Corporate Secretary Summer ESG Forum
Rebecca Corbin had the opportunity to speak at Corporate Secretary’s Summer ESG Integration Forum where she presented on the shifting ESG landscape and shared findings from our 2023 Global ESG Survey of institutional investors and corporates. Click here to access our four-part series and webinar. Rebecca also participated on a panel discussion on ESG trends in 2023 with co-panelists, Jessica McDougall of BlackRock and Ki Hoon Kim of Hewlett Packard Enterprise.
It was an engaging and thought-provoking conference. Other panel discussions centered on recent regulatory updates, communicating through ESG skepticism and opposition, monitoring and managing ESG performance, targeting Sustainable Investors, ESG accountability and oversight at the board level, communicating social capital efforts, and buy-side expectations around ESG issues. The conversations were relevant and insightful.
Key Insights
As part of our commitment to sharing timely and actionable insights, we’ve captured key takeaways from the event, as well as supporting data from both investors and corporates as a part of our 2023 Global ESG Survey.
Materiality. Materiality. Materiality
In line with how we think about architecting and activating sustainability strategies at Corbin, the theme of materiality was echoed throughout the day. Your stakeholders, and shareholders in particular, are focused on how you’re managing ESG-related risk and opportunities through the lens of business materiality. Undergoing a materiality assessment and updating at critical junctures enables you to custom design your sustainability framework and own your narrative.
Corbin Insight
Notably, when asked which was more important as part of investment decision making — risk mitigation or competitive advantage — more investors, 44%, said “both are equally important”. As such, corporates are responding to this demand from investors, with 89% identifying material factors in 2023 compared with 78% in 2021.
Sustainability and ESG Remain Intact
There were many questions about the future of ESG in the wake of the backlash and views that it is being “weaponized”. With the increasingly challenging and uncertain macroeconomic landscape, it’s not surprising that executives are prioritizing navigating the current environment and financial performance.
The headlines would have you believe that corporates and investors alike are turning their backs on ESG. While executives are taking a more thoughtful approach to communicating on “ESG” given politicization and greenwashing concerns, commentary from panelists across consultants, investors, and corporate representatives from corporate governance, IR, and legal — all highlighted that ESG remains an important focus and is still very much alive. When asked directly about Larry Fink’s 2023 open letter to CEOs that deemphasized these three letters, Ms. McDougall, a Director within Blackrock’s stewardship group, shared that the firm remains committed to ESG, but has determined that “sustainability” in the context of business materiality is where they are focusing. To sum up how we think about the relationship, if Sustainability is the Train, ESG is the track.
Corbin Insight
According to our latest research, 90% of investors place at least some importance on ESG when making investment decisions, the highest level ever recorded, while 62% of surveyed corporates indicate it’s very important to critical to their company’s long-term success. Notably, 60%+ of surveyed asset managers have established dedicated divisions focused on evaluating ESG across the portfolio and 29% say that “ESG is a factor in alpha”, more than tripling from just 8% in 2021. Furthermore, 72% of corporates report they have instituted an internal ESG committee.
Proactive Stakeholder Engagement is Critical
The bottom line? You want to own your own ESG narrative. As such, it’s important not to wait for third parties (e.g., rating agencies, proxy advisory firms, etc.) to tell your story for you. Be proactive about getting in front of your investors through in-person meetings, ESG-dedicated investor presentations, and ESG-dedicated investor webcasts. In these conversations, it’s important to highlight how your ESG efforts are driven by innovation and impact through the investor lens — and the lens of materiality. One buy-side analyst at the Forum said that he specifically looks for consistency in messaging between the CEO letters in the Annual Report and the ESG report to determine if there is true integration, ownership, and engagement across all executives, thus demonstrating holistic operationalization of ESG across the organization.
Corbin Insight
When double clicking into the most common communication platforms, our research demonstrates ESG has become firmly integrated throughout most company materials. The Corporate Website, CSR/ESG/Sustainability Report, and Investor Presentation are the most common channels, respectively, with the latter surpassing investor meetings for the #3 spot relative to our 2021 Study. Nearly all communication channels registered an increase versus our 2021 Study, led by 16-point increases in both the Investor Presentation and the Annual Report.
On a related note, the SEC’s recent ruling on the exclusion of certain shareholder proposals (14a-8) — resulting in more proposals on the ballot — has impacted the number of ESG shareholder proposals submitted, but we saw a decline in support of those proposals. According to Georgeson1, a proxy advisory firm that tracks shareholder proposal data, 951 ESG proposals were submitted during the 2023 proxy season; just under 10% of these were considered ‘anti-ESG’ and the majority of those were related to social issues. It’s worth noting that no anti-ESG proposals received majority support.
AI is Impacting Every Industry, and Corporate Governance and ESG are No Exception
The growth and power of AI has significantly accelerated in recent years, with it bringing a black box of uncertainty around the extent of its capabilities, risks, and impact on all industries and corporations alike. Most recently, we’ve witnessed Hollywood’s strike regarding the usage of AI, yet we have only seen the tip of the iceberg when it comes to the impact of AI on businesses.
There are extreme viewpoints on both ends of the spectrum, bringing the potential to massively innovate on one side, or face critical data privacy breaches, confirmation biases, or echo chambers that dampen creativity on the other side. This requires a need for education of the board and management teams on AI and regular discussions of how the company plans to address the topic, both mitigating risks and identifying opportunities associated with its usage.
Corbin Insight
In our most recent Inside The Buy-Side® Earnings Primer® survey, AI emerged as a new topic of interest. We liken the market’s reaction to AI similar to when Social Media burst on the scene. We saw a meaningful number of early adopters in IR who harnessed the power of Twitter and other platforms to engage with the financial community only to come to the realization that there are unique challenges and risks for public companies.
As such, we have been advising our clients to:
- Develop an internal policy for employee usage
- Develop an external statement on the company’s position toward AI so that all Street-facing executives are aligned and communicating the same message
Human Capital Management, Human Rights, and Diversity, Equity & Inclusion
Human Capital Management (HCM), with a particular focus on human rights and DE&I, was top of mind for panelists and audience alike. This is in line with results from our recent 2023 Global ESG Survey where DE&I and HCM ranked in the top 3 Social topics for both investors and corporates. Part of the surge in HCM comes at a time when Gen Z and millennial workers want to prioritize employee wellbeing, diversity, and ethical practices. However, this space does not come without some concern for backlash.
As noted above, of the 94 anti-ESG shareholder proposals submitted, though none received majority shareholder support, 71% were related to Social issues. And, with the recent Supreme Court Affirmative Action ruling, there are questions surrounding how this legislation will impact the private sector. At the same time, there will no doubt be pushback and a conscious effort to protect the current abilities of corporations to develop and disclose goals and practices that are in support of DE&I, and we strongly encourage management not to divert or reduce their efforts in this area.
Corbin Insight
Our research indicates that 80% of investors assert talent disclosures are important to their investment decisions, especially keeping in mind the plethora of research that supports positive benefits of diverse organizations and happy employee bases that value ethical practices. Furthermore, nearly half, 49%, of corporate issuers point to retaining talent as an explicit motivation to incorporate ESG into the company strategy.
The Forum brought to life several perspectives around ESG, especially relating to taxonomy and the backlash, as well as uncertainties regarding the future of AI and various Social issues.
In summary, we recommend:
- Employing a data-driven sustainability strategy, which should be based in a materiality assessment, with clear goals and milestones as it provides the substance and justification to stay on the “ESG track” that you’re building and empower you to not change course out of fear of retaliation.
- Educating investors on your progress, which allows for deeper understanding and appreciation of your impact as well as the ability for you to control your narrative. One of the emerging metrics we hear from investors on measuring progress on the “opportunity” side of the equation is how much revenue is linked to creating a more sustainable world.
- Authentically communicate and engage with investors through preferred channels, which is not the ESG/CSR/Sustainability Report. While it serves as the source material, investors prefer learning through earnings calls, presentations, and cultivated events.
In Closing
As always, please reach out to us if you have questions or want to learn more about our ESG practice and the proven approach we’ve innovated to differentiate our clients in a noisy and increasingly competitive landscape. We look forward to weighing in on this important topic and conversation as a trusted, research-led thought leader.
Georgeson; as of May 12, 2023