Using company quarterly calls to meaningfully discuss ESG

A new report published by the NYU Stern School of Business Center for Sustainable Business and the Chief Executives for Corporate Purpose (CECP), ESG and the Earnings Call: Communicating Sustainable Value Creation Quarter by Quarter, finds that there is evidence that the way in which companies are disclosing information is shifting toward long-term sustainable value. For instance, some companies are sharing long-term focused content at investor days, convening investor-facing calls to focus on ESG themes, building elements of ESG-type disclosures into earnings call content and preparing long-term financial guidance (rather than quarterly Earnings per share (EPS) guidance).

The report finds that it is commonly a challenge to meaningfully discuss the ESG characteristics of a company’s value proposition on company quarterly earnings calls. However, it is possible to do so – provided the company lay the groundwork for the earnings call to become a setting for monitoring the delivery of a multiyear ESG-focused plan. This entails adjusting the mix and timeframe of the information reported.

The report provides concrete recommendations for how companies can meaningfully integrate ESG into their quarterly calls:

• Integrate ESG and long-term content into existing disclosures sequentially – in a manner that builds comfort and confidence within the investor base and management
• Prime the analysts with ESG-specific questions to shape the discussion
• Develop a plan for how each of the four calls will be used, including for instance using one of the four quarterly calls to provide a deeper discussion of ESG and using the CEO segment for macro framing on purpose and stakeholder approach
• Develop cross-functional collaboration to enable ESG themes to be blended into existing reporting structures, including (1) directing Investor Relations and Corporate Sustainability to co-develop the content, (2) convening an open-access, cross-function ESG working group, (3) ensuring board oversight of ESG, clear committee remit, and full board discussion (4) expanding CFO engagement on ESG themes and long-term forecasts
• Reference and deploy existing frameworks for investor-facing ESG disclosures
• Describe management’s thesis on the impact of ESG strategy and performance on the company’s financial performance. The report suggests starting with simple cost-avoidance approaches and expanding to revenue-generating approaches
• Monetize the risk associated with not acting on a particular ESG theme (such as the potential costs associated with avoiding human capital expenditures)

Appendix 1 of the report provides an ESG and Quarterly Reporting template designed with guidance from McKinsey & Company, CECP and FCLTGlobal. The report also provides a a Long-Term Plan Framework developed by CECP’s CEO Investor Forum to support CEOs in presenting a long-term plan to investors.

Source: NYU Stern School of Business Center for Sustainable Business and Chief Executives for Corporate Purpose (CECP), ESG and the Earnings Call: Communicating Sustainable Value Creation Quarter by Quarter (May 2020)

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