Investor relations must champion rise of ESG

31 May 2021
Global economic challenges, elective investment decisions and rising regulation are all pushing global investment trends in the direction of greater responsibility

MEED's May 2021 report on environmental, social and governance includes:

Purpose becomes as important as profit
Profiting from ethical investing
Climate crisis tops investor agenda
Investing in the long term with ESG
> Successful firms driven by purpose not profit
> ESG underpins Taqa 10-year strategy
> Technology helps deliver sustainability agenda

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For decades, the UAE’s endowment of oil has lent the country a global competitive advantage that has allowed it to invest in the transformation of itself into a distinctive and thriving economy strategically located between East and West.

Today, the rising imperative for investment, and a strategic focus for governments and companies alike, is sustainability. This is both as a foundation for prosperous growth, and in response to the mounting concerns over the state of the world and our planet, and not least as we deal with the repercussions of a global health crisis.

Globally, institutional investors are already taking the lead. Increasingly, large pension funds and asset managers are moving away from solely relying on financial and operational metrics to make investment decisions. Many of the biggest asset management firms are signing on to sustainability codes, developing ratings systems, publishing research and voting for policies on environmental, social and governance (ESG) issues.

With ESG fully embedded into investment strategies, investee companies are expected to go beyond conveying a financial story, by clearly articulating how they are taking action to successfully mitigate emerging ESG risks, and how they are planning to create long-term sustainable value for all stakeholders.

Retail investors too have been following this trend globally with values-based objectives – a desire to express personal values or invest in companies making a positive impact on society or the environment – as their primary motivation for ESG investing.

A recent report by the CFA Institute revealed that 94 per cent of retail investors in the UAE are either already investing in sustainable strategies or are planning to invest in this way.

Although ESG adoption is in its relative infancy in the Middle East and North Africa (Mena) region, this is a journey that has already started and will only accelerate moving forward.

The recent decision by the UAE Securities and Commodities Authority to make sustainability reporting mandatory for all listed companies is a perfect example of how important sustainability and the broader ESG topic has become.

According to a recent analysis by Bloomberg Intelligence, ESG assets are set to cross the $50tn mark by 2025, which is over a third of projected Global Assets Under Management (AUMs). This is clear evidence that this asset class is no longer niche, and has effectively become mainstream.

After a year of Covid-19, investor relations officers are the tried and tested storytellers of a company’s sustainable practices

Building better investment narratives

As ESG emerges as a corporate priority across regional markets, supported by guidelines from exchanges and regulators, promoting ESG stories as part and parcel of the investment story is paramount.

To do this successfully, investor relations officers (IROs) can play a pivotal role between companies and the investment community, among other important stakeholders, to more proactively address ESG as an important pillar in the investment case.

After a year of Covid-19, IROs are the tried and tested storytellers of a company’s sustainable practices and are entrusted with the task of leading the ESG conversation with investors, analysts and ratings agencies.

The traditional IRO role is undergoing a gradual shift, with increased emphasis on ESG engagement to shape these conversations and help the market better understand the full scope of long-term value creation within the organisation, beyond financial materiality.

This may include considerations around carbon emissions, progress on diversity and inclusion, and mitigation strategies to counter specific ESG-related risks that are considered to be material to the business.

The critical path to showcasing a compelling ESG story begins with addressing existing gaps in the corporate culture and strategy, before clearly articulating the company’s sustainability journey and how it resonates with each stakeholder group including employees, customers, investors or suppliers.

IROs must be able to integrate ESG into their storytelling and reach the right level of comfort and understanding of technical metrics and reporting frameworks, by keeping abreast with the proliferation of ESG concepts and terminology.  

Furthermore, companies will need to ensure that ESG-related disclosures are fit for purpose, to ensure that ESG data is relevant, accessible to investors and up-to-date. Simultaneously, IR programs need to be tailored to proactively address investor concerns, and to leverage the company’s ESG profile to target new investors.  

There is no doubt that the rise of ESG poses a great opportunity for companies. But in the competition for capital, leveraging strategic IR will be the critical factor of success to reap the full rewards for being genuinely committed to a sustainable future and prosperity for all.

Regional investment aligns with ESG

Middle East investment and corporate behaviour is increasingly falling in line with environmental, social and corporate governance standards and the UN’s sustainable development goals

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