Listen: IR in Focus | Episode 3: Strategic Sustainability Insights for IROs

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Carmen Lilly

Hey, everyone. Welcome to our podcast. I'm Carmen Lilly, host of IR in Focus. I thought our conversation with Andreas on sustainability was so good we had to have a part 2. And to spice it up for this session, we have remixed the guest speakers. Joining me today is Brian Matt from NYSE and Helen Wood-Gush from S&P Global Market Intelligence.

Brian Matt is Head of ESG Advisory for the New York Stock Exchange and is responsible for the NYSE's relationship with listed companies. He has over 20 years of experience in working with corporate investor relations teams to help them craft and deliver their investment stories.

Helen Wood-Gush is a Senior Sustainability Consultant within S&P Global Market Intelligence. Helen helps companies demonstrate value and positive sustainable development through effective stakeholder engagement and communications. She brings 15 years of experience in finance, investor relations, sustainability and ESG from the FTSE 100 and the FTSE 250 environment, specializing in strategy, stakeholder engagement, reporting and communications. Her prior experience includes roles at Antofagasta, BG Group, Pearson, Kingfisher and Responsible Investor. Welcome, Brian and Helen.

Brian Matt

Glad to be here.

Carmen Lilly

Brian, let's start with you. It sounds like you have a long history of helping clients build out and communicate their ESG strategy. For our listeners and for myself, can you hit the highlights of your experience?

Brian Matt

I've spent since 1998 in and around investor relations, in and around companies selling an investment story and investors using that to make investment decisions. I'd say around maybe early 2010s, I started to notice a lot more companies looking to produce those extra financial criteria that would be used in decision-making, also investors demanding more of that information. So really around 2015, I started spending a lot more time looking at the match of those investment stories and company approaches.

And after that, looking at how investors make both investment and voting decisions for each of those, then start to build platforms that help match up strategies and stories in each of those cases. 2018, I joined IHS Markit, took a more full-time role working with companies and helping them measure and tell those ESG stories out to investment community. Now at NYSE in 2021, I joined and started working with our entire listed company community across sustainability leaders, across corporate legal professionals as well as corporate investor relations, really to help that entire community educate and get up the chain.

Carmen Lilly

Helen, can I just pass it over to you so you can hit your career highlights?

Helen Wood-Gush

Yes. No, thanks very much. It's great to be here. I've kind of had the sort of parallel experience that Brian has had. I started off in a mining company as the Deputy Financial Officer there in 2002, and that was my first job. And listed on the stock exchange in those days, there was a big call for companies to start disclosing nonfinancial information. The company I was with got into the FTSE 100, all of a sudden my life changed. We had a lot of investors that owned us.

So I was focused mainly on the buy side. I was the IR manager at that point, and it's pretty much my job really to service the company in terms of telling its story from a financial and nonfinancial perspective. When I was in this role, I built up the sustainability strategy, the disclosure frameworks, the governance strategy, then we left and went to Cambridge University and did a year studying sustainable business.

And since then, I've been working pretty much across the piece, working with a lot of different companies from different industries. So I'm very much focused from the corporate side. I've worked with BG Group, Pearson plc, Kingfisher plc. I had a lovely time working for 2 years for Responsible Investor. So I'm very much working at that nexus for companies between investor relations, ESG, sustainability and finance.

Carmen Lilly

Awesome. Thank you so much for those highlights. You guys sound like you both had really exciting stories. Brian, a question for you. I was reviewing your profile and it looks like you're in a very unique position over NYSE as the Head of ESG Advisory. How has involvement from exchanges evolved over the years when it comes to sustainability initiatives?

Brian Matt

Today, there's a lot of different ways that exchanges help companies. I guess one other piece of our business at ICE, we have an environmental futures business that, again, discovers prices, just this time, in the carbon space in both compliance and in voluntary markets by bringing together buyers and sellers of futures. You start to develop what is the appropriate price of carbon that then can be used by companies to help make decisions that involve those carbon externalities. So a lot of different ways that exchanges can be involved in that process, but it all really boils back down to how do you make it as easy as possible for public companies to tell that story and be as transparent as possible to investors.

Carmen Lilly

Something that Andreas and I talked about previously in the first ESG podcast was that transparency and really how that transparency helps facilitate the capital market. So it's right in line to how you're speaking about how NYSE helps and can be leveraged as a facilitator for that transparency.

Helen, I want to switch over to you here. So increasingly, there are supporting entities willing to help and guide, push corporate issuers along when it comes to reporting and disclosure, very similar to what Brian just went over and how NYSE helps corporate issuers. What is a key indicator or sign that a company might need help or a helping hand in external support when it comes to collecting and disclosing and increasing transparency when it comes to sustainability?

Helen Wood-Gush

Something that unites all of these companies is the fact that we have a lot of ESG regulation coming down the track. In terms of which companies need a helping hand, all companies will need a helping hand. We're basically about 7 years away from achieving our UN sustainability goals. We have a lot of pressure with net zero targets. And companies are really under the caution. That's from your large, as I call them, green giants like Chevron and Coca-Cola and those companies that have been doing things for a long time, down to small companies which have fewer resources.

I mean, in terms of key indicators, so for those -- for a big company and a small company, there are different kind of indicators that we look to. So ESG regulation unites all of them. But then we're seeing a lot with the larger companies that have a lot of stakeholder influence. There's a lot of pressure on them to produce new targets, new strategies. A lot of them have new Chief Sustainability Officers.

Typically, when I see those changes, often they come via press release or you might just read them just in the normal media. Those are the companies that will be looking for a change. They'll be looking to have a look at their own disclosure, benchmark themselves to find out what their ambition is, reposition who they are and what they want to be in the future. So often with those larger companies, those -- that can be the catalyst.

What some other kind of indicators that I see, sometimes that can be sector-driven and sector-led. So where you might see some regulation or some focus for particular industries, for the heavy emitters like oil and gas companies and mining companies. We've seen a real push for TCFD and this sort of global governments adopting climate disclosure. So typically, with these large emitters, we're seeing them looking for support and how do they respond to TCFD regulations.

Similarly, here in the EU, I'm in London here, we're not in the EU anymore, but I'm in London here, kind of in that region, and there's a lot of disclosure coming down the track around human rights and supply chain. And so that will hit every multinational that has these complicated supply chains.

Lastly, often we see the teams can be quite small. Sometimes I see teams where you have an ESG manager, a sustainability officer with analysts to help, and those are the lucky ones. Typically, what you might see is a CFO possibly with IR helping out. Often there is a dedicated resource that really has the time to kind of take a hold of disclosure, improve it, look into what's coming up next and really try and bring a cutting-edge approach to leading that disclosure for a group.

Companies and sectors that have a wide number of different stakeholders will have more of an obligation to feed those different stakeholders with the different information that they want. And typically, how we work in S&P with our issuers is materiality and really helping companies to understand what are the important issues for them and really try and focus how they approach their disclosure is really what we're all about. We understand that the reporting cycle comes around -- the 12 months comes around pretty quickly, I can say. And so we're really trying to help companies to focus on really trying to feed their key stakeholders with the key information that they need.

Carmen Lilly

You gave such a nuanced answer. Most all companies right now are facing some sort of regulations coming up where they're going to be required to report on this information. So it's both a very small micro problem, but also just like very broadly, this is where the market is moving as well.

Let's talk a little bit more about disclosure for a moment. While we do see many companies in the current environment voluntarily disclosing these ESG-related metrics, not all are doing some and some are even kind of pulling or pushing back on trying to disclose this information. So comparability is still a problem for investors. And this question is for both of you. How do you expect this issue to be resolved over time?

Brian Matt

There's 3 different sort of work streams that you think of. Governments or regulators are going to have their own work stream. Accounting firms officially in the private organization, but having to associate with regulators would be a second. And then there's a group of different NGOs out there that build their own work streams.

So I'd say when it comes to the government or the regulatory aspect, in general, I think you're seeing regulators really talking to one of them a lot more. IOSCO has been pretty open about the fact that the SEC, FCA in the U.K., the AMF in France, et cetera, all of those different organizations are speaking with one another. I'd say governments are doing a fairly good job of communicating with one another. The accounting firms are doing a good job of communicating between each other as well as pointing out places where there really needs to be more detail for an organization to be able to meet an audit standard or an assurance standard.

So I think they're pushing forward on all of those fronts as well, trying to produce the best methodology to evaluate how companies are collecting and reporting on data. After that, then you can think about a lot of NGOs that maybe are more specific around a certain topic. We're underway, I guess, when it comes to natural capital, the TNFD structure, finance for biodiversity, some of those organizations are bringing together different types of stakeholder groups to come up with what the right approaches are.

I think over time, some of those may be built into or referenced by regulators. The point is because there are so many different stakeholders here, I don't know that we're ever going to get to one single standard where you can report once and it will work for absolutely everyone. I think there will always be differences.

Helen Wood-Gush

Yes, I totally agree with you, Brian. I think you're absolutely right. We've seen this harmonization coming down the track for a long time. And for established ESG risks and opportunities, that's great for companies. They have clarity on what they should be doing, what they should be saying, how they need to be saying it. But with this harmonization, we will always see with ESG risks and opportunities, new areas that need disclosure defined, new data methodologies.

So to give you an example, so about 5 years ago, plastics really came on onto the agenda and everyone was running around about single-use plastics and everything. And so there's been a big push globally to come up with some standards around plastics and how companies should report on that, particularly within their supply chain. But Brian did mention biodiversity, and there will be new topics coming up that typically will start in the kind of voluntary space as companies start to understand what is expected of them and what they need to do.

And then global governments are doing a great job, as Brian said, in kind of taking up their responsibilities to set framework. So I think we're not going to get away from this voluntary area because as we're learning more about what our ESG risks and opportunities are, we will start to put data methodologies around this.

Carmen Lilly

That's a great point. And that kind of ties back to a little bit of what Andreas and I were talking about in our previous episode where the SEC really is kind of taking a little bit more pragmatic approach than what's happening abroad, for example, with the CSRD. So I do think, to your point, Helen, that you will see some iteration around what is the best framework, how -- what metric should we actually report on. And then the folks that are out there voluntarily offering up this information probably will be on the forefront to -- on upcoming regulations, right? They're saying, "Hey, we're reporting this because it's important and it's a risk factor, so we need to be transparent about this." And I would eventually expect that to be folded into a lot of the regulation and proposals.

Brian, I want to switch back over to you. Let's talk a little bit more from the investors' perspective. So you're working with both corporate issuers as well as investors. And so from an investor's perspective, what is their most pressing issue currently? And what recommendations would you give to corporate issuers based on the feedback you're hearing from those investors?

Brian Matt

Okay. So companies are seeing regulation, as Helen mentioned, coming down the pike in any number of different jurisdictions. Investors are seeing exactly the same thing. We already have in place SFDR requirements for investment vehicles in Europe. U.K. is working on its own views as to what investment vehicles we'll have to measure and disclose. And then, of course, SEC has its own proposals that are designed to prevent greenwashing and the Names Rule proposal.

If you produce an ESG fund, you have to describe what you think is ESG and how you make those investment decisions based on it. So in general, investors are under a lot more pressure today as opposed to a year or 2 ago to do what they say in portfolios that are using ESG inputs and are marketed as ESG portfolios. So that produced a downstream impact then back into companies.

So that means, first off, more investors have to learn to speak the language and learn to use ESG data, not just the stewardship teams or ESG analysts, but sometimes your traditional fundamental analysts that have just built financial models, built cash flow statements, DCFs are now starting to incorporate ESG data. We see that from the ICE side of our universe. ICE collects that as reported data, makes it available out into the investment community for a lot of new investors that haven't worked with this data set to start using in their decision.

We're also then seeing more investors doing their own work and creating their own views, sometimes even their own scoring systems, as opposed to just using a simple outside rating or an opinion that isn't necessarily something that they can have complete disclosure around or they have the full methodology around.

Also, what it does is as you have more requirements baked around the portfolios, it also means that investors are much more likely to, if as a company, you haven't disclosed something, they're much more likely to need to model it or estimate it. So if you don't disclose your carbon footprint, the investor is much more likely to need to model one for you. Therefore, there's a better chance now for companies to own their own story and to be able to influence those decision makers.

A phrase I hear consistently as I talk to sustainability leaders is sometimes we're training analysts how to analyze our company. That's a positive for companies. That's a great opportunity for them to be able to take what they've built in terms of their disclosure and sort of hold the analyst as to what to look for out there. I think that's a positive for both sides as both investors and companies learn how to properly make decisions and disclose this information on either side.

Carmen Lilly

Yes, I agree with that sentiment. It sounds like the environment, really what we're working towards, is equipping both sides of the aisle with the relevant risk information there. And it's really like an ecosystem almost, right? So you have the investors and they're actually also helping the corporate issuers because they, at the end of the day, want to know this information as well. Helen, your comments on that.

Helen Wood-Gush

Yes, make friends with your investors would be my first piece of advice. To be honest with you, stakeholder engagement is so key. And I mentioned this area about materiality and really trying to focus on the important issues. But just to get back to your original question, I would say for corporate issuers to kind of start -- trying to start early looking at these problems.

I think that often in companies, there tends to be a sort of situation where let's wait for next year and let's look at things next year. And really, the time is now. And typically, what I've seen is that it takes at least 3 years for a company to be able to start thinking about reporting on an issue to be able to get to the point where they're able to have that issue audited from a quantitative and a qualitative perspective. So the first thing is start now and focus on material issues.

The second thing is just to say that it's important to utilize all disciplines throughout the organization in order to help to bring about positive results. So IR tends to be on the front line. Obviously, they hear from investors on what they're looking for. But risk teams have a lot of deep information and knowledge. Legal teams obviously often hold the -- they're the gatekeepers really to the Board and basically coach the Board on what they should be looking at. So it really is a fight for all disciplines across the organization. Collaboration from the sort of grassroots areas right up to the top Board echelons, I mean it's important to engage all people.

And just finally, the last thing to say is that it's important for corporate issuers to try and present their disclosure in an understandable way, which sounds quite basic, but there is nothing like clear information, quantitative, discursive feedback to investors that they can understand, that they know is relevant to the business case and the business model.

Carmen Lilly

Yes, exactly. You do all this work and you have all this information, but what is it worth at the end of the day if the investors don't understand what you're trying to tell them and what your story is.

That kind of leads me into this next question. You kind of touched on it a little bit. But let's do a little bit of role playing. Imagine you're working with a company that has identified what is relevant and what's material and they've established a strategy and they're ready to roll this out. What are your recommendations from there? How would this corporate issue go about rolling out a sustainability strategy and telling that story?

Brian Matt

So I'll say from my side, I talked to a lot of Chief Sustainability Officers on how the structure is best worked inside firms. So -- and Helen spoke a bit to this earlier, an operational structure really should again have each of the representatives of each stakeholder group involved. So investors -- if you're a public company, investors are a very important stakeholder. You want to have your Investor Relations team involved. Employees are an important stakeholder for every company. You want to have your HR team involved. Government affairs, if you're a regulated entity, you want to have your government affairs team in the room. And even different -- across different business lines, you want to have those folks involved.

What that does is -- what's the strategy then be driven by all of the folks that have to communicate it out to the stakeholder group to make sure it really has to be one message across the firm. The other thing I tend to hear, and this comes up a lot more when it comes to -- no sustainability team ever has enough resources to be able to meet all of the demands. A lot of these are net new demands over last year. But I have found a lot of companies talking about really finding talent and interest in working on sustainability issues across the entire enterprise, sometimes in sales organizations and business organizations. Sometimes folks becoming local experts on sustainability in a particular part of their business.

There's a lot of ways to harness talent in different parts of that business and try to bring those folks in also into that same structure to make sure they're able to tell the story on but also be the ears, not just the voice of the company. Don't underestimate the interests that exist in sustainability out there because there's plenty of it from especially the younger generation that wants to be involved in these issues.

After that, those folks can then become sort of a voice out to the market for that type of message as well. So I think that is the operational structure that works best to bring things out, is doing that central work that represents all the stakeholder groups' wants, but then bring it out broadly, potentially using individuals at different levels all across the enterprise, too.

Helen Wood-Gush

I totally agree with what you're saying. I think we need the individuals, and we really -- we do need all these individuals, everyone's energy kind of focused signing up to a corporate purpose and really working hard. I think it's the corporate's responsibility to set up really clear accountability structures. Clear internal governance structures are really the backbone and the cornerstone of really enabling an organization to galvanize all that great talent and energy, as I said before, going from the top of the organization down to the grassroots. Quarterly reporting internally through dedicated boards or dedicated groups that are interested in producing the annual report, the sustainability report, delivering on performance, putting together action plans.

All of these people need to come together and be able to have some kind of forum to, number one, be measured for the work that they're doing and also have an opportunity to get back into the organization and have a sort of iterative process. So internal governance structures are key, and we need to see this amongst the large companies that we have.

And I hate to say it, but the auditor, the audit process, no one likes the auditor. They're very boring. They come along. They take up little time and it's very expensive. However, knowing that a company is going to be audited, it really does sharpen the mind. And so going for verified data and really trying to present verified clean data into the capital markets really is something that companies should be aspiring to.

Brian Matt

I've heard a lot in the last -- I've done 3 roundtables with CSOs in the last 2 weeks. In each of those, that Board oversight discussion, how they relate to Boards has come up organically. And I'll say there are a lot of different approaches from companies. Every company structure should be a little bit different, but there's still a lot of feeling on taking place there. There are some Boards that really just don't know the right questions to ask to start with, maybe don't have the right skills. You could also swing the other direction.

There are some Boards that are very involved, potentially to the point of becoming maybe a little too motivational or maybe starting to focus on things that really aren't material risks for the company. There's a balance there, but that's something where I think learning from -- each company can really learn from their peers, learn from other experts in the space, learn from others that have presented and brought the company strategy through Boards for oversight, come up with the appropriate KPIs that Boards can evaluate as well.

It does all end up an oversight process at the top. And the best Boards are able to iterate out and find out this is the responsibility of a particular committee, perhaps secure community member's Board as a whole and know exactly where that oversight goes, all the way to the Board of Directors.

Carmen Lilly

Unfortunately, we're running short on time. This was a great conversation. I'd like to close out this podcast with a final word from our experts. What is one actual insight, like IR departments or sustainability officers, to walk away with?

Helen Wood-Gush

Having been an IR manager, the one thing I would say is that any listed company is doing probably 65% of what they need to be doing in order to fulfill their request from investors. I think IR managers can get a little bit more confident about tackling the issues. The fact that we have this materiality aspect when it comes to all disclosure is only a friend focused on the key issues and focus deep.

Brian Matt

You're not in this alone. A lot of other companies are going through the same questions that are in your heads and everyone else in your organization's heads. And everyone is facing these topics, oftentimes for the first time. There's also folks who have gone before you. There's also leaders in each of your industries out there that have been well ahead of these topics. I sometimes think of U.S. companies, sometimes looking to European companies that have been regulated for longer and have gone through assurance processes.

In this case, rely on your communities, speak to others, create those peer networks within your sustainability, within investor relations, within other organizations, and rely on those peer networks. Oftentimes, you'll find if it's the first time you've heard a question, others have heard it before, too, and maybe you can perhaps start to come up with solutions based on what they've heard as well. This is a great opportunity, especially when a lot of these topics are new to benefit from your network and all the others involved in the space.

Carmen Lilly

All right. Thank you so much, Brian Matt and Helen Wood-Gush, for joining us today. That is all the time we have for today. Thank you, listeners, for tuning in. And to our listeners, I hope you found valuable insights throughout this discussion and tune in next month. Have a great day ahead.