By Fiona Donnelly
As global funds seeking financial returns from ESG-aligned opportunities reach all-time highs, investor relations (IR) teams are having to adapt to new expectations and try to stand out from the crowd. What does this mean for a key tool in the investor relations communications suite: the investor relations presentation? We revisited our earlier research to gauge what’s changing, and also what impressed us the most in terms of the latest ESG messaging.
In 2019, we took a look at the over 40 nominees for Best Investor Presentation Material in The Hong Kong Investor Relations Association’s annual Investor Relations Awards (1), and included some observations in an article how ESG is changing investor relations.
Two years on, we wanted to revisit this topic but look at a slightly different population of issuers. This time we reviewed the 19 large-cap nominees in the same award for 2021 (2) plus 6 others, being the other constituents of the top ten of the Hang Seng Index ESG Index (3) not already included as an entrant to the awards. So this population of 25 of the biggest issuers in Hong Kong comprises a combination of those proud of their IR reporting and those independently measured to be the best at ESG in Hong Kong.
Like last time, we focussed on the presentation included in the nomination, and used for investors/analysts only. This obviously limits any findings to be based on what’s in the presentation only (and therefore excludes the spoken commentary and Q&A around the presentation), and any other messaging in any other comms, but it does however provide the standard: all these decks should show the headline messages about ESG – and more – that issuers want investors and analysts to know. The decks should also show what issuers believe investors/analysts priorities are ESG and business-wise. It’s hard to accommodate the needs of such a broad audience in some 42 slides (being the average length of presentation in this sample) but it’s reasonable to assume that some strategic ESG headlines will not change regardless of the audience.
To put things in context of IR in today's world, we took a look at what has changed and is changing, including from actors from more ESG-mature markets offshore. IR is afterall a very international function, as clearly indicated by some Hong Kong metrics e.g. 64% of assets under management in Hong Kong is sourced from non-Hong Kong investors (4).
These are our top highlights that set the context for IR:
1. ESG is becoming more integrated in policy/regulatory systems with different national/regional jurisdictions consulting on and launching different mixes of action plans, reporting directives, taxonomy regulations and more. In Hong Kong, most recent developments include the plans of the Cross-Agency Steering Group around the future adoption of recognised disclosure standards (5) and the Security and Futures Commission's amendment to the Fund Managers Code of Conduct around the management and disclosure around climate-related risks (6).
2. Other currently voluntary developments of note include the growth worldwide in the number of signatories of Taskforce for Climate-related Financial Disclosures (TCFD), as well as more organisations applying the thinking and disclosures of TCFD while not becoming a formal signatory (7). Other trends include increased stewardship by managers, as one recent survey found: “Stewardship is becoming fundamental to investing… as it provides opportunities to create value and deliver strong performance for shareholders” (8) Investors also want to see returns in terms of positive change in the real world, not just in financial terms.
3. More funds than ever before are moving into sustainable investment – per one source, the Global Sustainable Investment Review 2020 released in July 2021, global sustainable investment had grown to US$35.3 trillion, representing 35.9% of total assets under management (9). This means that corporates with an ESG commitment have access to the largest ever and growing pool of funds seeking ESG-sensitised returns. Investees now have the best ever chance of sourcing and retaining investors that align to their corporate strategy, which should have ESG properly integrated.
4. While data sources are growing and there are increasing channels for investors to glean the essential metrics to feed into their valuation models – including index providers and through the use of technology like natural language processing – few sources would trump accurate figures provided in a transparent and consistent way from the originating enterprise. Issuers are under pressure to disclose more about ESG. Full stop.
General comments and observations about this year’s sample of 25 investor presentations
1. Compared to 2 years ago, the decks contain much more content about ESG, including approach and how both operations and offerings are evolving to factor in ESG. ESG has a much higher profile and commands a bigger part of these briefings...
2. … but it still often sits separately and lacks proper integration into the narrative around the business and financial results – ESG is not always a built-in part of the ongoing business value proposition. This being an immediate tell-tale sign that ESG really is not as embedded in the business as is sometimes claimed in other communications from the same organisation.
3. Even at this high and overview level, basic, specific information is missing which hints to the highlights that are disclosed as being decoys or not a balanced view. For example, there is rare mention of exact goals and the degree to which they have been met. In extreme cases, it seems that awards and inclusions in indices are quoted with few other ESG details at all, these independently judged accolades are presumably intended to give a degree of comfort for ESG management. In addition, given the risk to and role of some sectors such as property in urgent issues like decarbonisation, it’s surprising how light ESG content can be in these presentations.
Our 2021 investor relations slides of note
Some slides struck us as being particularly inspiring and noteworthy disclosures of topics that are highly relevant to many investors:
1. Delivering Sustainable Shareholder Value
AIA Group slide 41 hits the nail on the head, by succinctly itemising what is likely to be front of mind for investors – how AIA will make them value, including some ESG matters.
2. Optimised ESG Governance
Governance being a more familiar concept and element of ESG, and often taken as a proxy for senior leadership competency, it’s interesting that China Construction Bank Corporation set aside one of their generally ESG-rich 49 slides (slide 42) to explain their Optimised ESG Governance.
3. Transition to net zero
Slide 25 of HSBC’s presentation shows a very understandable summary of its ambitions and actions across the bank’s offerings and operations to transition to net zero. There’s an admirable transparency, and with some specific KPIs disclosed, a degree of accountability of this path.
4. Proactive Risk Monitoring
Link REIT gives up 2 slides (44-45) of its 54-slide deck to risk, explaining the Trust’s approach for identifying and mitigating risks, signalling the management’s approach for the future and the basis on which investors can refine their own assessment and price of risk.
Investor relations decks are usually readily accessible, including to prospective investors. We encourage IR teams to ensure ESG messaging is given its rightful place in conveying the value-creating investment proposition presented by an enterprise. To omit the key ESG headlines as a minimum is to tell an incomplete narrative about the company and could undermine the appeal of the company to a growing pool of capital, that could be highly supportive of ESG ambitions.
For more about our views on the looming global investment ESG trends that will affect Hong Kong and the region, click here.
Click here to learn how the Red Links Sustainability Consortium can help you improve integration and alignment of ESG with your investors/asset managers/portfolio companies.
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(1) http://www.hkira.com/awards/about.php (2) http://www.hkira.com/awards/about.php
(3) https://secure.hkira.com/awards/nomination.php and using the links to the reports provided in the nominations
(4) https://www.sfc.hk/-/media/EN/files/COM/Reports-and-surveys/AWMAS2020_e.pdf - page 3
(6) https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=21EC31 (7) TCFD being the Task Force on Climate-Related Financial Disclosures, presents an approach and recommended disclosures around systematically considering climate-related risks and opportunities in forward-looking business scenario planning. For more details read The ubiquity of ‘climate' in today’s business world (8) https://www.institutionalinvestor.com/article/b1szq288pnxwxc/Stewardship-Is-Becoming-Fundamental-to-Investing-And-Managers-Need-to-Keep-Up (9) http://www.gsi-alliance.org/trends-report-2020/#
Photo credit: Matthew Henry