This article is part one of The ESG Communications Playbook, a 4-part series on engaging and converting prospective ESG investors.
ESG (Environmental, Social, and Governance) investing is all the rage. Large financial institutions from a myriad of industries have committed to investing their capital in companies, both public and private, that abide by ESG parameters in their business models. This e-book series will look at the ESG investing phenomenon from different perspectives and provide actionable advice to companies looking to seize the moment and capture investor attention with messaging, strategic marketing, and tactical ingenuity.
As in all investment trends, ESG capital is plentiful and eager to be deployed, but the competition among potential investment targets is fierce. For companies positioning themselves as an ESG investment opportunity, the need to differentiate is paramount. As an integrated marketing and public relations firm that specializes in industries that appeal to ESG investors, Antenna Group occupies a unique perch from which to guide businesses through the ESG investor funnel. We hope that this series is a meaningful contribution to the ESG conversation and provides valuable insight to the thousands of companies that stand to benefit from their sustainable business models and practices.
A Brief History
“ESG” investing as a business imperative began in the 1960s in parallel with the burst of political, consumer, and social activism that occurred throughout the decade. Specifically, ESG mandates were directed against companies doing business in South Africa during the apartheid era as well as tobacco companies. However, the term ESG and its evolution into a formal investment category emerged from a 2005 essay entitled, “Who Cares Wins,” and has blossomed today into a $20 trillion dollar investment opportunity.
What is ESG?
To put it simply, ESG is the imperative to invest responsibly. It is a two-fold recognition by corporate America that a) corporations have responsibilities beyond tending the bottom line and b) by taking on these responsibilities, corporate America will reap financial benefits.
The “E,” of ESG is environmental and reflects a commitment to climate change mitigation, the transition to clean energy, water management, and dozens of other environmental and sustainable causes. The “S,” is social issues which can be the treatment of workers, health and safety policies, interaction with local communities, etc. The “G,” is governance, particularly boards of directors, policies, and corporate cultures that value diversity, integrity, and innovation.
The ESG investment market is expected to balloon to $53 trillion by 2022. A number of factors have driven growth in this investment class, but for the purposes of this e-book, the key driver has been the existential threat posed by the climate crisis and the furious scramble to identify, innovate, and fund climate change mitigation solutions. Businesses understand that they will not be able to survive long term in the face of floods, droughts, famines, and wildfires–all examples of climate catastrophes that have become more frequent and damaging. This century has already seen 19 of the 20 hottest years on record and according to the 2019 Arctic Report Card, rapidly melting permafrost is creating feedback loops that could release 1.5 trillion metric tons of carbon dioxide, roughly twice the amount that is already in the earth’s atmosphere.
While the political landscape is characterized by gridlock, the investment community has grown wise to the need for systemic action and is making big bets according to that point of view. During market turmoil in February and March of 2020, when many investors were selling out of stocks and flows into equity ETFs were negative, the exception was sustainable investments. For example, from February 24 to March 23, sustainable ETFs saw $1.3 billion in inflows, while the overall ETF market experienced $38 billion in outflows. The subsequent economic recovery has only added momentum to this trend.
Investors are willing to look beyond the tiresome political deadlock and uncertainty related to climate change policy to drive business transformation. In fact, they see a responsible and executable ESG strategy as critical to overcoming macroeconomic obstacles and threats. According to a recent Harvard Business Review article, “Companies are likely to be more resilient in the face of unexpected shocks and hardships if they are managed for the long term and in line with societal megatrends, such as inclusion and climate change.”
Recognizing this, companies beyond just the usual suspects are reinventing their business models to incorporate ESG practices. The Oil and Gas industry’s lobby, The Independent Petroleum Association of America, recently launched an ESG Center to advise O&G companies on how to evolve and attract investment from the fund management industry. Big oil companies such as ConocoPhillips adopted a goal of net zero carbon emissions by 2050. In addition, when Pioneer Natural Resources acquired Parsley Energy for $7.6 billion, the companies highlighted their respective ESG practices.
The Call to Action
Energy and sustainability tech companies are better positioned than most to reap the ESG bounty. Whether you are raising money for an early stage SAAS energy efficiency product or a public company with an innovative energy storage solution, institutional investors have mandates to allocate money to organizations like yours. As more companies recognize this opportunity and compete for investor attention, it will become an increasingly difficult marketing challenge to differentiate, communicate effectively, and convert prospective investors.
How to accomplish this marketing feat is the focus of our e-book. Coming next, Section Two will focus on the themes, cadence, and messages that must characterize your ESG marketing strategy. Section Three will provide a tactical plan for reaching, nurturing, and converting the ESG investment community.