Over the past few years, environmental, social and governance (ESG) has become a hot-button issue. But does a company’s ESG performance truly impact investment decisions? In a recent ICR|PRWeek survey, we asked a mix of investors and communications pros what really influences decision-making. The response was clear: ESG matters more than ever.
Below, we explore some of the takeaways from that survey and insights into how ESG is growing and evolving.
Shifting Priorities
Two-thirds of survey respondents believe more today than they did two years ago that a company’s ESG performance impacts investment decisions.
However, the breakdown of the individual factors has shifted in that timeframe. Historically, the “G” in ESG — governance — was viewed as the most important to investors. Today, however, issues such as climate change, talent management, company culture, work-life balance, and diversity, equity, and inclusion (DE+I) have driven more attention to “E” and “S” (environmental and social). Some experts attribute the “E/S” focus to the pandemic, social injustices over the past several years, and the Great Resignation.
Integrating ESG Into the Company Story
This increased spotlight means that ESG is not considered simply a box to check anymore. Companies must now integrate their ESG story in all investor-facing materials, from management presentations to conference call commentary. Without a compelling ESG story, some investment firms may decide to not become involved with a company.
For some companies, providing adequate attention to ESG issues has required the creation of new roles within the company, such as a sustainability officer. These types of positions show the growing importance of sustainability and ESG overall, as well as signal to investors and external stakeholders that management is taking the ESG responsibility seriously.
What Really Impacts Investor Decisions?
While communicators and investors agree on the growing importance of ESG, which areas have the greatest impact on investor decisions? According to the survey, communications pros and investors aren’t in total alignment.
Communications pros rated “impact on the environment” as having the most influence on investor decision-making, while investors ranked it fourth out of seven. Investors, on the other hand, ranked “corporate governance” at the top, while communications professionals rated it fourth out of seven.
The methods by which those ESG results are communicated also matters. According to the survey, investors greatly preferred companies to disclose information via an ESG report (71.4%) and their website (51.4%). Beyond that, investors expect companies to provide forward-looking guidance on ESG activities, including goals and targets.
It’s clear that communications pros need to work to better understand how investors think and the type of communication that resonates with them. However, while this may be a challenge, it should also be viewed as good news, indicating that investors are paying attention to much more than a company’s financial results.
For additional insight into the growing importance of ESG, as well as the other critical factors that investors consider in their decision-making, download the full ICR | PRWeek report, Taking Stock of Communications.
