Are socially responsible and sustainable investment analysts worth investing time in?
One of the favourite topics of discussion among corporate responsibility managers is the irrelevance of socially responsible investment (SRI) analysts.
It is almost an article of faith that SRI analysts are out of touch with business realities.
For example, SRI research requests are routinely criticised on the grounds that they are time consuming to complete and that it is not clear who is using the information being provided to these analysts.
Some corporate responsibility managers have gone as far – although rarely in public – as arguing that they would be much better getting on with their day jobs rather than wasting time talking to these analysts.
Of course, there are elements of truth underlying these assertions.
It is true that most SRI analysts are often not sector specialists (in practice, they tend to cover multiple companies in multiple sectors).
It is also true that form-filling and information provision are inevitably time consuming (and dull). These frustrations, from a corporate perspective, are compounded by the fact that investors are notoriously bad at explaining how they use the environmental, social and governance (ESG) information provided by companies.
These criticisms and complaints do not inevitably lead to the conclusion that companies should curtail their engagement with the SRI industry.
In fact, there are a number of reasons why companies should welcome the opportunity to engage with SRI analysts.
The first, and most important, is that SRI analysts (both within the SRI research houses and within investment management and asset owner organisations) influence market perceptions and views.
As more and more investment organisations look to integrate ESG issues into their investment practices, this influence will only grow not diminish.
Externally, these individuals are frequently quoted in the press (especially where they express critical views of individual companies).
The second is that SRI researchers provide an important early warning system for companies. Their focus on the short and long-term business implications of ESG issues means that they are exactly the sort of individuals whose views should be valued by companies.
All the more so given that SRI analysts are the one stakeholder group that is concerned about companies’ ESG performance AND about the companies’ long-term sustainability.
The third is that the resources devoted by companies to responding to SRI research requests are routinely exaggerated (often by those charged with filling out these forms).
The blunt truth is that, in the context of large companies’ market capitalisations and human resources, the resources being allocated to dealing with SRI-related information requests are trivial.
All the more so given that investors are such an important stakeholder.
While the resources may be modest, that is not to say that they couldn’t be deployed more effectively.
From a process perspective, there is much to be learned from the manner in which companies present their financial results.
Companies start by publishing their results and data. They then host webinars and meet with their major investors.
This allows companies to address the needs of data driven analysts (for which read those SRI analysts concerned about aspects of ESG performance).
It also allows them to have more detailed conversations about the relationships between ESG issues and business strategy with those analysts concerned about the business implications of ESG issues.
Finally, it has been my experience that the corporate responsibility managers that are the most critical of SRI analysts fall into two groups.
There are those that suffer from hubris and there are those that wish to deny reality. The former tend to be strongly convinced of the quality and merits of their own corporate responsibility approaches, and unwilling to accept feedback of any sort.
The latter may well be aware of the limitations of their approach but find it easier to attack SRI analysts rather than to engage on the substantive issues being raised.
In both cases, company leaders should see this willingness to shoot the messenger as a potentially fatal weakness in their management of corporate responsibility.
Dr Rory Sullivan is a Senior Research Fellow at the University of Leeds, Strategic Adviser, Ethix SRI Advisers and a member of the Ethical Corporation Advisory Board. He is the author of the recently published Principles for Responsible Investment report: Building the Capacity of Investment Actors to Use Environmental, Social and Governance Information
For a useful guide to company-investor engagement, see this article: Take Control of SRI Communications