out waste, which means less a smaller environmental footprint. It also means lower spend on raw material inputs and waste disposal, savings that go straight the bottom line. Effectively managing material sustainability concerns also lowers risk, something bondholders, who measure maturity in decadal time frames, are increasingly attentive to. And finally, there is growth. Building a new sustainable business line ensures future cash flows. Investors, of course, base valuations on future cash flows.
Creating a compelling value creation story that highlights ERG will put you ahead of the game in communicating sustainability to shareholders.
This is the final post a series of eight, representing key findings from a collaborative research report between MIT Sloan Management Review and the Boston Consulting Group.