Op-ed: Sarah Duparc, L’Agefi

According to a recent study by global management consultancy Boston Consulting Group, more than half of institutional investors expect the Federal Reserve’s inflation-fighting rate hikes to trigger a recession. These fears generate increased risk aversion in response to the adage ‘Don’t fight the Fed’ and are leading to a shift in priorities that have emerged in the early days of the Covid era. A situation that can also be applied to Europe.

Be reassuring, yes… but keep communicating on the big picture

As the 2022 annual results are now being released, financial communications should counter this pessimism by demonstrating resilience in this complex environment thanks to the strength of the company’s business model, the solidity of its fundamentals and its ability to adapt. However, these uncertainties must not be allowed to get out of hand, just as communication must not be limited to reassuring investors whose gaze would then be too focused on the short term … and on pure financial performance!

One astonishing finding of the study is that these economic “disruptions” lead to reduced interest in ESG commitments. Only 37% of investors think it is important for financially healthy companies to continue pursuing their ESG agenda and priorities as companies navigate the crisis, even if it means guiding to lower EPS or delivering below consensus. This is a dramatic drop: over the past three years, an average of 49% of respondents agreed with this statement. Only 5% of respondents even named climate as one of their main concerns among macro factors.

An exciting new ESG paradigm

The next few months, however, promise to be revolutionary in terms of non-financial regulation. A wave of new directives is on the horizon on every continent. In Europe, the CSRD (Corporate Sustainability Reporting Directive), which is scheduled to come into effect in 2024, is likely to be a real game changer. Part of the European Union’s regulatory arsenal on ESG reporting, the Directive will replace the NFRD and the French DPEF and broaden its scope by finally standardising the indicators on which companies with more than 250 employees must communicate.

The standardisation of non-financial reporting is designed to create a common European reference framework based on the concept of double materiality and to provide investors with a high-quality data environment. Thus, non-financial information should be given a status comparable to that of financial information. From the issuers’ point of view, it would be a mistake not to act now and be one step ahead by demonstrating the integration between the two areas in their (non-)financial communication this year.

In the face of an unprecedented climate and social crisis, tomorrow is now. Investors, both institutional and retail, have a key role to play. So do issuers, who will ensure the soundness of their future financial profile and sustainability by being transparent and illustrating their commitment with concrete indicators.

Source: BCG Investor Perspectives Series – Pulse Check #21 (conducted October 7-11, 2022)

https://www.bcg.com/publications/2020/covid-investor-pulse-survey/overview