Thus, ESG will be an ever more prominent part of the dialogue between institutional investors and listed companies. What will this imply for the companies? How can they anticipate best on the (new) demands of institutional investors? What expectations are they having about the impact of an ESG dialogue on their long-term success? These and other questions were discussed in a round table session hosted by Steward Redqueen and Eumedion. Representatives of investor relations and corporate communications departments, as well as several sustainability officers of twelve Dutch companies had an open discussion on how they are being engaged on non-financial issues.

 

The participants acknowledged the increased importance of ESG on their companies’ strategic agendas. And although managing risk still is a relevant ESG driver, innovation and identifying new market opportunities are said to be more important. So far, the companies are not impressed by the way shareholders focus on ESG. Of course there are many different (types of) shareholders, but until now the ESG dialogue is proving to be disappointing. However, it is considered to be part of the responsibility of the companies to be more vocal on explaining their ESG agenda. One participant said: ‘since our Managing Board has adopted ESG (sustainable development) as one of our company’s strategic pillars we have to be better in explaining the relevance to our shareholders. Already on third of the participating companies is organizing ESG road shows.

There was some discussion on the relevance and materiality of sustainability indices and guidelines. These are useful as far as they provide guidance in what stakeholders consider to be relevant ESG themes. A positive score will reduce the discussion on a company’s ESG performance and might be a hygiene factor. However, it was remarked that the ratings game seems to become a goal instead of a means. Ratings do not reflect the dilemmas a company is facing and the outcomes do not necessarily provide a reflection of the material ESG issues on the strategic agenda.

Another challenge the companies are facing is how investors across countries appreciate ESG. US investors don’t seem to be interested at all, whereas UK investors are considered to be front runners. EU commissioner Michel Barnier’s work on institutionalizing non financial checks and balances may reduce differences in a European context.

It is still to be seen how the ESG dialogue between institutional investors will evolve in practice. Much will depend on the weight that is put behind this agenda. It was concluded that the question ‘where will this be going to hurt’ may proof to be vital. However it was concluded that profit can only be sustainable if companies have a positive impact on societies: this is crucial for their own survival.

 

Steward Redqueen and Eumedion have agreed to organize a follow up meeting about this important topic as part of their drive to the promote the ESG dialogue.

 

Request for input:

What is your view on the dialogue on engaged share-ownership and ESG?

How to focus on material issues and avoid peripheral communication?

What should be the priorities of both companies and institutional investors to assure a meaningful difference?

 

Your input and ideas on how to go about are much appreciated.  

 

Wouter Scheepens is directeur van Steward Redqueen

Marleen Janssen Groesbeek is beleidsmedewerker duurzaamheid bij Eumedion

 

Please refer to the attachment for a more elaborate reflection in Dutch.