IR Monitor – 4 October 2023

In this week’s newsletter:

• IR Society Webinar: Insights from the sell-side
• Hopes rise for IPO recovery after September deal rush, reports Reuters
• ‘Writing an investor letter and hoping for the best does not lead to change’: face-to-face meetings key to successful shareholder engagement
• Investor group targets 100 companies over nature loss.Next year will see launch of benchmark showing corporate progress, according to IR Magazine
• “Moat” came up in 316 company transcripts for the second quarter, a record. What C.E.O.s mean when they talk about ‘moats’
• And finally … is anti-ESG investing as useless as ESG investing? asks the FT

This week’s news

Insights from the sell-side

Last week, the IR Society hosted an informative webinar offering viewers an insight from the sell side. The two speakers were Andrew Wilson, Head of European Capital Goods Research at J.P. Morgan and Lydia Rainforth, who is in Energy & Energy Transition Research at Barclays Investment Bank. The webinar covered numerous topics, with Andrew and Lydia offering valuable insights on the day-to-day demands of the job, how small companies can get sell-side coverage, the ESG landscape, and what makes good and bad IR.  Both speakers offered key tips on how to interact with sell-side analysts, highlighting the fact that analysts are often time poor – meaning clarity, consistency and differentiation is very important when pitching to them, and it is essential to be transparent. Other tips included the importance of being accessible and visible in order to raise your profile as a company and to ensure any disclosures or financials remain concise – making it more likely for coverage to happen as you will be saving the analyst time.

Hopes rise for IPO recovery after September deal rush – Reuters

Reuters explores how the IPO market has become increasingly optimistic, particularly amongst bankers and investors. There have been $423 billion worth of equity capital markets transactions so far in 2023, with September one of the busiest months and 25 companies joining the stock market across the United States and Europe, according to Dealogic Data. One common feature: all these companies are profitable or, at least, are showing promising signs of profitability. British chip designer Arm Holdings, marketing automation firm Klaviyo, and grocery delivery app Instacart together raised more than $6 billion in their September debuts in New York, all pricing their IPOs at the top end, indicating good support from investors. However, Reuters notes that despite current optimism, there is still a significant way to go before markets fully recover. 

Face-to-face meetings key to successful shareholder engagement

The First Sentier MUFG Sustainable Investment Institute has found that the key areas for successful shareholder engagement include quality communication, relevance, and strong shareholder consensus, reports ESG Clarity.  The report, Constructive corporate engagements: From a corporate perspective, found that the most important factor was ensuring shareholders engaged in person, with 51% of successful engagements occurring from face-to-face interactions. Other key findings of the report include how proposals do not all need to be financially driven, and how addressing inaction, and its financial impact, is crucial to successful shareholder engagement. Sudip Hazra, a director of the Institute, discussed how two-thirds of companies preferred shareholders collaborating, rather than acting individually, and therefore how greater shareholder consensus would be more likely to motivate companies to change.

Investor group targets 100 companies over nature loss – IR Magazine

An engagement campaign over nature loss has been launched by a group of institutional investors to lead 100 companies, across eight sectors, to meet a list of expectations around nature-related risks. An annual benchmark will be released from 2024 announcing the progress made by the companies towards their targets. The investors form part a wider campaign group, Nature Action 100, motivated by the increasing scrutiny on how companies manage their impact on the environment. A total of 190 investors, managing $24 trillion in assets, have signed up to campaign and expect companies to meet six requirements including target-setting, governance, ambition and disclosure, with a requirement to report on their progress annually. The drive behind campaigns such as this stems from the Global Biodiversity Framework, which was established in 2022 following COP15, reports IR Magazine. It announced the goal to protect 30 percent of the world’s land and sea by 2030, prompting companies and investors to discuss biodiversity and nature-related issues and work together to make a difference.

What C.E.O.s mean when they talk about ‘moats’ – The New York Times

What does the word ‘moat’ have to do with economics? And why did it appear in a record 316 different company transcripts for the second quarter, then in almost 250 company transcripts for the third quarter? Though ‘moat’ may initially conjure up images of a fortified medieval castle, according to The New York Times, it is actually a term that refers to a company’s advantages. Samuel Rines, of financial research firm Corbu, likens ‘moat’ to “pricing power,” which essentially is a company’s capability to price things higher without losing market demand. Apple is an excellent example of a company with a moat. It supplies high quality products and has consistently good marketing & branding. All these traits come together to create Apple’s sleek, interconnected universe, where if you want the best experience, you need to buy all their products – creating their moat. Moat has seen a recent uptick in use according to AlphaSight, a market research platform. It is believed this spike is due to higher inflation and economic uncertainty, causing executives to worry about losing market share to their competitors – hence the use of more defensive language. Moats are generally considered to be an advantage – especially for investors.

And finally… is anti-ESG investing as useless as ESG investing?

The Financial Times’ newsletter ‘Unhedged’ takes the strong view that ESG investing is not a good route to go down and is “utterly effective and probably harmful.” However, is anti-ESG investing a smart move then? According to a Morningstar report published over the summer, there are 27 anti-ESG investment funds – that manage a total of $2.1 billion. Whilst not a huge number, it is significant enough to warrant examination, and as Unhedged notes, it is interesting to consider whether anti-ESG funds could outperform their opposing ESG investing funds. Robert Armstrong has two theories for believing that they could. Firstly, anti-ESG stocks could fall to a discount if enough investors move away from stocks that are deemed unfit for ESG-related strategies. This could allow anti-ESG investors to buy on the cheap. Secondly, the propensity of “ESG-positive” companies to become “bureaucratic messes” could lead them to underperform over time. However, as many anti-ESG funds are still relatively new and small, we will just have to wait & see if these predictions pan out. The Unhedged team “awaits more data”.

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