Your Company Survived 2020; It’s Time to Tell the Story
Year-end reporting has usually been a important time for providers to phase back again and evaluate their achievements and shortfalls, consider how those outcomes compared to the prior 12 months and established the stage for the potential. Given that every disaster finishes with lessons figured out, innovation and reinvention, proactive providers will capitalize on this special option to phase-up their 12 months-end communications.
For quite a few, this will suggest placing a new bar for their 12 months-end reporting ideal methods: new depth to earnings experiences, shareholder letters, and proxy statements. These paperwork must look at all stakeholders who want to know far more about what you skilled in 2020—the strengths and the weaknesses—and what lessons you will apply to your 2021 playbook. (See, “10 queries for crafting your 2020 12 months-end messaging method,” at the end of this report.)
Each COVID-19 and the social injustice difficulties of 2020 have put a vibrant light-weight on the worth of powerful Environmental, Social, and Governance (ESG) methods, which include variety and inclusion (D&I) and human capital administration (HCM). The guiding theory this 12 months is “actions communicate louder than words” interaction to all stakeholders. While far more disclosure on D&I in 12 months-end communications is predicted, investors are also hunting for actionable and measurable initiatives.
The adhering to are some recommendations for 12 months-end 2020 communications.
Broaden the selection of topics in your shareholder letter.
Once-a-year report methods ongoing to evolve in 2020. A lot of big-cap leaders shifted from manufacturing a traditional stand-by yourself annual report to an built-in structure that brings together the annual report with sustainability experiences. For an fantastic illustration of this strategy, see how Jacobs Engineering instructed the tale of its COVID journey though providing a actuality-primarily based narrative around the firm’s progress with ESG and D&I.
For a better 2020 shareholder letter, look at:
- A well timed, considerate theme
- A nicely-prepared and persuasive CEO letter that speaks to all stakeholders, not just shareholders
- Commentary on ESG policies
- Powerful visuals, which include infographics and phone-out texts to make the doc simple to study and memorable
Past publicizing your annual report by means of a push launch, develop its attain by introducing a associated concept from the CEO or chairman to your web page, publishing report written content on social media, and introducing a limited, nicely-developed video clip clip to your trader relations webpage.
Evolve the proxy to mirror ideal methods.
For quite a few a long time now, we recommended that providers leverage the beneficial authentic estate in their proxy statements. Proxy methods have evolved along with the change to passive investing and the proliferation of ESG money. More and more, providers elect to put together far more substantive proxy address letters that include their IR tales. That provides proxy readers the context they need to consider general performance and government compensation with out searching for other disclosures.
This is especially important for providers whose 2020 outcomes ended up negatively impacted by COVID-19. The goal below is to make it less complicated for chaotic proxy readers to get a holistic check out of the corporation and immediately turn into better knowledgeable as liable proxy voters. In the existing proxy time, providers are also leveraging their proxies to present far more information on their HCM and D&I policies.
Across the board, we are seeing providers organizing cross-functional teams that include IR experts and design and style methods to publish persuasive proxy letters. The letters are prepared in plain English with simple site navigation and expert structure and design and style components to engage the reader better and humanize their board and administration staff.
For a treasure trove of proxy ideal methods, see Donnelley Economic Solutions’ (DFIN) “Guide to Effective Proxies.”
Construct-in an ESG narrative.
ESG communications will issue far more this 12 months. As BlackRock’s Larry Fink talked over in his 2021 letter to CEOs, “Assessing sustainability pitfalls demands that investors have accessibility to consistent, superior-high-quality, and substance public information.”
Respondents to a modern BlackRock survey of institutional investors explained they plan to double their sustainable property underneath administration (AUM) in the following 5 years—from eighteen{744e41c82c0a3fcc278dda80181a967fddc35ccb056a7a316bb3300c6fc50654} of AUM now to 37{744e41c82c0a3fcc278dda80181a967fddc35ccb056a7a316bb3300c6fc50654} by 2025. From January by means of November 2020, investors in mutual money and trade-traded money directed $288 billion globally into sustainable property, a 96{744e41c82c0a3fcc278dda80181a967fddc35ccb056a7a316bb3300c6fc50654} increase from the overall prior 12 months. Small- and mid-cap providers just embarking on their personal ESG communications method can master a good deal from their big-cap colleagues who have had nicely-set up ESG plans in location for a long time.
We have encountered some administration teams who do not consider they have an ESG tale. Some others imagine there’s no purpose to devote time and methods to ESG. They purpose that their only risk arrives from big passive investors who could possibly vote proxy in opposition to them. As a counterpoint to that check out, we see numerous persuasive explanations that robust ESG communications present a aggressive benefit to firms hunting to develop their value proposition to all stakeholders.
- ESG fund flows far more than doubled in October from flows in April. In accordance to Morningstar, ESG fund flows climbed to $36 billion by means of October 2020, and institutional investors explained they plan to double their ESG investments around the following 5 a long time.
- Meanwhile, a rising listing of stakeholders has revealed they treatment about ESG. These involve employees, especially millennials and more youthful generations, who are in the workforce in good numbers. A lot of clients and prospective clients have indicated that they desire to do company with ESG-helpful providers far too. More and more, quite a few M&A partners, who are pushed by the transaction math of “1+one = three,” are concentrated on ESG policies.
- With the proliferation of new ESG rankings, energetic investors are also inquiring providers for far more information about ESG, and provide-side analysts have taken to publishing experiences rating providers by their ESG scores.
- Lastly, activism is also predicted to re-accelerate in 2021, and there’s a pattern for making use of ESG inadequacies to open up the doorway to an activist marketing campaign. In accordance to Amy Lissauer, global head of activism and raid defense advisory, Financial institution of The us, “We’re going to see the emphasis on environmental and social far more than we have at any time observed.” She provides that activism has very long been concentrated on the “governance element of ESG investing. What we may see in 2021 that is unique is that ESG-concentrated proposals will get a good deal far more support.”
Firms that have not begun the ESG journey must start now—starting with how they took treatment of their stakeholders though running by means of COVID. A good way to get the ESG ball rolling is to critique the frameworks formulated by Sustainability, Accountability Standards Board or the Task Pressure on Weather-Similar Economic Disclosures and tell the ESG tale you currently have.
Deal with new human capital administration disclosures.
Commencing with the 2020 10-K, the SEC demands public providers to report on human capital in SEC filings. The minimum prerequisite phone calls for providers to report the selection of men and women they utilize and to present a description of the human capital methods and measurement targets they use to regulate their company.
A lot of providers will be grappling with what’s substance to their company and how considerably to disclose. Definitely, a powerful workforce is substance to the sustainability of any corporation. Begin with addressing what your corporation has currently finished to attract, keep and practice men and women.
A lot of of the 10-K HCM disclosures we have observed so far are far more qualitative than quantitative. We consider that would make feeling, especially for providers with out a established of thoroughly vetted metrics. Given that the 10-K is not usually the initial location investors obtain information on a corporation, we endorse which include HCM messages in other critical communications products, especially the proxy.
COVID taught us quite a few lessons. One of the most important is untapped equity in the narrative encompassing your company’s journey by means of its pandemic 12 months. Efficiently running by means of a disaster of this magnitude and complexity features your business a special option to create rely on, trustworthiness, and corporate name by means of an increased emphasis on productive stakeholder communications.
While the pandemic developed leaders and laggards in every sector and sector, investors will ultimately measure how nicely providers shown their resilience and adaptability in shaping techniques to surmount 2020’s remarkable hurdles.
10 queries for crafting your 2020 12 months-end messaging method
- How did you regulate by means of COVID in 2020?
- What lessons did you master that will make you a more robust corporation in 2021?
- What achievements are you most very pleased of?
- How did you stability the requires of all stakeholders during the pandemic?
- What actions did you take to progress your ESG tale in 2020—to make your workplace far more diverse and inclusive and pay out ahead your HCM initiatives?
- What worries continue to be, and what is your plan and timeframe for addressing them?
- What is your take on the tempo of recovery in basic and for your sector and company?
- What is your growth plan for 2021 and outside of, which include organic and natural growth and M&A prospective clients?
- Did your firm turn into far more effective and lucrative as you modified your company model in 2020? Is this sustainable?
- How will a new administration in Washington have an impact on your company?
Moira Conlon is the founder and president of Economic Profiles.
