Interactions on ESG issues with ‘buy-side’ investors such as asset managers can be a tick-box exercise or even not feature at all in discussions, according to a senior investor relations figure at hotel company InterContinental Hotels Group, the owner of the Crowne Plaza and Holiday Inn brands.
Rakesh Patel, Director of Investor Relations at London-listed IHG, said: “In terms of our interactions with the buyside I would say ESG interactions have really varied in quality and by geography.
“For some it’s clear that it’s a tick box exercise while for others is a factor in making an investment decision. And for a decent number, quite frankly, it doesn’t feature at all.”
But the investors that IHG targets are “super long-term” that are “willing to invest across the cycle be a true partner as an owner of our business”.
As for the sell-side, Patel said the “interaction on ESG has been really quite limited”.
“Some of the larger investment banks such as Morgan Stanley or Goldman Sachs have dedicated teams which look at this, but to me it’s not quite clear yet if that’s fully integrated into the covering analysts’ process – or indeed whether they care when it comes to their stock conclusions.”
Patel was speaking on a Responsible Investor webinar in association with the Investor Relations Society, on ESG data, the first in a series of four; the third in the series takes place tomorrow.
He spoke of the role of ESG ratings agencies, pointing to the “dread” that investor relations (IR) and corporate responsibility (CR) professionals can feel.
“Early on I would say we were helped by the ESG ratings agencies, but now to some extent that’s ballooned and I’m sure all the IR and CR specialists on the call know the dread, that heart-sink feeling you get when the email pops up when you see the word “invitation”.
“What’s this, a ticket to the hottest party in town? Alas no, it’s an invitation to fill out a survey or verify the data that’s been collected on your company for the purpose of an ESG report. And you have a deadline of around a week or so to respond. Nice.”
It wouldn’t be so bad if there were a only a few surveys to fill out – “you could grin and bear it” – but there were “many, many” surveys. He said each consists of several hundred questions, but IHG focuses on those that it knows investors prefer such as MSCI and Sustainalytics.
It now completes ShareAction’s Workforce Disclosure Initiative (WDI) “which has led to HR colleagues now becoming fearful whenever the IR team walk up to their desks”.
He outlined various challenges starting with the identification of data, saying that the ESG ratings firms “struggle to understand” the sometimes limited control IHG has over franchise partners, for example there is one hotel with a casino but this has led to the group being flagged up for risk/controversy.
Another issue was the practicality around the collection of data. He related an anecdote (13:02)where a partner in India doing well in keeping electricity usage flat. It turned out that the local partner was in fact recording merely the serial number of the electricity meter.
“The only year that we saw a spike in the so-called consumption was when the meter was changed and the new serial number was provided. It wasn’t material in itself and it was just a fraction of the estate, and there was no malice involved, but it does outline some of the challenges you can face in trying to get accurate data.”
He made the point that while all the ratings agencies are provided with the same data, they reach very different conclusions. But he said: “I don’t think it discredits the ESG data or the practice of scoring but it just shows the danger of relying on a simple final score to make a decision.”
His advice was to engage with the ESG ratings agencies and make clear who your corporate peers are; he said IHG had in the past been compared to cruise lines and funeral operators.
“Reporting on ESG data is not going to go away and is likely to become more onerous, and as a corporate we have to be prepared for that.” He pointed to moves in the UK to make firms report against the Task Force on Climate-related Financial Disclosures (TCFD) and the growth of science-based targets.
Patel was speaking on a webinar alongside Laura Hayter, CEO of the Investor Relations Society, Andy Howard, Head of Sustainable Research, Schroders and Sam Sue Ping, Head of Issuer Communications, MSCI.
The second webinar covered alternative data and innovation (AI and machine learning) and featured Thomas Kuh of Truvalue Labs and Helen Price of Brunel Pension Partnership.
The third on the series takes place tomorrow and is on the topic Challenging and new data areas the “S” and the “G”. It features speakers from Spain’s Telefonica, Standard Chartered, EY and Allianz Global Investors. The series is moderated by Helen Wood-Gush, Senior ESG Consultant at Responsible Investor.
The final instalment Sustainability Materiality, featuring speakers from PWC, the Sustainability Accounting Standards Board (SASB), M&G Investments, Chevron, Suncor Energy and Polymetal takes place on January 29. Each webinar in the series is moderated by Helen Wood-Gush, Senior ESG Consultant at Responsible Investor.