The standards aim to fill the gap of a unified, universal sustainability reporting framework. In the words of Emmanuel Faber, ISSB Chair, “to help companies tell their sustainability story in a robust, comparable and verifiable manner”[1].These factors are becoming not only core business matters for companies, but also increasingly fundamental to the way investors are considering how and where they invest. This coupled with the shift towards sustainable investing and recent growth in sustainable finance instruments is gaining traction. To understand better what key themes asset owners and asset managers are focused on in their engagement with their investee companies, we analysed the investor stewardship reports, publications, websites, interviews, and wider thinking of fifteen leading investors.
Overall, we found that to secure the support of investors in the future, companies will need to act and communicate beyond just financials, to how they are creating sustainable long-term value. Investors want to know how companies are acting in a way that is solving societies’ problems and serving all stakeholders. The following six investor engagement themes represent opportunities for companies to communicate that they can create sustainable long-term value:
In 2022, investment decisions will be directly linked to precise transition strategies. Achieving net zero will require more than vague commitments; it requires companies executing a concrete plan of action. This will require transparent disclosure and science-based targets.
Many investors are members of alliances which share the common goal of achieving net zero. These alliances aim to accelerate investor action on climate change by encouraging responsible stewardship and engagement with Boards. Merely stating the intention to reach net zero by 2050 in itself achieves little. Transition plans are at the forefront of investors’ minds. Therefore, companies that can confidently articulate their plan will win the trust and capital of investors.
In 2022, investors will engage with companies to promote the ethnic diversity, independence, quality, and capability of their boards. Corporate governance is the foundation for managing all ESG issues, which continue to be top of the agenda for investors. Ensuring a strong ‘tone from the top’ will convince employees and investors that a company can take ownership and create long term, sustainable value.
Insufficient diversity, quality, sustainability skills, and independence on boards is now seen as an investment risk. Therefore, it is critical that governance is aware of this and managing it accordingly, ensuring they are diverse, capable, and fit for whatever challenges 2022 may bring.
Reliable data is essential for investment decisions and managing ESG and climate related targets. Without mandatory reporting regulations, it is difficult for investors to assess the sustainability and ESG performance of companies. The International Sustainability Standards Board (ISSB) represents a critical juncture in sustainability reporting, ensuring investors have access to comparable metrics to base their investment decisions. As a global baseline is created, investors expect companies to consider and align with Integrated Reporting Principles and Framework, Sustainable Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD) to ensure that ESG and climate disclosure is as transparent and comparable as possible.
ESG will remain an overarching principle for investment stewardship in 2022. Strong ESG performance by companies is seen by many investors as synonymous with long term, sustainable value creation. Investors want to see ESG integrated across the entire business function, operations, and strategy. The reputational risk of failing to meet ESG objectives in 2022 is considerable.
Social issues will remain prominent and investors need to be assured that companies are tackling inequality and avoiding groupthink by fostering diversity, equity, and inclusion (DEI). Therefore, companies must continue embedding ESG into their business, and clearly articulate how they will address their ESG challenges in 2022.
There is growing recognition that climate change and biodiversity are interlinked and must be tackled together. Protecting natural capital by ending deforestation, promoting sustainable supply chains, and fostering biodiversity will be a key investor theme in 2022.
2022 will also see increased use of natural risk reporting frameworks by The Taskforce on Nature-related Financial Disclosures (TNFD). TNFD intends to protect natural capital by developing a disclosure framework for natural capital risk management and biodiversity, linking nature to climate change targets. Using TNFD will be a major step in the battle to preserve natural capital by providing transparent information on how nature-related risks are handled by companies.
Cyberattacks pose a considerable financial and reputational risk to companies, driven by digital, data-driven business models and compounded by the COVID-19 shift to home working. In 2022, investors will expect companies to make extra efforts to increase cybersecurity. Many companies now operate largely in the digital realm, meaning that significant amounts of personal data are vulnerable to cyberattacks.
Investors need certainty that they are placing capital in areas with minimal downside risk and are using their capacity as stewards to steer companies toward sustainable outcomes that benefit all stakeholders. Consequently, companies must deliver on environmental, social, and governance issues; provide investors with transparent, consistent disclosures; formulate their net zero transition strategy; reduce biodiversity loss and deforestation; and improve their digital safety.
Better understanding of investor priorities helps inform our advisory, reporting and strategic communications work to meet the needs of our clients, as well as those of wider society, in the spirit of increasing trust in business through transparent and authentic communications.
For more information or to obtain a copy of the 6 Key Investor Engagement Themes thoughtpiece, please get in touch enquiries@blacksun-global.com
Black Sun is a global group of strategic advisors, consultants and stakeholder engagement specialists. We believe that brands and businesses can have a big impact on our society – they can shape more ethical practices, build more inclusive communities and deliver more sustainable performance. Ultimately, they can spark positive change in the world.
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