Investors are demanding sustainability reporting and related disclosures, but the onus is on IR teams to explain the detail
One year ago, a discussion of sustainability reporting would most likely be found in either a green technology event or an accountancy conference.
Then in June, the Singapore Exchange (SGX) released a set of guidelines on sustainability reporting, and suddenly disclosure began to loom large on everyone’s horizon, including – and perhaps especially – investor relations teams.
‘SGX’s guidelines were a timely recognition that clearly this is an important issue and our listed companies need to step up and respond to the investment community in how they do their reporting,’ said John Gollifer, the Singapore Exchange’s head of IR.
Speaking at the IR Magazine South East Asia Conference today, he pointed out that there had been a strong impetus to make sustainability reporting mandatory, with SGX CEO Magnus Bocker voicing his support of the idea at the launch of the guidelines.
‘Becoming a neccessity’
The discussion made it clear, however, that even without regulatory enforcement, sustainability reporting and related forms of disclosure are steadily becoming a necessity for companies that want to maintain strong IR.
The demand for the reports comes from all fronts: international regulations, local governments, international investors and, more and more, domestic investors as well.
‘Some investors are asking for not only the report, but how we respond to their specific concerns,’ said Novian Fitriawan, head of IR for PT International Nickel Indonesia.
He noted that senior management is typically aware of such requests, but is uncertain of how much should be disclosed. ‘If we have the guidelines, we can start from there.
Adding to the point about investors raising specific concerns, analyst and SRI specialist Rebecca Lewis from Arisaig Partners observed that in China, for example, companies are more likely to be questioned about their safety regulations, adherence to international standards and the safety of their distribution channels, because Chinese companies have been found lacking in these areas before. ‘It depends on your investment horizon,’ she said.
Call for governance disclosure
Sustainability reports are not the only thing investors are calling for; corporate governance disclosure is another popular request.‘ People want to understand how the company is run,’ noted Dr David Smith, head of corporate governance at Aberdeen Asset Management Asia.
Citing performance-related pay as a commonly scrutinised area, he pointed out that confidence in management quality is very important for certain groups of investors.
‘If companies want to attract long-term shareholders, it’s something that they should want to disclose,’ he said.
A number of bugbears are associated with sustainability reporting, however. They include cost issues, lack of knowledge and even a fear of over-disclosure which may affect the company’s competitiveness.
How much do investors care?
On top of this, it is still, at this point, debatable whether a company that turns down its investors’ requests for disclosure will actually lose them.
Joseph Chia, general manager of the Investor Relations Professionals Association (Singapore) pointed out: ‘It’s nice to have, but it doesn’t really influence the buy-side position. Pragmatically, we need to see more buy-side people telling companies, We’re not going to invest in you because you’re not disclosing your sustainability.’
Gollifer remarked that companies – and investors – may be held back by the complexity involved in making and understanding additional disclosures.
Even IR teams, he said, might not completely understand the various elements that go into sustainability reports and integrated reports.
Ultimately, said Lewis, it comes down to IR teams to make the right explanations to investors, whether this involves an actual report or not.
‘Beyond reporting, it’s the engagement with IR professionals that really adds texture to this,’ she said.
Read more coverage of the IR Magazine South East Asia Conference 2011.
Find out who won at the IR Magazine South East Asia Awards 2011.
