Week of 25 May 2020
Company quarterly calls can be used to meaningfully discuss ESG, provided the company take specific actions to lay the groundwork for these discussions (with concrete recommendations provided by the NYU Stern School of Business Center for Sustainable Business and Chief Executives for Corporate Purpose)
A new report published by the NYU Stern School of Business Center for Sustainable Business and the Chief Executives for Corporate Purpose (CECP), ESG and the Earnings Call: Communicating Sustainable Value Creation Quarter by Quarter, finds that there is evidence that the way in which companies are disclosing information is shifting toward long-term sustainable value. For instance, some companies are sharing long-term focused content at investor days, convening investor-facing calls to focus on ESG themes, building elements of ESG-type disclosures into earnings call content and preparing long-term financial guidance (rather than quarterly Earnings per share (EPS) guidance).
The report finds that it is commonly a challenge to meaningfully discuss the ESG characteristics of a company’s value proposition on company quarterly earnings calls. However, it is possible to do so – provided the company lay the groundwork for the earnings call to become a setting for monitoring the delivery of a multiyear ESG-focused plan. This entails adjusting the mix and timeframe of the information reported.
The report provides concrete recommendations for how companies can meaningfully integrate ESG into their quarterly calls:
- Integrate ESG and long-term content into existing disclosures sequentially – in a manner that builds comfort and confidence within the investor base and management
- Prime the analysts with ESG-specific questions to shape the discussion
- Develop a plan for how each of the four calls will be used, including for instance using one of the four quarterly calls to provide a deeper discussion of ESG and using the CEO segment for macro framing on purpose and stakeholder approach
- Develop cross-functional collaboration to enable ESG themes to be blended into existing reporting structures, including (1) directing Investor Relations and Corporate Sustainability to co-develop the content, (2) convening an open-access, cross-function ESG working group, (3) ensuring board oversight of ESG, clear committee remit, and full board discussion (4) expanding CFO engagement on ESG themes and long-term forecasts
- Reference and deploy existing frameworks for investor-facing ESG disclosures
- Describe management’s thesis on the impact of ESG strategy and performance on the company’s financial performance. The report suggests starting with simple cost-avoidance approaches and expanding to revenue-generating approaches
- Monetize the risk associated with not acting on a particular ESG theme (such as the potential costs associated with avoiding human capital expenditures)
Appendix 1 of the report provides an ESG and Quarterly Reporting template designed with guidance from McKinsey & Company, CECP and FCLTGlobal. The report also provides a a Long-Term Plan Framework developed by CECP’s CEO Investor Forum to support CEOs in presenting a long-term plan to investors.