ESG: companies face new demands from investors
What do a head of investor relations and a sustainability expert have in common? ESG. Growing investor interest in non-financial performances has bridged the gap between two areas that businesses have long dealt with separately or even kept apart. Let’s take a look at the organizational challenges and consequences involved in this shift.
In November, Kering put on a roadshow for its key institutional investors. A fundamental approach for listed companies, roadshows comprise a series of meetings held over several days and are typically geared to present a firm’s strategy, results, and outlook to potential or current investors. Senior management and Investor Relations usually handle roadshows. But for this event, Group CFO Jean-Marc Duplaix was joined by Chief Sustainability Officer Marie-Claire Daveu (see their interview). Lead independent Director Sophie L’Hélias (see her interview) and Eric Sandrin, General Counsel, who is in charge of governance issues, also took part. They were there because the roadshow was 100% devoted to ESG.
A theme that has quickly evolved into a central concern
This was the second time that Kering has organized an ESG-focused roadshow and invited these types of speakers, following a successful inaugural event in 2019. In the past two years, ESG has become a central concern for the finance community, which now considers these aspects in terms of opportunities and competitive advantages, instead of only through the prism of risk. This trend had been building for several years, but was accelerated by the health crisis. Director of Financial Communications Claire Roblet, who looks after investor relations, has watched the shift happen. “In 2018, we were approached 20 times by investors on ESG issues. This had risen to 42 times in 2019. By the end of November of 2020, we were already at more than 50 requests and interactions,” she says, noting that many different types of investors and analysts are reaching out. “Needs vary considerably. We might be contacted by funds that have been involved on these issues for years and have built up real expertise. They sometimes zero in on highly specific questions. But we also deal with less specialized investors who are approaching ESG in a more holistic way.” To cope with the increased number and diversity of requests, Claire has added an ESG specialist to her team, which fields general requests and works with experts in the Sustainable Development, HR, and Legal divisions to prepare answers to queries on more technical issues.
Some requests entail further research. “We are considered to be one of the most advanced companies in terms of ESG because we have been talking about this subject for years,” says Claire. “Some investors sometimes contact us at a very early stage as they look to get to grips with the issues surrounding a given topic. Likewise, brokers often invite us to speak at ESG conferences organized for their clients. For example, we recently had a request concerning the circular economy.” In this instance, the Finance Division turned to the team led by Michael Beutler, Director of Sustainability Operations, to collect the most appropriate data on the subject. “We had obviously set up internal reporting and monitoring systems already. But we needed to gather the most relevant examples and put them together in a clear and concise report to address this request,” says Michael, who joined Kering in 2011. He views the rise of ESG as a real boon: “Our exchanges with investors are growing more and more thought-provoking and instructive. There is very positive momentum right now that is pushing us to constantly raise our levels of transparency. This also underlines the need to standardize practices. Currently, there are 60 or so different indices and rankings covering ESG. Investors and businesses alike need a shared assessment framework.”
Regulation is driving change
Regulatory developments in the area of non-financial reporting are another driver of change in this fast-growing sector. As part of the European Green Deal, from 2022, the EU will require companies to publish new information aimed at demonstrating the extent to which their activities can be considered sustainable. This is a complex project, given that data and criteria can vary across different sectors of activity. The Finance and Sustainability teams are already working on this question. “TCFD1 recommendations on climate change have also created new needs for investors, requiring us to change how we model our exposure and manage this risk in financial terms,” says Michael. “This is one of the areas that we are working on right now with Claire’s people.” Claire Roblet adds: “We are seeing the convergence between the financial and the non-financial on a day-to-day basis. This is translating into ongoing, fluid dialogue with the Sustainability Division, naturally, but also with HR and the Houses.”
Recently, more and more investors have been asking about product end-of-life (EOL) aspects. To integrate this better in its reporting system, Kering conducted an extensive study in 2020 on the product use and end-of-life behavior of Luxury customers. The aim was to map out the environmental data and estimate the impacts linked to product use and EOL phases in order to integrate them in Kering’s EP&L environmental reporting system. Ultimately, this will enable the EP&L to cover the Group’s entire value chain from end to end. “This data will be shared for the first time with the next EP&L report,” says Michael, who adds: “Integrated reporting is seeing spectacular growth and many companies have made massive headway in a short space of time. This gives us even more incentive to stay active. We place highly in the rankings2 and we have no plans to rest on our laurels.”
1 Task Force on Climate-Related Financial Disclosures.
2 To give an example, for nine years in a row, Kering has been included in the Dow Jones Sustainability Index (DJSI), one of the most widely recognized rankings in the world, with a score of 85/100 for 2020.