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Six ways to leverage Investor Relations to attract ESG investment capital

Sustainability leaders with strong investor-focused reporting are positioned to access larger pools of capital from investors with ESG strategies. That’s because investors see sustainability as a sign of comprehensive, forward-looking approaches to managing business risks and opportunities. As the demand for sustainability information continues to grow, companies will need an increasingly investor-focused approach to their reporting. In this article, we describe how the Sustainability and Investor Relations teams can work together to improve reporting practices and attract ESG investment capital.

 

The business case for sustainability is clear

A raft of recent studies confirms that sustainability is good for business.

  • According to a 2017 Harvard study of 2,400 companies, those companies who performed well on material sustainability topics over two decades outperformed the market by nearly 5% annually.1
  • In a 2018 report on ESG ratings from MSCI, Sustainalytics and Thompson Reuters, Bank of America Merrill Lynch found that sustainability performance correlated with higher return on equity, lower price volatility and market outperformance.2
  • A 2017 study by Nordea Equity Research found companies with the highest ESG ratings outperformed the lowest-rated firms by as much as 40%.3
  • A recent study by Harvard Business Review found that ESG issues were almost universally top of mind for senior executives at nearly 50 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard and State Street).4
  • In Canada, $2 trillion, or more than 50% of institutional investor assets are governed by responsible investment principles,5 and all major pension plans and asset managers are signatories to the Principles for Responsible Investment.

 

Satisfying the demand for sustainability information requires a new approach

The correlation between sustainability and financial performance is driving investors to demand more – and better – sustainability disclosure.

In turn, that demand has led to a spike in sustainability information databases, ESG ratings and indices. For example, Bloomberg, Thompson Reuters, ISS, Standard & Poor, MSCI, Sustainalytics, FTSE Russell and DJSI all offer ratings to help financial analysts interpret and assess sustainability performance. Bloomberg terminals alone have approximately 900 sustainability indicators, and subscriptions to the service have nearly tripled in the last three years.

At the same time, companies are striving to satisfy this demand by reporting on their sustainability activities: 93% of S&P 500 companies now disclose sustainability information publicly.

Sustainability managers go to great lengths to align their reporting with frameworks and standards, such as GRI, SASB, TCFD, and CDP.However, investors often find sustainability disclosure falls short because it contains too much extraneous information and unreliable data that lacks comparability across companies.

The critical link between the supply and demand of sustainability information is the Investor Relations (IR) team. The IR team can act as a powerful liaison between two different and often disconnected groups – investors and Sustainability teams. The IR team can help Sustainability teams understand what is financially material to investors and identify useful sustainability information to disclose.

In our experience advising institutional investors and corporate clients, Sustainability teams who follow the following six steps report with more confidence and provide investors with high-quality information about what is most important for company outlook and value creation.

 

1: Promote collaboration between the IR and Sustainability teams

Set up regular meetings and ensure both teams have an understanding of each other’s strategic priorities, shared goals and key milestones. The Sustainability team should be aware of the requirements of the annual IR calendar – the AGM, annual report, quarterly reports, investor calls and events. Similarly, the IR team should be apprised of the sustainability disclosure reporting cycle – questionnaire responses, report publication, ESG rater solicitations.

 

2: Understand investor ESG priorities

Investors prioritize different information when making investment decisions. Profile your most important investors for sustainability-related investment positions. For example, many leading European institutions are starting to set portfolio decarbonization goals and routinely integrate climate change considerations into their investment decision-making.

Engage with your investors to understand what they consider to be the strongest indicators of sustainability leadership. For example, do they look for a clear link to the business strategy? Do they want to see a trend of improvements in resource efficiency, or are they more interested in an ambitious set of improvement targets?

Also enhance understanding of how investors apply sustainability information in their equity and credit research – what sources of information do they use, who does the analysis and how frequently? Sophisticated investors often apply proprietary sustainability-themed investment screens, while others may rely more heavily on third-party ESG ratings and disclosure scores.

 

3: Hone your reporting

Once you’ve established what your investors want to know, make your sustainability information clear, concise and readily available for investors and ESG raters. Take advantage of tools such as sustainability microsites and downloadable data charts. Equip the IR team with an information packet for investor roadshows and quarterly calls. This can be a selection of material from an annual sustainability report and scored results from disclosure frameworks, such as CDP, DJSI or GRESB.7

 

4: Be proactive about shareholder questions

Monitor and anticipate investor questions ahead of proxy season and develop responses proactively. This demonstrates a forward-looking orientation that helps investors understand your plans and upcoming initiatives.

 

5: Refine the message

Make sure the IR team is able to both speak articulately about your sustainability approach and connect your priorities to how the company creates shareholder value. Practice makes perfect – outline jargon-free messages and use case studies to highlight your sustainability journey and differentiate your firm based on your tangible sustainability actions and achievements.

 

6: Engage directly with investors to continuously improve  

Sustainability provides companies with an opportunity to build relationships with investors by driving new and different conversations about value creation. To maximize this potential, allow investors to weigh in on your sustainability strategy. Ask them what resonates and aligns with their priorities, and get their feedback on what you are aiming to achieve. Discuss your ideas about how the company can innovate and position itself as a future-fit investment over the long term.

Of course, the information shouldn’t flow only one way. IR teams at leading companies will no doubt see the relationship as beneficial too: Ideally, they will be working towards integrating sustainability into mainstream investor reporting, helping the markets integrate material sustainability information in fundamental analysis and valuation.

 

About Quinn & Partners

Quinn & Partners is a sustainability strategy and integration consultancy advising Canadian and American corporations and investors. With services range from sustainability strategy to implementation, training, communications and audit, our vision is to be our clients’ trusted advisor in all matters relating to corporate sustainability and ESG integration. If you would like to know more, please reach out to Francisca Quinn, Managing Partner, Quinn & Partners, at +1 416-300-8068 or francisca@quinnandpartners.com for more information.

 

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1Harvard Business School, George Serafeim, Better Information Better Markets, 2017: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912

2Bank of America Merrill Lynch, The ABCs of Environmental, Social & Governance (ESG), 2018: https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID18_0970/transcript_abcs_of_esg.pdf

3Nordea Equity Research, Cracking the ESG Code, 2017: https://nordeamarkets.com/wp-content/uploads/2017/09/Strategy-and-quant_executive-summary_050917.pdf

4Harvard Business Review, Shareholders Are Getting Serious About Sustainability, 2019: https://hbr.org/2019/05/the-investor-revolution 2/14

5Responsible Investment Association, 2018: https://www.riacanada.ca/research/2018-canadian-ri-trends-report/

6GRI (Global Reporting Initiative), SASB (Sustainability Accounting & Standards Board), TCFD (Task Force on Climate-related Financial Disclosure), CDP (Carbon Disclosure Project).

7CDP (Carbon Disclosure Project), DJSI (Dow Jones Sustainability Index), GRESB (Global Real Estate Sustainability Benchmark).

GRESB Insights Series: A practical approach to assessing and managing physical climate change risks in global portfolios

Quinn & Partners contributed an article to the GRESB Insights Series summarizing a practical approach to managing physical climate change risks in global portfolios.

“Physical risks represent a threat to real estate because buildings must adapt to the changing climate in their region or risk obsolescence. Despite the threat, few owners understand their exposure to these risks and what management strategies currently are in place – especially across global, diverse property portfolios.  This is not surprising as there is little industry guidance so it can be intimidating to take that first step into a previously unexplored area. That is why we worked with our client, The Healthcare of Ontario Pension Plan (HOOPP), to develop a pragmatic approach to assessing risk and resilience.”

See the full article here: A Practical Approach to Assessing and Managing Physical Climate Change Risks in Global Portfolios

GRESB Insights Series: 7 Steps to Improve the Quality of Your ESG Data

Quinn & Partners contributed an article to the GRESB Insight series going through 7 steps to improve the quality of your ESG data.

“Good data—data that is accurate, comparable and easy to understand—allows sustainability managers to evaluate performance and provides incisive insights to help asset managers make informed investment decisions.

Our team supports asset owners and managers—collectively responsible for assets well in excess of $200 billion—tackle their data woes head on and report with confidence. While the road to data bliss is never easy, we guarantee that these seven steps will make the journey smoother.”

See the full article here: 7 Steps to Improve the Quality of Your ESG Data

 

GRESB 2018: Participation and performance accelerate – and so does investor interest

Quinn & Partners’ Francisca Quinn & Tony Pringle were at the GRESB North America events in New York last week. Here they share insights from the Real Estate and Infrastructure Assessment results and how companies can act now to get ahead.

Image credit: greens.org.au

The Global Real Assets Sustainability Benchmark, GRESB, recently released the 2018 results of its widely adopted Real Estate and Infrastructure Assessments. Key takeaways: investors value environmental, social and governance (ESG) disclosures and the process helps funds and entities to improve sustainability strategies and performance. Here is a summary of the results and what they mean for you.

GRESB solidifies its position as the global ESG standard for real assets

In 2018, 184 new companies and funds participated in the Real Estate and Infrastructure assessments. The growth signals that investors and fund managers believe that ESG integration in real assets delivers value. The numbers speak for themselves:

  • Real Estate: 903 participants (+6%) with an average score of 68/100 (+5)
  • Infrastructure Fund: 75 participants (+17%) with an average score of 69/100 (+9)
  • Infrastructure Asset: 280 participants (+75%) with an average score of 48/100 (+6)

Nine years into the survey, GRESB covers the majority of public and private real estate investments around the world. Participants represent 61% of global listed real estate equities and 75/100 top private equity firms and property companies. The infrastructure sector’s uptake of GRESB after three years is similar to real estate.

Data. Data. Data. The most powerful tool to improve scores and achieve results

The real estate industry has succeeded in engraining sustainability in executive oversight and business management. Most entities score above 75% on Management & Policy. The focus is now shifting to data quality and improving resource efficiency and portfolio sustainability metrics. These are the areas where leaders now differentiate themselves in GRESB.

Driven by regulation, the infrastructure sector typically has good data at the site level. However, operating companies need to aggregate data across their sites to manage ESG as a business issue, set targets and report environmental and social impacts to investors.

Data also enables sustainability certifications, which is an opportunity for both real estate and infrastructure assets.

New Resilience Module helps to future-proof portfolios

The Taskforce for Financial Climate-Related Disclosures, TFCD, recently reported that 500+ major financial institutions have articulated support for its disclosure recommendations. In other words, it’s fair to say that investors and executives consider climate risk material. This year, GRESB reported that 114 companies answered the voluntary resilience questions and this demonstrates that companies are also paying attention to climate risk and associated issues like extreme weather, renewable on-site energy, Paris Accord-aligned carbon targets, etc.

Participating in the GRESB Resilience Module has several benefits:

  • Prepare for future submissions as GRESB adds resilience questions to the main survey
  • Understand portfolio risks from climate change
  • Understand ability to mitigate impacts of shocks and stressors
  • Develop action plans based on survey gaps

Infrastructure Fund Managers: Differentiate through ESG initiatives

Infrastructure funds are increasingly formalizing ESG due diligence and monitoring practices in a market where it’s harder to find value due to increased asset prices. The Fund assessment is competitive, and most funds score 60-80 out of 100 possible points. There are quick wins that most funds can execute to differentiate:

  • Show your investors you are committed – Become a PRI signatory
  • Systematically embed ESG in due diligence and monitoring – Encourage teams and assets to build ESG management and measurement processes and share results across the organization
  • Proactively report ESG performance to investors – Aggregate key metrics at the portfolio level – carbon emissions, health and safety, etc. – and disclose trends and targets

GRESB requires effort – and it’s necessary for smarter investment decisions

In closing, GRESB has become the global standard to benchmark and disclose sustainability performance in real assets. GRESB allows investors to assess funds and companies in their efforts to outperform and mitigate downside risk. Many investors also believe that ESG signals quality. We may soon see indices tracking the stock performance of GRESB participants versus the market.

This high-quality benchmark is founded on real information – lots of it. It can be tempting to not think about GRESB until Q2 next year, but that’s a major missed opportunity. Get started now! Use your results to focus your efforts on addressing gaps over the next six months – whether it is engaging with stakeholders, collecting more data or setting a target. Embrace the opportunity to stay ahead of the ever-increasing GRESB benchmark.

 

Quinn & Partners supports leading institutional investors, real estate and infrastructure companies with ESG integration and GRESB audits/assessment services. In 2018, the value of all Real Estate and Infrastructure Assessments that we submitted on behalf of our clients was CAD 210 billion, which is equivalent to 10% of all North American responses. Please reach out to Francisca Quinn, Managing Partner, Quinn & Partners, at +1 416 300 8068 for more information.

 

Quinn & Partners’ founders Tony Pringle & Francisca Quinn recognized by the Clean50

Canada’s Clean50 Awards are announced annually by Delta Management Group and the Clean50 organization to recognize those 50 individuals or small teams, from 16 different categories, who have done the most to advance the cause of sustainability and clean capitalism in Canada over the past 2 years. Tony and Francisca were chosen after rigorous screening and research by Delta Management, with advice from internal researchers and external advisors, and were among Honourees selected from an initial pool of approximately 600 well qualified nominees.

The selection team, lead by Delta Management Group CEO Gavin Pitchford, justified the nomination of Tony and Francisca as 2018 Clean50 Honourees in the Consultants category with the following motivation:

“In 2016, Quinn & Partners, led by Francisca Quinn and Tony Pringle, helped organizations with a total of $155 billion in assets under management to integrate sustainability into their core business operations. The team worked with companies and investors to both improve and publicly disclose their performance and practices. This included supporting Canada’s largest real estate owners in reporting to the Global Real Estate Sustainability Benchmark initiative – constituting 10% of the North American survey participant pool –  and helping clients such as Healthcare of Ontario Pension Plan (HOOPP), The Cadillac Fairview Corporation, and Global Container Terminals win prestigious industry awards for their sustainability achievements.”

IPPSO FACTO August 2017 Issue – The flourishing market for corporate sustainability investments

“Canadian companies are increasingly focused on making long term improvements in their environmental and social performance, in some cases upping the ante to levels never before seen. This is reflected in a range of sizable new investment programs targeting significant advancements in sustainability, environmental impacts and governance. Many of the programs include long term Power Purchase Agreements, an investment category that is likely poised for impressive growth.”

IPPSO FACTO – the magazine of the Association of Power Producers of Ontario (APPrO) requested that Quinn & Partners contribute to its August 2017 issue. In this article, Francisca Quinn provides information on greening corporate portfolios and the advantages of long term Power Purchasing Agreements (PPAs).

You can read the article here: The flourishing market for corporate sustainability investments

The evolution of GRESB – Getting to business value

Last week, Quinn & Partners’ Tony Pringle was in New York City for the annual GRESB results release. Here he reports on GRESB’s continued growth and explains how your company can use the survey to create business value.

 

Eight years in: GRESB continues to gain momentum

GRESB – the Global Real Estate Sustainability Benchmark – has increased 20% annually since it launched in 2010. In 2017, 850 companies and funds participated, representing 77,000 assets and $3.7 trillion in real estate value.

Although North America still lags behind Europe in number of participants, it has almost three times the asset value, demonstrating that the assessment is well established in Canada and the US.

In public markets, GRESB participants represent the majority of market value, covering 54% of North America, 70% in Europe, and 50% in Asia-Pacific. To fill in the gaps, GRESB now scores non-participating companies based on publicly disclosed Environmental, social and governance (ESG) information. Although these scores are not as robust, they give investor members a full market picture. Including disclosure from non-participants also allows GRESB to compete with other ESG ranking organizations. Since GRESB’s suite of assessments also includes real estate debt and infrastructure, it provides investors a one-stop-shop for ESG data in real asset portfolios.

GRESB’s continued relevance is driven in large part by investors. GRESB is supported by 66 investor members, representing $17 trillion in assets under management – more than double the value of last year’s GRESB members. In a survey of these investor members, 94% stated they use GRESB data in their investment process, and two thirds stated they either mandate or strongly encourage participation from all the funds they invest in.

But transparency still trumps performance for investors: Only 35% of investor members set performance targets for GRESB, and these targets relate to participation or year-on-year improvement.

 

“The [GRESB] process makes us better.” 

This was the opening statement from James Kennedy, Managing Director of Asset Management at JP Morgan Chase at last week’s results release. Kennedy’s view was echoed by the sector leaders, demonstrating that investors alone aren’t driving GRESB participation. Curiosity, competition and companies’ desire to find business value appear to be equally important.

This sentiment was echoed by the sector leaders, who provided examples of how they turn GRESB questions into business value. Prologis, who’s conversations around tenant engagement have led them to develop a customer sustainability advisory council, is a prime example of innovating GRESB questions into business value.

“Internal conversations initiated by GRESB participation have made Boston Properties a stronger, more purposeful organization.” – Ben Meyers, Manager of Sustainability at Boston Properties.

Checking off a box in the GRESB survey doesn’t deliver value – that comes from developing an approach and executing a program to address a material industry E, S or G topic. GRESB’s true value, then, lies in using the survey as a change management tool to spark internal discussions and action plans around topics such as sustainable development, health and wellness, climate risk and resilience and tenant and community engagement. These are issues that span across departments.

For example, conversations on industrial property data with one client led to collaboration between property management, leasing, communications and operations to engage industrial tenants and green the standard lease. As more companies strive for GRESB leadership and check off more boxes, differentiation comes with execution, not score.

 

The stages of GRESB – From GRESB NYC results presentations

Source: 2017 GRESB results

 

What’s next: The assessment continues to evolve

“The test is getting harder” according to GRESB’s head of North America, Dan Winters. The leadership pack is getting more crowded as companies advance their practices and the assessment will change more in 2018 as a result.

Questions on sustainability management will dig deeper to identify companies with more sophisticated sustainability governance. Some of the questions from the voluntary health and wellness assessment will be integrated into the main survey. And there will be greater emphasis on providing property level performance data.

 

Recommendations for success

Having supported 12 GRESB submissions in 2017, with 10 Green Stars and one country leader, Quinn & Partners has learned a few tricks to improve score results and identify business value.

  • Start early: Have a plan in place to get going as soon as the pre-survey is released in January
  • Provide time to prepare for reporting for improved results: Give properties a pre-emptive head’s up, especially third-party managed properties
  • Start conversations that bridge silos: Set up meetings with multiple departments for questions pertaining to risk assessments, tenant engagement, community engagement, and health and well-being
  • Don’t wait for September’s results to plan for next year’s improvement: Develop action plans during the GRESB process in April
  • For non-participants, review the survey and do a gap analysis: Consider participating or at least identify areas where you can create value for your customers and company

For more information, please contact Tony Pringle (tony@quinnandpartners.com).

Tony Pringle is a Co-founder and Partner at management consultancy Quinn & Partners. He is Quinn & Partners’ lead on Global Real Estate Sustainability Benchmark (GRESB) services for real estate, infrastructure and mortgage investors. He is also a member of multiple GRESB Technical Working Groups and supports GRESB training.

CANADIAN COMMERCIAL REAL ESTATE: THEORY, PRACTICE, STRATEGY

TDC Final Cover

Francisca Quinn was proud to join a group of leading sustainability and real estate professionals in contributing content to Chapter 5, Sustainability in Real Estate, of “Canadian Commercial Real Estate: Theory, Practice, Strategy”. The textbook was published in 2016 by the Real Property Association of Canada (REALPac) and written by its CEO, S. Michael Brooks. It is the first comprehensive literature on Canadian commercial real estate.

Chapter 5 provides a thorough overview of the evolving context of sustainability in commercial real estate. Specifically, the chapter explains material sustainability impacts of the real estate industry, green building certification and sustainability disclosure.

The textbook is currently used at Ryerson University in its real estate project capstone course.

QUINN & PARTNERS AND HOOPP JOINT RECIPIENTS OF THE 2017 REX GREEN AWARD

TDC Final Cover  TDC Final Cover

Quinn & Partners was proud to share the 2017 Real Estate Excellence (REX) Green Award of the Year with the Healthcare of Ontario Pension Plan (HOOPP) for advancing sustainability in real estate with the one-of-a-kind Leadership in Environmental Advancement Program (LEAP).

The REX Awards are presented by The Commercial Real Estate Development Association (NAIOP) and celebrate the achievements of the office, industrial, retail and mixed-use real estate industry in Toronto. The Green Award of the Year recognizes excellence, innovation and achievement in sustainable real estate projects, initiatives, processes or community contributions.

TDC Final Cover

QUINN & PARTNERS IS A B CORP AND A BEST FOR THE WORLD HONOUREE!

Quinn & Partner is a certified B Corporation. B Corps are certified by B Lab, a non-profit organization, to meet rigorous standards of social and environmental performance, accountability and transparency. We are joining more than 2,100 certified B Corps around the world and 150 in Canada that are using the power of business to solve environmental and social problems. The certification allows us to differentiate by “walking the talk” and communicates our commitment to responsible business practices to our clients, employees and the broader business community. Quinn & Partners currently has the fourth highest score of B Corp certified Canadian sustainability consulting.

 

In 2019 – for the third consecutive year – Quinn & Partners received the B Corp Best For The World: Overall, Changemakers and Workers honors. Being a Best For The World Honoree distinguishes us as we’re scoring within the top 10th percentile of almost 3,000 certified B Corps globally. This recognition demonstrates our continued commitment to using responsible business practices for positive change.