Changing stakeholder perspectives: Investors
In this Changing Stakeholder Perspectives series, we investigate the ways in which the New Normal – media anarchy, hyper-transparency, and interconnectivity – has fundamentally altered the relationship between businesses and their stakeholders and what this means for corporate reputation and external communications.
In the first blog in this series, we looked at how the way in which employees view and engage with their employers has changed dramatically over the last decade, thanks to greater transparency over corporate actions, staff review sites, and the differing drivers behind why people choose to work for a particular organisation. From a time when a regular pay cheque and not-too-onerous daily tasks were the ambition of many, now employees are looking for purpose-driven roles, for companies that match their ethical agenda, and for the chance to make a difference.
Investing in the New Normal
The same can also be said of a new breed of investors: they want their money to have a purpose beyond making more of it. They too are the product, and beneficiaries, of the ‘New Normal’, in which organisations exist in a state of hyper-transparency, media anarchy reigns, and anyone can publish their views on egalitarian social media platforms that allow everyone an equal footing on the airwaves.
With greater connectivity comes a more informed investor community, who are making decisions based not only on the potential returns, but also on what it being done with their money, and whether it is for the greater good.
The changing expectations of the investor community have created their own investment profile: sustainable, responsible and impact investing (SRI), which is focused on gaining respectable long-term returns without engendering negative societal impact. According to the US Forum for Sustainable and Responsible Investment (USSIF), at the end of 2017, £12trn – more than a quarter of dollars under professional management in the country – was invested using SRI protocols.
To identify specific impact investment trends for 2019, Forbes magazine polled 50 experts, and high on their lists were gender-focused investing for greater community benefit, especially businesses founded by women in the developing world; investment in minority-led companies to help promote a more equitable world; and alternative financial deal structures that support social enterprises. It’s not all being done out of the goodness of their hearts, of course: as well as being socially conscious, these investments also promise good returns.
The rise of ESG
For more traditional investors, the drivers are also changing: when it comes to buying shares in global corporates rather than socially conscious start-ups, a greater emphasis is being placed on environmental, social and governance (ESG) factors, which offer a means for investors to screen companies based on how their operations impact both the natural world and the communities within which they function.
Brokers and mutual funds are increasingly offering information based on these criteria, as the importance of elements such as employee and customer relations, executive pay, green policies and leadership all come under scrutiny by potential investors. Funds incorporating ESG metrics grew to $52bn globally in the first six months of 2019, an increase of 15%, compared to 1% over the course of 2018, according to Fitch Ratings.
Meanwhile, record amounts were channelled into ‘green funds’ in Europe, with research by Morningstar revealing that €36.9bn was transferred into sustainable funds in the first half of 2019. Although still a small segment of the investment sector, the growing involvement of large asset managers such as State Street and BlackRock suggests a prescience of further fast growth.
Investor reputation intelligence
The announcement by the CEO Roundtable that shareholders are not the only stakeholders in a business who need to benefit from its activities heralded the arrival of SRI in the mainstream. It also reinforced the business case for stakeholder reputation management. And, given the growing popularity of ESG-focused funds, the investment community appears to be on board.
As with the changing expectations and demands of employees, companies would be well advised to be alert to their external ESG reputation with the investment community.
As companies seek to establish greater competitive differentiation in the new normal, it is not just the absence of negative issues that is the priority, but also ensuring that your organisation is keeping pace with the competition on ESG policies, their implementation and external communication. The price for failing to do so is becoming ever more tangible.
In the next blog in this series, we look at the increasingly powerful influence of NGOs on the way organisations are doing business: both in relation to their reputation among consumers and with the impact investor community.
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