Survey says execs must be prepared to address ESG issues with investors
Environmental, social, governance (ESG) issues remain on the backburner for most US corporations, but a survey of more than 600 institutional investors worldwide suggests they should move closer to the front for issuers looking to investors overseas, and perhaps soon domestically.
The issue of ESG arises regularly at NeuGroup meetings of corporate treasury executives. A minority of members’ companies are aggressively seeking to implement elements of ESG, but most acknowledge it isn’t a priority in the C-Suite or boardroom. Meanwhile, ratings agencies and other firms have developed measures of issuers’ ESG readiness, often generated from publicly available information. Survey responders suggest, however, that corporate treasury should be prepared for investor questions.
In a recently published survey by global communications firm Edelman, the vast majority of the 610 respondents expressed the importance of ESG in their organizations and analysis:
Attention to ESG. For example, 87% of respondents have said their firms have changed their voting and/or engagement policy to be more attentive to ESG risks, and 56% are hiring more ESG-focused staff.
Employee activism a smudge. The strike at General Motors did not sit well with at least some of the investors holding the company’s securities. The survey report notes that investors recognize the impact healthy culture and engaged employees have on corporate performance, prompting 74% to view companies with activist employees as less attractive investments. An even larger percentage, 79%, believe companies are insufficiently prepared for employee activism, and they make those assessments by talking to employees at all levels in the company.
Emerging risk failure. A significant majority of respondents, 79%, said companies are unprepared to handle activist campaigns because they’re unable to identify new and emerging areas of risk and value creation, such as cyber security, technological innovation, and—that’s right—ESG.
Not just shareholder returns. US companies continuing to devote significant capital to stock repurchases suggests they still prioritize shareholder returns. The Edelman survey, however, found that vast majority of investors think otherwise, with 84% saying maximizing shareholder returns can no longer be the primary goal of the corporation. Instead, business leaders should commit to balancing the needs of shareholders with customers, employees, suppliers and local communities.
Top priorities. Investors marked data privacy and cybersecurity as the ESG topic with the greatest priority (74%), followed by employ health and safety (73%) and eco-efficiency of the company’s operations (72%). Next in line were diversity and inclusion, social issues in the local community, and human capital management. A full 99% of respondents expect the board of directors to oversee at least one ESG topic.
Future risks. Cyber attacks have topped the list of risks treasury executives have voiced at NeuGroup meetings this year, and investors don’t see that risk subsiding anytime soon. The Edelman survey found cyber attacks to be the top risk impacting the investment landscape in the next five years (49%), followed by political instability (42%) and climate change (42%).