The broad social debate on dealing with environmentally friendly business practices, ensuring minimum social standards and transparent corporate governance has long since reached companies. In practice, this means that ESG issues are becoming an integral part of investor relations work as a whole. The relevant content is now part of communication with investors, the media and the general public. According to the latest annual Global IR Pulse survey by Nasdaq, ESG is an integral part of the work of 40% of all IR professionals.
In this way, companies are not only responding to increasing regulatory requirements, but also to investor feedback. According to a study conducted by asset manager Capital Group 2022, 89% of all investors see ESG issues as part of their investment strategy. At the same time, institutional investors tend to assess a company’s ESG profile based on reports from rating agencies such as MSCI and Sustainalytics.
For small and micro-cap companies, the largest players in the capital market in terms of number, this results in a large number of problems. They often operate under the radar of these rating agencies. They are not in regular dialogue with them. In some cases, they have not even come into contact with them on their own. The lack of sufficient financial and human resources is the main reason for this. At the same time, small caps must increasingly meet the same regulatory requirements as mid caps and blue chips. In terms of personnel, IR managers are often also responsible for press relations and corporate strategy. Sound and responsible ESG reporting, as it complies with regulatory regulations, is also expensive. This often leaves little time for investor relations, roadshows and information about the company’s internal activities on ESG issues.
The results of a survey conducted by IR Magazine London 2021 among 40 institutional investors show how much pressure from investors is growing. 82% of the respondents therefore expect that small and micro caps will focus on ESG issues in their IR work within the next three years. 37% even expect a “dramatic increase” in the corresponding activities. 92% of the study participants expect that small and micro caps will increase their reporting and transparency standards during this period.
In order to get in touch with sustainability investors, it is advisable to engage IR agencies that specialise in small and micro caps. Companies may have already sought their help for other challenges typical of small caps:
• the low liquidity of the share,
• the lack of sell-side coverage, which has been made even more difficult by the MiFID II regulations
• the volatility of the share’s trading volumes
Successful agencies are characterised by the fact that they are always up to date with the latest ESG regulations. What makes their work particularly valuable, however, is the large number of contacts with investors and ESG experts in the financial world. In order to stand out from the broad mass of small caps, more or less proper ESG reporting is no longer sufficient. Building personal relationships is the key to being noticed. ESG roadshows are an important addition to B investor targeting and the establishment and expansion of a balanced investor base.