What sustainable investors want

IR managers tend to regard SRI investors with a mixture of horror and enthusiasm. The horror comes from the interminable questionnaires and impenetrable ratings systems. The enthusiasm comes from the fact that SRI investors tend to be long-term stock holders who show the depth of interest in a company’s long-term strategy that IROs wish was true of all their investors.

Sustainable investment has grown from a small activist niche to an increasingly respected and global investment strategy that is making itself at home in some of the world’s largest investment institutions – and knocking on the door of all others. And yet, in spite of the transparency SRI investors demand of companies, the industry itself is much less transparent. Firms can be left puzzling over which SRI indices matter, which research firms are influential, what sell-side SRI specialists do and what the buy side really wants.

This is fertile territory for Thomson Reuters Extel with its track record in research markets analysis and IR benchmarking. So, together with SRI-Connect, it launched a global study into what SRI and corporate governance analysts want and need from each other and how companies can best communicate with them. The Independent Research in Responsible Investment (IRRI) survey received responses from 668 voters from 142 different companies in 30 different countries. It confirmed a number of emerging trends – and also threw up a few surprises.
IRRI insights

Analysts want direct contact with companies and integrated reporting. Consistent with a call from both investors and companies for a greater focus on material, investable issues, analysts responding to the IRRI survey indicate they would like companies to publish integrated reports and short, sharp, investment-focused sustainability results statements. They also want them to provide easily identifiable contact details for IR and CSR teams and host annual webcasts on their activity.

Meetings held directly with SRI investors are highly valued by companies but too few are happening. The firms that undertake specialist SRI roadshows and invite meetings with SRI and corporate governance analysts overwhelmingly report these to be a positive experience – but only a minority are doing these. This is an area where use of technology – for webinars, for example – can reduce air miles and, for the IRO, protect, some much needed at-desk time.

Leading companies are taking a well-balanced approach to time allocation. Firms divide the time they spend with SRI investors as follows: 41 percent with buy-side asset managers, 25 percent with SRI agencies and index providers, 24 percent with sell-side research analysts and the rest with proxy voting advisers. This prioritizes those that actually hold or might hold stock over those that just advise on it.

No clear picture of leadership in firms. Companies, as a whole, remain undecided over whether the IR team or the CSR team should be responsible for SRI communications, although we maintain the safest and most efficient place to house the responsibility is with the IR team.

Energy and natural resource companies dominate meeting wish lists. Investors prioritize oil & gas (40 percent) and mining companies (25 percent) far above sectors they wish to meet next year, such as banks (9 percent), utilities (7 percent) and industrials (5 percent).

Mainstream integration is happening – slowly. It has long been promised that mainstream financial analysts would take an interest in sustainability and corporate governance issues. IRRI provides considerable qualitative evidence that progress is being made in this area.

Companies split on SRI indices. Nineteen percent of firms consider SRI indices to be a core part of their SRI communications activity, while 27 percent believe indices are not worth the time they take. Those in the middle need to make up their minds, either to maximize the benefits of inclusion or to avoid the hassle of questionnaire completion. The middle ground is no place to be.

Looking to 2014

The demand for independent research – and transparency about how this is paid for – and for sustainable approaches to investment is growing and will continue to grow over the next year – 2014’s IRRI will bring updates on both. In the meantime, IROs can maximize the efficiency of their engagement with this growing investor base by:

• Nominating one of their team as the person responsible for dealing with SRI and corporate governance analysts and investors
• Making a simple and clear plan for dealing with these investors – and publishing this plan on the corporate website
• Treating SRI communications like any other aspect of investor communications (see Take control of SRI communications, below).

Steve Kelly is managing director of Thomson Reuters Extel and Mike Tyrrell is editor of SRI-Connect

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