Take control of SRI/ESG investor communications

The first thing that companies need to do is gauge the level of likely SRI investor interest in their stock.  For this, they can use:

• Their own record of recent activity
• SRI-CONNECT’s Directory – to conduct sector & stock specific searches
• The simple 'SRI investor expectations scoring system' below

SRI investor expectations scoring system

In the absence of direct expressions of interest, companies should note that SRI investor interest is likely to come from a combination of five factors:

• Company size
• Region of domicile
• Sector/activity impact
• Sustainability performance of company
• Other factors

We combine these with a simple points system below:

Company size

In descending order, SRI investors are likely to be interested in:

• Global mega-cap companies (Global 200 company) - (4 pts)
• Regional large-cap companies (Global 500 company or members of primary national indices (e.g. FTSE100 or CAC40) - (3 pts)
• National mid cap companies (Member of secondary national indices) – (2 pts)
• Smaller companies - (1 pt)

Domicile

In descending order, SRI investors are likely to be interested in:

• European companies - (3 pts)
• North American & Australian companies - (2 pts)
• African, Asian, Latin American companies - (1 pt)

Sector/activity impact:

In descending order, SRI investors are likely to be interested in companies, sectors and activities with exposure to:

• High-levels of environmental or social risk (e.g. oil & gas, mining, pharma, consumer goods, banking etc) - (3 pts)
• High-levels of environmental or social opportunity (e.g. alternative energy, education services, water treatment etc) – (3 pts)
• Medium-levels of environmental or social risk or opportunity (e.g. support services, telecoms, life assurance, IT hardware etc.) (2 pts)
• Low-levels of environmental or social risk or opportunity (e.g. media) - (1 pt)

Corporate performance

SRI investors’ interest is likely to be influenced by their perception of whether a company is managing its environmental, social & economic expenses effectively.  However, this is a factor that only the investors can judge.

Other factors

On top of these general factors, SRI investors’ interest may be affected by a whole range of company-specific factors.  Within this scoring system, companies should add an extra point if:

• They are subjected to a company-specific engagement
• They are at the centre of an environmental, social or economic event with significant reputational impact
• They receive direct communications on a sustainability subject from one of their Top 20 investors

Engagement levels required

Based on the scoring system above, we recommend that companies with:

• 8+ points are highly-proactive in their engagement with investors
• 6 - 7 points are proactive in their engagement
• 3 – 5 points are reactive

These levels of investor expectations are translated into recommended levels of company SRI engagement.