ESG, Targeting, Activism and Regulation: Highlights from #NIRI2018
26 June 2018
By Taryn Shulman
This year’s NIRI national conference underscored what a dynamic time it is to be in investor relations. Over 1,100 people gathered at the Wynn Hotel and Casino in Las Vegas to hear about the ways that ESG, market forces, activism and regulatory issues are changing how issuers and investors interact.
“The role of IR is undergoing rapid change,” said Victoria Sivrais, Founder of Clermont Partners and NIRI Annual Conference Co-Chair, during her opening remarks. “The capital markets are more dynamic. The demands for accountability, transparency, and disclosure are forcing us to consider new strategies.”
If you weren’t in Las Vegas, or if you spent too much time at a blackjack table (instead of the conference center), here’s a recap of some of the key themes from #NIRI2018.
Assessing ESG materiality
In the battle of the acronyms, ESG (Environmental, Social and Governance Criteria) beat MiFID II as one of the biggest talking points at the conference. During the popular general session, ‘ESG goes mainstream,’ three investors described how their firms assess ESG materiality.
“The number one question I get from IR is, are you sure you really care about this?” Katherine Collins, Head of Sustainable Investing at Putnam Investments, said. “All investors care about it, whether they call it ESG or not.”
Neuberger Berman regularly tracks when ESG is discussed during a meeting with a portfolio company. The subject came up in more than one-third of meetings last year, according to Jonathan Bailey, Head of ESG at the firm. “I don’t know whether the IR person thought it was an ESG question we were discussing, but it’s something that we see as important,” he said. “Cyber-security is an example of a core ESG issue that was raised last year, which issuers may not actually consider to be an ESG talking point.” Bailey explained, “Cyber-security is a significant governance risk that requires greater focus from board directors and improved disclosures from IR and legal teams.”
All three panelists recommended SASB as a good place for IR teams to start when thinking about ESG materiality disclosure. They also strongly discouraged companies from thinking their work is done by producing a sustainability report. These reports tend to be for a broader audience – employees, media, the public-at-large – and therefore, don’t delve deeply enough into issues of ESG materiality.
The evolution of investor targeting and corporate access
Investor engagement was naturally a focus, with debates circling around the extent to which MiFID II will impact North America. Neil Stewart, Vice President of Investor Relations Advisory Services at Citi Depositary Receipts, teed-up a session about MiFID II saying, “It’s everyone’s problem. If you do marketing in Europe, it may be affecting you. If you’re a small cap it’s going to affect you even more. Even if you have nothing to do with Europe, things are still going to change with corporate access and research in the US.”
Almost half of the audience for that session claimed they haven’t yet noticed an impact on corporate access from MiFID II, but that they expect to eventually. The other half asserted that they’ve already seen an impact. During a later panel on investor targeting, a few IROs agreed that they’re coming under more scrutiny from their leadership about which investors are being targeted and why. This, in turn, is causing them to place greater emphasis on the target lists they provide to sell-side firms when putting together an NDR.
This scrutiny is likely to continue as the impact that MiFID II is having on European IROs makes its way across the Atlantic. The topic that was all the rage at NIRI’s IR showcase was the role of technology in supplementing an IRO’s expertise and streamlining workflow. Recent developments in AI and machine-learning technology are staggering. By applying these tools to tasks such as targeting (in fact, Q4 launched AI Targeting at this year’s NIRI), surveillance, and potentially even, shareholder engagement, IROs can focus on providing strategic value. With this new power to interpret trends and data, they can craft messages that better represent the company and resonate with investors.
Activism grows up
Shareholder activism was a key trend throughout the conference. Yet despite the high-profile activist fights that continue to make the headlines on a weekly basis, only 27 percent of US public companies have an activist defense plan, according to research from Rivel Research Group.
Mason Morfit, President and Chief Investment Officer at ValueAct, highlighted the IRO’s importance in activist relations. “I love NIRI’s mission statement about sitting at the center of finance, communications and market strategy… the IRO is situated at this fulcrum and gets to provide bilateral feedback to investors and management. This is one of the most critical jobs in a company.”
Joele Frank, Managing Partner of Joele Frank, Wilkinson Brimmer Katcher, similarly underscored the value of IR teams. “The most successful defenses against an activist happen when an IRO has a great relationship with and is credible to the shareholders and the company board… you guys are the canary in the coal mine. Your credibility is everything.”
Bringing DC to Vegas
NIRI has clearly been focusing its efforts on regulatory issues during the last year, even leading a delegation of members down to Washington DC in September 2017 to meet with the SEC. The two biggest regulatory issues that it has focussed on are proxy advisory reform and short-selling disclosures.
Valerie Haertel, Vice President of Investor Relations at BNY Mellon and last year’s NIRI Board Chair, summarized some concerns that NIRI’s leadership have raised about proxy advisory firms. These include a lack of transparency around research methodology, recommendations potentially drafted with incomplete information, and possible conflicts of interest when corporate services are also offered. In fact, NIRI’s leadership has written to the SEC on these issues in the past and continues to encourage its members to do so as well.
Ron Parham, NIRI’s Chair-Elect and Founder of NW Strategic Communications, outlined NIRI’s stance on short-sellers: “We as IROs are challenged to provide greater transparency outbound and are dealing with a world where 13F and 13D disclosures have not been updated or modernized since they were enacted in the 70s.” He added that NIRI isn’t seeking to condemn short-selling, but that it hopes greater transparency and updated regulatory filings will lead to less ‘predatory’ behavior, targeting small caps and vulnerable companies.
Taryn Shulman is VP, Marketing at Q4 and blogs regularly about trends in the fintech sector.