Building confidence in sustainability and practicality for business success
If there are differing views about sustainability within the board or management team, external advice can be helpful. Alignment within the organization is important but not easy to achieve. Strengthening leadership alignment, business focus and knowledge of risks and opportunities related to sustainability can accelerate progress.
One area which is a growing need for some companies is to understand and consider strategic options for addressing requests and concerns from “ investors, particularly “ socially responsible investors” (SRIs).
Some companies are very sophisticated in how they interact with both “mainstream” investors and SRIs, but many do not have the resources or knowledge to do so effectively and efficiently. SRIs care passionately about one or more aspects of sustainability. Their focus can be on social issues, human rights, or community support. It can also be concerns directed at environmental performance and progress related to climate change, water use, or biodiversity and land use. Executive teams and leaders should be able to either speak about sustainability in the language that investors expect, or engage the sustainability leader or team to do so. In my experience, the most successful path is to keep sustainability leaders engaged, and to provide talking points to those working in investor relations, the corporate secretary and others within the organization. As questions become more detailed and complex, it may be beneficial for these investors to meet directly with the sustainability team.
SRIs typically hold smaller numbers of shares than large financial institutions and pension funds. As a result, investor relations teams may not prioritize these smaller investors, who often want to talk about sustainability efforts in great detail. So, it is not uncommon for SRIs to have difficulty getting the time or attention they desire. When they become concerned about a company’s sustainability efforts and are unable to get traction with conversation, they resort to filing shareholder resolutions.
Once a company has become the target of shareholder resolutions, internal time and costs increase for communication, legal (inside and/or outside counsel), and investor relations - even if the company's performance is actually strong. A company may be performing well in the area of interest but needs to communicate more clearly and to directly engage with SRIs by listening and effectively presenting information. A sustainability report may not be enough to address shareholder concerns which can be very detailed, both technically and experientially.
To move from reacting to these issues to a proactive strategic solution, I suggest several actions. This includes working with the executive team, corporate secretary’s office, investor relations leader, and sustainability leader to tighten the linkage between them to prevent, engage, and respond to shareholder resolutions. I also advocate for building or deepening relationships with SRIs who file resolutions.
There is also a benefit to systematizing the SRI engagement process. Knowing when, how, and with whom to engage can dramatically reduce the negative attention created by these shareholders and related stakeholders. Effective and strategic engagement can foster learning by both the company and the investors, and better align stakeholder expectations with company strategy.