NIRI Annual Conference 2017

Ben Rebbeck, Executive Director

On 4 June 2017, the National Investor Relations Institute (NIRI) Annual Conference got underway in Orlando, Florida. This Conference brings together over one thousand of the world’s thought leaders and senior professionals in Investor Relations and it is one that we have been attending religiously for the past 10 years.

This year’s Conference kicked off with its Global IR Summit, focussing on the impact non-financial information is having on the investment decision-making of institutional investors and the disclosure practices of listed companies globally.

While it is well accepted in most major investment markets, including in Australia, that non-financial information is a clear factor in investment decision-making, and there is growing momentum by listed companies to improve such disclosure, there continues to be a lack of global consensus on what non-financial information should be disclosed, in what form and how often.

To fill this information gap one of the world’s largest surveys of investment managers and issuers was conducted over the past few months by the University of Oxford’s Dr Amir Amel-Zadeth, working with BNY Mellon.  This survey canvassed over 800 investment managers (48% of whom were located in Australasia) and over 280 listed companies representing over 83% of global assets under management.

While the research and its findings were extensive, there are a number of key take-outs for Australian listed companies, particularly as they formulate their Environment, Social and Governance (ESG) disclosure policies and practices.  The survey shows that 85% of global asset managers believe that companies that pay attention to ESG issues generate greater business returns compared with 76% of listed companies who believe the same.

Notably, Asian, Australian and European investors looked more heavily at ESG information, with only 75% of US based investors focussing on ESG matters in their decision-making.  In part this is driven by a culture of much shorter-term decision- making by US investors.

However, when it comes to what ESG information is important, there is a distinct gap between listed companies disclosure and investors’ concerns. 92% of investors consider non-financial information to be most relevant in exposing potential threats of regulatory intervention and litigation risks, compared to only 67% of listed companies.  Conversely, 82% of the listed companies surveyed believe ESG reporting can assist in revealing consumer, employee and brand information that is critical to the creation of shareholder value, compared to only 62% of investors who hold this belief.

In part these discrepancies highlight the differing drivers at play in the incentives for managers of companies vs investment managers. That is, investment managers have, to date, focussed on the big picture ESG issues that can negatively impact shareholder value rather than those ESG issues that create shareholder value.

This is an important distinction for many ASX-listed companies which have struggled with deciding whether to specifically address ESG issues in their reporting; in particular, where ESG issues can create shareholder value, by enhancing brand and employee and customer engagement.

This latest research demonstrates that without clearly articulating the link between non-financial disclosure, company strategy and shareholder value creation, your investors will focus on the risk mitigation matters only.  While reducing investors’ perception of risk is always beneficial, there are more Investor Relations gains to be made in highlighting the attraction of shareholder value-creating initiatives.