The questions Investor Relations Officers should start asking Climate Investors
Investor relations officers (IROs) are often one of the first points of contact during institutional investors’ stewardship and engagement activities. Many of these investors commit to some level of dialogue with companies as part of their fiduciary duties. In the UK, for example, according to the Financial Reporting Council, around 273 signatories (asset managers, asset owners, and service providers), representing approximately £43 trillion in assets, have signed the Stewardship Code(1) . Zooming in on climate, corporate engagement is one of the most important levers that institutional investors have to influence companies(2) .
Unfortunately, it often is a one-way street where the investor elaborates on their demands and asks the company to comply. This can lead to sterile conversations, especially in a climate context where decarbonisation expectations are being recalibrated across financial stakeholders.
Generating value for both companies and investors
In our experience of creating active dialogue between companies’ finance teams and investors on climate finance topics, we found that the best-in-class investor relations officers are those who don’t wait for the typical scheduled events (For example quarterly updates or bond issuance) but proactively solicit investors to create a progressive dialogue that can then inform the company’s management. When executed well, this type of engagement yields valuable guidance for companies, including insights into investor expectations on targeting, ambition, and the use of labels and databases.
Investors also benefit by gaining a deeper understanding on the dynamics of the sector in which the company is operating as well as how companies look at both climate transitions’ risks and opportunities, including what is realistic to achieve and in which timeframe.
Why should IROs ask proactively?
- Dedicated climate investors and their teams are often keen to have an open dialogue on the industrial realities that companies face to transition to a low-carbon business model.
- Every company has its idiosyncrasies, meaning that many of the ESG ratings or assessments are not always relevant, appropriate, understood, or used correctly.
- Transition finance, regulation, its interpretation, and even investors’ preferences are evolving very fast, and a regular exchange between market participants is needed to grasp and interpret these correctly.
Examples of questions IROs should ask more often
- What are your expectations in terms of published info/data, targets, metrics for our specific industry and transition label?
- Scenario analysis: What are your expectations in terms of assumptions and which scenarios do you use?
- How do you see the 1.5C scenario in the context of slow global decarbonisation and what does it means on how you look at us?
- Do you have views on the types of transition levers we can pull as a company and industry?
- What are your expectations in terms of environmental themes beyond climate?
The time is now: uncertainty and regulatory requirements
Our dialogue with both companies and institutional investors is indicating that both sides have many unresolved questions on how to reconcile climate ambitions and investments.
As many firms dedicate significant time and effort to ensure their sustainability reporting and transition plans align with regulatory requirements (for example in European’s CSRD context), investor relations professionals can use these as an opportunity to further enhance the dialogue with climate investors.
I look forward to our feedback,
Fabrizio
