The Changing Kaleidoscope of ESG Investing
IRC Domain 1: IR Strategy Formulation; Domain 3: Corporate Messaging Development and Domain 5: Corporate Financial Reporting and Analysis
Summary by Maryellen Thielen
Panelists:
Eric Fernald, Director of Issuer Relations, Sustainalytics
Jenny McColloch, Senior Director, Global Sustainability Strategy and Scale for Good, McDonald’s Corp.
Daniel Nielsen, Managing Director, Great Lakes Advisors
Moderator: Victoria Sivrais, Founding Partner, Clermont Partners
Key Takeaways
- Dan Nielsen of Great Lakes Advisors made the distinction between “values” versus “value” investing. Traditional socially responsible investing (SRI) is a client-driven “values” alignment based on a client’s desire to avoid financial benefits from certain activities, such as guns. In contrast, investors find “value” by integrating environmental, social and governance (ESG) materiality to make smarter investment decisions, based on the premise that non-financial factors affect valuations and can materially improve risk-adjusted returns. Somewhere between 40%-50% of ESG information comes from sources other than your company (e.g., MSCI, Sustainalytics), but it’s still important to “tell your own story” on key issues, such as data security, rather than relying on intermediaries. To do that, “build allies within your company,” including corporate communications and enterprise risk management.
- Jenny McColloch explained McDonald’s strategic relaunch of its Scale for Good approach to sustainability. As customers expect more from companies, McDonald’s is seeking to strengthen relations with families and other stakeholders through a program that focuses on the largest-impact areas and challenges. A proactive sustainability strategy with regular reports on progress against goals (in the quarterly earnings call, proxy statement, website, questionnaires and elsewhere) helps investors make decisions and benefits the company’s long-term business model. However, companies are always going to be limited on the data they can share due to limited time and resources. “It’s important to focus on the most important issues and track them consistently.”
- Eric Fernald has a long history of helping investors understand ESG in his current role with Sustainalytics – a leading independent global provider of ESG and corporate governance research and ratings – and in previous roles with MSCI ESG Research and KLD Research and Analytics. The various ratings firms may focus and weight different issues and come up with different scores. Investors also look at company disclosures of the five to six most important and material issues for the company and industry using GRI and SASB guidelines.
- Nielsen recommended that companies offer a deeper-dive into ESG as it affects your company at least once a year, such as through a webinar. Also, know your company’s ESG ratings and regularly talk to researchers to explain the factors that influence and differentiate your company. “We look to management to tell us what’s important to your company and signal performance.” Companies with great ESG disclosure include Nike, Entergy Energy and JetBlue.
- For more information, also visit Strategic Investor Initiative.