Companies face expectations from various stakeholders, including employees, customers, consumers, regulators and investors to demonstrate their commitment to address sustainability issues. Investors are also increasingly incorporating sustainability into their investment and stewardship considerations.

The question that we set out to address in this dialogue:

How can we better measure, communicate, and align the impact of investments with corporate strategy efforts, benefitting both investors and corporates in pursuing sustainable goals?

What we discovered:

Complexity is a key theme of this dialogue. Rapidly changing regulations, diverse stakeholder expectations, and emerging technical issues combine to create a complex environment in which to analyse and communicate the impact of corporate sustainability efforts and ensure alignment with stakeholder expectations.

There are a wide variety of views, which means a nuanced approach is needed to enhance mutual understanding and support improved decision-making, in order to enable both investors and corporates to deliver sustainable outcomes.

The shift from aspiration to action: Both corporates and investors recognised the need for a practical and action-oriented approach to sustainability. The common thread is the urgency to move beyond philosophical discussions to translate ambitions into tangible actions and impactful outcomes, on top of the tsunami of regulation and legislation surrounding sustainability that is impacting corporates and investors alike.

The value of investor influence: Investors were seen to possess a significant power to drive change, yet there may be an underestimation of their influence. Corporate representatives responsible for sustainability initiatives expressed a desire for investors to be more assertive in their expectations from senior management and boards with regards to their sustainability-related action and performance. Insightful questions posed by investors, especially to leadership figures such as chairs, CEOs, and CFOs, serve not only to keep sustainability atop the agenda but also act as a litmus test, signalling the importance of sustainability to them.

Reporting taking centre stage: Reporting, especially in environmental, social, and governance (ESG) areas, is overtaking the agenda for companies and investors. This focus often overshadows discussions on real world impact as both entities grapple with rising regulations and stakeholder expectations.

Acknowledging shared vulnerability: Both corporates and investors shared a vulnerability in their pursuit of sustainability, distinguishing it from conventional decision-making. The inherent uncertainty in data quality, the rapid pace of change, capital investment required, and the extended time horizons make this pursuit challenging. These factors necessitate a different style of dialogue to enables a deeper understanding and connection between corporates and investors.

This is an extract from the Investor Forum 2023 Annual Review and captures findings from our Investor Relations Dialogue, on which the Investor Forum collaborated with the Investor Relations Society. The Best Practice Dialogues project focuses on the critical exchanges between investment managers and companies and the key dialogues that characterise the relationship: investor relations, sustainability, audit and assurance and voting and governance.

Sallie Pilot is a senior advisor to The Investor Forum.

This extract first appeared on LinkedIn and is reproduced with permission. Read the original article.