The engagement process continues to evolve.

As UK Plc and UK investors get to grips with the engagement process, it is useful to look at what’s going on in the US. 2 interesting pieces of work are helpful.

First new research on “The State of Engagement between U.S. Corporations and Shareholders”, from ISS and the IRRC. The research asked investors (both owners and managers) and public companies their views on engagement.

The resources used, how much engagement, time spent, what the engagement comprised, the subject matter of engagement requests, the outcomes, and how success was measured were all reviewed.

However, a few themes emerged. One was the crucial role played by IR. Around half of all investors said they initially reached out to the IR department when they wished to engage. However it is noticeable that the asset owners – pension funds, insurance companies, mutual funds – tended to contact the Chairman.

Another point was the tendency of companies to speak to the investors' dedicated ESG people. Some companies said they tended to contact the "front office" – the portfolio managers – who are seen as more familiar with the companies in their portfolios; and more willing to make exceptions to their firms' proxy voting policies.

2 other points. Proactive IR engagements by companies were for the most part focussed on the largest investors, and where they did not engage, many highlighted their inability to identify the investor as the underlying reason.

The second report from Rob Berick at Dix and Eaton, and from Georgeson, looks at how different 2011 proxy voting season is likely to look. Say on pay of course, with its obligation to submit proposals to shareholders, the proxy access changes – and as a consequence of both the increasing influence of proxy advisors.

But boards will have to deal with other changes as well: the end of broker voting on uncontested elections; the rules on faster vote results disclosure. And new items will be on the agenda, such as board diversity, succession planning, the newly mandated disclosures around climate change impact...

All of which needs pre-planning (which the report suggests).

Sustainable investment growing, but companies are failing to communicate.

With so many off skiing soon, I was thinking of the World Economic Forum in Davos. Jealous? Me?

One of the papers presented there was “Accelerating the Transition towards Sustainable Investing”, to which I contributed. I was reminded of it this week, by the launch of an interesting Economist Intelligence Unit study of how limited was corporate reporting on sustainability goals and practices.

First things first. The WEF study argues – and evidences – that a sustainable investing approach provides opportunities for generating superior risk-adjusted financial returns, especially for investors that can adopt a longer-term investment horizon. However to accelerate this move to sustainable investing, some “functional” and mindset changes at investors need to take place.

Functional changes. Linking incentives in the investment value chain more towards superior risk-adjusted financial performance over the long-term. For example, by increasing the performance assessment period for fund managers, and including ESG factors as indirect financial performance criteria for corporate executives.
Buy- and sell-side analysts working with IR teams to determine key performance indicators for financially material environmental, social and governance factors at sector level. The study also suggests – more controversially – that asset owners use their mandate to encourage asset managers to incorporate these factors in their stock picking.

The research also highlights that some ‘mindset’ changes are needed among fund managers. Recognition of ESG indicators as drivers of business value, and sustainability integrated into core business strategies - have the potential to strengthen the financial performance of companies.

Meanwhile the Economist Intelligence Unit has had a tilt at the corporate disclosure of environmental, social and governance sustainability goals. Less than 1 in 5 does so on an annual basis. And there is a strong trend that companies in emerging markets do so far more effectively than those in developed economies.
The study also proposes that customers have the strongest influence on their ESG policies—more than any other stakeholder, although the influence of regulators and investors appears to be growing.

Many managers don’t ‘get’ the opportunities: only 14% see a link between sustainability and short-term profit, even though some ESG initiatives pay off in under a year. And executives are divided on the merits of integrated financial and sustainability reporting. Some business leaders cite the advantages of targeting individual stakeholder groups with information most relevant to them.

The relationship between ESG and long-term financial performance is crystallising. One implication is that poor performance on sustainability could restrict access to capital.

Whilst the messages may not be sparklingly new, the messengers certainly are. Time to buy in to this new investor world?

Sustainable investment growing, but companies are failing to communicate.

With so many off skiing soon, I was thinking of the World Economic Forum in Davos. Jealous? Me?
One of the papers presented there was “Accelerating the Transition towards Sustainable Investing”, to which I contributed. I was reminded of it this week, by the launch of an interesting Economist intelligence Unit study of how limited was corporate reporting on sustainability goals and practices.
First things first. The WEF study argues – and evidences – that a sustainable investing approach provides opportunities for generating superior risk-adjusted financial returns, especially for investors that can adopt a longer-term investment horizon. However to accelerate this move to sustainable investing, some “functional” and mindset changes at investors need to take place.

Functional changes. Linking incentives in the investment value chain more towards superior risk-adjusted financial performance over the long-term. For example, by increasing the performance assessment period for fund managers, and including ESG factors as indirect financial performance criteria for corporate executives.
Buy- and sell-side analysts working with IR teams to determine key performance indicators for financially material environmental, social and governance factors at sector level. The study also suggests – more controversially – that asset owners use their mandate to encourage asset managers to incorporate these factors in their stock picking.

The research also highlights that some ‘mindset’ changes are needed among fund managers. Recognition of ESG indicators as drivers of business value, and sustainability integrated into core business strategies - have the potential to strengthen the financial performance of companies.

Meanwhile the Economist Intelligence Unit has had a tilt at the corporate disclosure of environmental, social and governance sustainability goals. Less than 1 in 5 does so on an annual basis. And there is a strong trend that companies in emerging markets do so far more effectively than in developed economies.
The study also proposes that customers have the strongest influence on their ESG policies—more than any other stakeholder, although the influence of regulators and investors appears to be growing.

Many managers don’t ‘get’ the opportunities: only 14% see a link between sustainability and short-term profit, even though some ESG initiatives pay off in under a year. And executives are divided on the merits of integrated financial and sustainability reporting. Some business leaders cite the advantages of targeting individual stakeholder groups with information most relevant to them.

The relationship between ESG and long-term financial performance is crystallising. One implication is that poor performance on sustainability could restrict access to capital.

Whilst the messages may not be sparklingly new, the messengers certainly are. Time to buy in to this new investor world?

Exchange consolidation on the move again; should IR care?

A “true powerhouse in the global exchange business”, notes the launch of the potential merger between the London Stock Exchange and the TMX Group. Meanwhile, NYSE Euronext and Deutsche Börse have announced their own plans to merge. This signals another wave of exchange consolidation, following that of 5 years ago, when NYSE Euronext was created through the takeover by the New York Stock Exchange of Euronext, the network of pan-European exchanges.

So why now, and why should IR teams care? Fortunately a new white paper helps.
Among the drivers this time is the reducing number of mergers that actually make sense. There are fewer ‘available’ players. A major driving force to look for scale is the need to create technology that is truly global, and which can reduce the cost of accessing markets across the world. This is aimed at supporting the array of new over the counter derivatives being traded.

But probably more important still is amount regulatory change that is being prepared in the wake of the 2008 financial crisis.

Since the previous round of mergers, the large exchange groups have been facing increasing competition, both in Europe and the US, from smaller platforms, dark pools, and the trading facilities offered by brokers and banks.

Concerns about transparency of trade sizes and prices have promoted regulators to have another look. In spring 2011, the European Commission plans to publish proposals on how to regulate the new breed of trading venues, and ensure visibility of prices. In the US, the SEC will do the same, and IOSCO (representing the global regulators) has already published its own guidelines.

Why does this matter to IR? Few pieces of information are more important to investor relations than knowing the current share price. And yet, the information displayed on IR websites, and other public sources can be misleading. The markets through which buy and sell orders are executed, pre and post trade prices advertised, the efficiency of price formation, and indeed trading practices themselves are causing serious concern.

So the impact of the manoeuvring between the exchanges, abstract though it may seem, can have a significant impact on IR. A white paper on this theme – Bringing Light to Dark Pools - just been published by global3digital (see disclosures) helps give reasons why IR should care.