Businesses that manage and measure their corporate responsibility* can offer greater long- term value and are less volatile – yet investors and business are failing to put responsibility issues at the centre of their discussions, according to a report published today by Business in the Community and Legal & General.
Research conducted by Ipsos MORI for the report (Conscious Capital – bridging the gap between business and investors) reveals that FTSE-listed responsible businesses (characterised by participation in Business in the Community’s annual CR Index) outperform the FTSE’s average total shareholder return in seven out of eleven years from 2002-12. The research also shows that, between 2009 and 2012, FTSE-listed responsible businesses were less volatile than their peers, by an average -0.02 against the FTSE All-Share.
However, interviews with investors, CEOs and investment experts conducted as part of the research reveal that investors and companies are failing to link the centrality and materiality of environmental, social and governance (ESG) issues to a business’ long-term prospects as part of their discussions.
Many investors report that companies either do not provide enough information in this area, or do not convince them of its importance, while companies say that their investors do not ask them questions on this topic or do not give them feedback on the information they do provide.
Today’s report offers recommendations for businesses to help them have the right conversations with investors, and ensure that their business can attract long-term, sustainable investment:
• Companies should ensure the centrality and materiality of responsible business practice to their future success is understood by their full board, particularly those with direct investor contact, such as the Finance Director.
• Companies should consider whether the information they communicate to investors properly supports discussion with them about long-term issues, including long-term social and environmental challenges and opportunities.
• Businesses should consider how they can use their role as asset owners, through their pension funds, to influence the emphasis investors place on responsible business practice in their dialogue with companies.
• Companies should consider how they incorporate integrated reporting principles into their conversations with investors, ensuring they cover all content areas identified in the proposals made by the International Integrated Reporting Council in April – regardless of whether or not investors specifically request the information.
Stephen Howard, Chief Executive, Business in the Community, said: “Business in the Community and Legal & General are asking the leaders of the responsible business movement to kick-start this conversation and help develop a new approach to dialogue between business and investors.
The regulatory environment is starting to move towards a greater focus on integrated reporting, and away from a concentration on short-term results and quick returns and companies must make sure they are prepared.
“We believe responsible business pays in the long term. The research we have conducted with Ipsos MORI and Legal & General over the last five years bears this out – now the challenge is for businesses to bridge the gap with the investment community and make sure they know it too.”
Sacha Sadan, Director of Corporate Governance, Legal & General Investment Management, said: “Legal & General is committed to using our position of influence to help improve board practices and performance in the markets in which we invest. This involves engagement with investee companies directly and collaboratively with other institutional investors, government and regulators.
“We are acutely aware that individual shareholders lack the influence to ask difficult questions on how companies are impacting society, the economy and the environment. Therefore the responsibility of institutional shareholders is to take this challenge to companies on behalf of the individuals and clients they represent.
“At LGIM we believe good governance creates long-term company value. We are really pleased to be working with Business in the Community to understand how close we are getting to investors and companies talking the same language, the language of long-term sustainable business.”
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