Culture, corporate behaviour & stakeholder engagement
Investors are increasingly considering environmental, social and governance (ESG) issues when making investment decisions and are exerting pressure on companies to demonstrate the values and behaviours underpinning their business and how they are taking into account the wider interests of their stakeholders.
At a recent event, hosted by Emperor and SIFA Strategy, a panel of expert speakers discussed the implications, challenges and opportunities that this shift in focus and attitude presents for companies and investors.
There was broad consensus that companies that consider and manage such areas effectively are more likely to deliver long-term sustainable performance and generate attractive long-term returns. This was viewed as good commercial and operational practice, not just a necessary reporting obligation. Ultimately, as one panellist commented, companies will best serve their shareholders by looking after all of their stakeholders.
Businesses that actively pursue their purpose, and share the ways in which they are contributing beyond merely financial performance, are now preferenced by investors, employees, consumers and the community. Disclosure of longer-term thinking on wider non-financial issues in an engaging way is helping business to differentiate from the competition and enhancing the perceptions of their most important stakeholders.
The expected changes to the UK Corporate Governance Code, due to be published in July, are also likely to ensure that this increased focus on non-financial metrics, such as corporate behaviour and stakeholder engagement, remain firmly in the spotlight and are here to stay.
Boards and management teams will need to be able to engage with investors on these key governance issues and are encouraged to view them from an operational perspective rather than just a one-off reporting or box-ticking exercise.
The volume has definitely been turned up. Increased focus on areas such as culture, corporate behaviour and stakeholder engagement makes good business sense, as the long term commercial benefits are significant. Understanding and managing these areas does not need to be difficult, but will require leadership.
One size does not fit all. Different companies will have different agendas. Investors will expect companies to identify and communicate around issues that are relevant and specific to their business, not just report on what they believe “should” be reported under E, S and G. It will also be important for companies to explain how stakeholder engagement and corporate culture link to the business model and strategy, providing real examples of how the company is considering its impact on wider society and the interest of its stakeholders.
Companies need to be proactive in their approach and open to communicating and engaging with investors on these governance issues. The investment community is under pressure to demonstrate the value that they generate to society – this pressure will be passed on to companies. While starting from a low base, companies and Boards can expect to get more questions on these areas. More dialogue between companies, investors and relevant stakeholders is inevitable. There is a great opportunity for companies to differentiate themselves to investors and other stakeholders, which will ultimately give them competitive advantage.