Responsible Relations - Communicating Corporate Responsibility to Investors

Kai Hockerts of INSEAD’s Centre for the Management of Environmental and Social Responsibility, and Lance Moir, Cranfield University, examine the evolution of the investor relations (IR) function in response to growing investor concerns about corporate social responsibility (CSR). Interviews with IR professionals in 20 firms highlight their awareness of CSR issues, levels of concern among mainstream and socially responsible investors, and the change in the IR function from a ‘broadcasting’ mode to interactive relationship management.

by Kai Hockerts,Lance Moir
Last Updated: 23 Jul 2013

“I love to hear my relations being abused – that’s the only reason why I put up with family in the first place.” Investor relations officers (IRO) may find Wilde’s witticism strangely appropriate to describe their role in the corporate family. Whether the news is good or bad, investors like to keep IROs in the hot seat. Until now they have had to answer for a firm’s financial performance, but recently the spectrum of accountability has widened considerably.

Investors increasingly consider non-financial aspects in their assessment of companies. Within this domain, corporate social responsibility (CSR) is receiving a growing share of attention. CSR addresses the impact firms have on multiple stakeholders. Issues include human rights, labour relations, environmental protection, and community relations. While firms are used to being held responsible for these issues by governments, pressure groups and even customers, they are unaccustomed to investors taking an active interest in the way they respond.

Hockerts and Moir shine light on three areas in relation to investor relations and CSR: the perceptions investor relations professionals hold of CSR, the role of IROs in communicating CSR, and the diverse perceptions of future development. They find that companies are well aware of the need for improved disclosure and reporting on social and environmental performance.

The central tenet of the study is that the role of IR in relation to CSR issues is changing from a mere ‘broadcasting’ mode towards more interactive relationship management. Several IR officers reported a willingness to educate their constituents about corporate responsibility issues related to their firm, alerting analysts and investors to the value potential of their firm’s proactive behaviour, as well as forewarning management about potential risks to the firm’s reputation in the marketplace.

The process of filling in questionnaires by SRI funds and ethical rating agencies was seen as an education in itself: “If you are able to answer the questionnaire, it means you are well on track on that issue.” (Zannini, UniCredito) Many IROs mentioned benchmarking as one of the key drivers for organizational learning. “We look at the ratings that are done on us very carefully and we benchmark against other companies.” (Joenssen, ABB)

IR officers indeed have a role to play in educating investors and analysts about corporate responsibility. IROs were found to teach some of their investors how to approach social or environmental issues. “We, as the IR department, should inform mainstream investors [about CSR] and hopefully they will include this in their investment decisions.”(Froehlich, Volkswagen) IR officers are often egged on by SRI analysts in the large asset management companies and, in turn, welcome the unexpected help in educating their own non-SRI inclined peers.

INSEAD 2003

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