In an interview with the Board Leadership Center, Lex Suvanto of Edelman shares his views on earning stakeholder and shareholder trust.
COVID-19, a recession, extreme weather events, and social unrest over the past year have all heightened the importance of earning shareholder and stakeholder trust, and placed renewed attention on how corporations are responding to pressing environmental and social issues.
In a Q&A with the KPMG Board Leadership Center (BLC), Lex Suvanto—global managing director of Financial Communications and Capital Markets at Edelman, a global communications firm—provided takeaways from Edelman’s fourth annual Investor Trust report and offered his views on what boards can do to help their companies earn and retain the trust of shareholders and other stakeholders in the current environment.
KPMG BLC: How have you seen investors’ priorities shift throughout the events of the past year? How are they reconciling their push for environmental, social, and governance (ESG) initiatives at a time when many companies are struggling, and in some cases unprofitable?
Suvanto: One interesting takeaway of the research is that investors admitted they deprioritized ESG as an investment criteria in the middle of the pandemic. There’s a fairly strong response on this front with 79 percent of investors in the United States stating this. But even more investors—93 percent—say that profitable companies do not get a pass on ESG during the pandemic, or otherwise during a crisis. What investors are implicitly saying is, “If you are financially struggling, we understand if you need to first focus on getting your house in order. But if you’re not financially struggling, ESG must continue to be a top priority for you.”
The research revealed that a strong majority of investors around the world are now using ESG strategies to fundamentally inform their investment decisions; ESG is not just an afterthought anymore. It’s also no surprise, given the trends and environment we’ve been living in, that the social criteria (S) in ESG has become the most important ESG element among U.S. investors, increasing 15 points in importance year over year. It’s fascinating to see investors being so responsive and attentive to social needs given the challenges that our country has been facing.
KPMG BLC: What does the survey data say about how investors view the connection between ESG and corporate performance?
Suvanto: Ninety-five percent of investors in the United States are saying that companies that have strong ESG performance are more resilient in a crisis. In fact, according to data from Refinitiv Eikon, Refinitiv Datastream, HSBC Climate Solutions Database, and FTSE, the top third of ESG stocks have considerably outperformed the FTSE All World Index. We recently spoke to the head of human rights for a major consumer brand company that has a dedicated human rights function. He explained that because they had such a deep and established strategy and program around human rights prior to the pandemic, it allowed them to more nimbly and effectively respond to the social issues that arose this past year, including topics related to human capital management (HCM), systemic racism, and general social unrest. The research reinforced the notion that strong ESG performers make stronger companies. Investors said they assess which companies have the best chance of weathering current and future storms by examining ESG practices and performance. Looking ahead, 96 percent of U.S. investors say their firms will increase prioritization of ESG as an investment criteria coming out of the crisis. Companies and boards should expect an increase in attention from their investors on these matters.
By Lex Suvanto
Read the full interview here.