Increasing recognition of the impact of environmental, social and governance (ESG) risks and opportunities on portfolio value is driving institutional investors engagement with companies on ESG. Uptick in the volume of environmental and social proposals at Russell 3000 companies is an indicator of increased investor interest.  

Many investors are engaging with companies directly on this topic to complement the information they receive from ESG ratings agencies to assess ESG performance of companies. The Conference Board recently surveyed around 50 executives overseeing all sustainability activities in their company to understand the level and nature of the direct interactions with investors in relation to ESG. 60 percent of responses came from companies headquartered in the US and the rest were from Europe.

A significant majority (85 percent) of the companies have received direct engagement request from investors on ESG issues in the last 12 months. Of these, around 75 percent were generic ESG information requests, i.e. where investors wanted to know about the company’s overall ESG approach and performance. The rest pertained to a specific ESG topic, e.g. CEO compensation, climate risk strategy, board diversity, data privacy etc.

Almost all the companies use their annual, sustainability or integrated report to respond to ESG queries from investors. Around 73 percent of the companies also participate in earning calls with investors to discuss ESG issues; increasingly companies are having to prepare tailored ESG reports, focusing on particular topic(s) in response to the specific investor queries.

Through these conversations, companies observed that investors tend to rely on a handful of rating agencies for ESG research and data. These are CDP, FTSE4Good, MSCI, ISS-oekom, and Sustainalytics. This supports what we found in our earlier research.