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A firm's ESG strategy is continuously moulded by many different factors - both internal and external to the company's operation. When considering what might impact upon an ESG strategy, our minds tend to immediately jump to the results-driven influences.
This makes sense. Strategies are shaped by their end goal.
However, while ESG ambitions undoubtedly shape firms' strategies, less obvious factors often play a significant role as well. Today, we're taking a closer look at how IR shapes ESG strategies.
What does IR stand for?
IR stands for "investor relations". An IR department seeks to provide investors with up-to-date information with regards to a company’s overall affairs.
IR departments liaise directly with a firm's financial department, its legal department, and its management team. The department accurately disseminates the data it obtains from these departments to investors. Investors then use this information to gauge whether or not a potential investment, or an investment-related decision, is a wise choice.
IR teams are responsible for arranging stakeholder meetings, organising press conferences, releasing information to external entities, and briefing relevant people on financial matters. Unlike PR departments, IR departments are tightly bound to legal and accounting matters.
How do investor relations impact upon ESG activities?
IR teams work closely with limited partners (LPs) and are therefore well-equipped when it comes to understanding partners' requirements. More and more investors and fund managers are beginning to take ESG considerations into account when making investment decisions. This could be because of their own personal ESG ethics, or because they are required to comply with new regulations, such as the SFDR. Regardless of the reasons behind the partner's choice, the role of the IR team is now more important than ever.
All ESG-related questions are filtered through IR, and these departments curate the information distributed to fund managers. They therefore play a vital part in helping partners to gain a better understanding of a company’s future prospects. These predictions can then be used to guide ESG teams, helping them to establish which specific metrics should be measured.
An IR manager’s workload is partly reliant on their company's ESG strategy. Having a strong ESG strategy makes life easier for IR teams as, to some extent, they can let the data speak for itself. Good ESG metrics can set a firm apart from its competition without requiring the team to build a persuasive narrative on unsteady foundations.
ESG success stories enable IR personnel to form better and more cohesive investment narratives, thus creating more compelling investment opportunity stories for limited partners.
ESG metrics influence IR teams, and IR teams help shape ESG strategies. These influences operate in a continuous cycle.
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How investor relations can support ESG strategies at a firm level
The IR-to-ESG support system is cyclical. ESG metrics influence IR teams’ work, and IR teams subsequently shape ESG strategies. Our ESG experts have put together a list of the top 5 things that IR teams can do to support their firm's ESG strategy.
1. Study your limited partners.
Look up any new limited partners online and see if their portfolios reflect their personal ESG ideologies. Have informal chats with them about ESG concerns. Establish their expectations and desires with regard to ESG, and accentuate the aspects of your firm that adhere to these. Don’t embellish or overly exaggerate your firm's ESG standing in an attempt to make the investment more appealing. This will come back to bite you further down the line.
When working with limited partners with whom you have already established a good rapport, be sure to leverage your existing channels of communication – both formal and informal – to learn more about their needs.
Every limited partner will have a different list of priorities, and it's impossible to adhere to all of them. Distil your most important metrics and lead with those, but be prepared for limited partners to ask questions.
Remaining open and forthcoming with regard to ESG metrics will stand you in good stead in the long run. But the only way to ensure that the data offered is reliable, accessible, and relevant is to measure ESG effectively. KEY ESG's intuitive software can help with that!
2. Assess your long-term opportunity and strategy.
Be honest. Does your current limited partner base resemble the one you're hoping to establish in the future? What ESG data do you think your future limited partner base will be most interested in?
Your answers to these questions should shape your ESG strategy, allowing you to map out and pin down who you want to attract. This will also help you to assess the gap between where your firm currently is and where it needs to be. Knowing this will assist you in attracting your ideal partner.
ESG requirements are changing fast, so make sure you stay ahead of the curve and remain up-to-date on new developments. You’ll then be able to better anticipate changes and incorporate these into your firm's ESG strategy to maintain your competitive advantage.
3. Understand the priorities and internal capabilities of your fund.
How frequently do you collect information on ESG metrics, and how detailed is this data? Your ESG goals and priorities should be based on the demands of your fund and your investor.
Is the data gathered something that your fund manager would be interested in?
If the answer to this question is no, then it may be time to rethink your ESG strategy. Either in terms of your business operations or the metrics you’re measuring. You should strive to meet investors' expectations, but not if these depart wildly from your firm's regular practices. In these instances, you should alter your reporting strategy, not the ESG strategy itself.
4. Understand private equity market competition.
Take a look at what similar funds are doing with regard to ESG. What is your competitive advantage, and how can you accentuate it? Where is the market going?
It’s safe to assume that most limited partners will be considering several funds at the same time. This inevitably leads them to make comparisons. Being ahead of the competition with regards to ESG can be an effective way to quickly set yourself apart and establish a forward-thinking competitive advantage.
Always try to remain one step ahead of your peers. This feeds into point 5.
5. Keep on top of market changes
How is the market changing? And what does its timeline look like? Are these shifts occurring rapidly? What frameworks and regulations are most relevant for your fund, and which are soon coming into force? How does this impact upon your firm’s ESG strategy?
These are the questions that IR teams should be asking themselves on a regular basis.
IR departments should cultivate strong communication channels with other departments of the firm to ensure ESG matters are considered in all areas, not just the most obvious ones. The more diverse profiles in your ESG Committee, the more nuance and detail you will be able to demonstrate. This looks great for potential investors, as it shows that you have left no stone unturned and have considered every facet of the firm’s ESG, rather than simply covering only the minimum requirement.
If you or your IR team are not yet involved in ESG, reach out to your ESG lead and establish direct lines of communication between IR and the ESG Committee. As a minimum, at least arrange for regular catch-ups between the departments. This will help you to ensure that ESG decisions are informed by IR perspectives.
Supporting IR through effective reporting
Investor relations shape ESG strategies, but they also rely on effective ESG measurement protocols. KEY ESG's software solution collates all relevant ESG metrics, ensures they are comparable, and keeps your content updated in line with new regulations.
We've put together a handy guide on how to efficiently communicate with limited partners. Take a look and see if you tick all the boxes. If you have any questions, feel free to contact our team. You can also arrange a free demo to see how our software could help streamline your ESG processes!
