Show them where you’re going and make sure they want to come
When they peel back the cover on an annual report, Australian retail investors are obviously keen to read about financial performance. What this new KPMG Acuity research shows is they’re now equally keen to read about future strategy.
This should not come as a major surprise. When the CEOs we work with conduct roadshows the vast majority of questions they face from potential investors and brokers is about their long-term strategy.
Given the market environment is evolving faster than any other time in history, investors want reassurance that management has a plan to surf the choppy waters of change.
Investors want to understand what your priorities are, where you plan to innovate, and where you think you can forge a competitive edge.
Yet what we have seen change rapidly in recent years is how much investors want to hear about your values as well. For most investors today, it’s not all about the numbers. It’s the numbers plus responsibility.
ESG and future strategy becoming one and the same
ESG used to be a siloed section within an annual report.
Now shareholders are increasingly keen to understand, as a top line, whether the company in which they are invested is being a responsible corporate citizen.
What used to be a nice-to-have has readily become a must have.
Brokers and wealth advisors don’t want to put their money into an entity they think will struggle to earn trust.
The advice we are increasingly giving to our clients when it comes to ESG is to assess what ESG means to them specifically.
Making it truly bespoke gives it a better chance of being repetitively ingrained into the company’s culture. Because there’s no point having a great strategy that sits in the filing cabinet.
So what’s driving this investor desire to see ESG woven tightly into future strategy?
Well, partly it’s pragmatic and hard-headed. Investors are wary of risk and a poor culture around ESG creates plenty of it. If you’re an importer of goods, for example, and you are making no obvious effort to ensure your supply chain is free of slave labour, there’s a solid chance you will get embroiled in legal strife or reputational assault.
But partly investor behaviour is being driven by a values dynamic.
Investors are people with beliefs and morals. While they are eager for returns, they would prefer those dollars to have been earned through improving the world.
So while a company with poor ESG reporting may be generating healthy profits, it’s typically not too hard for investors to find an alternate company with similar returns and better values.
Essentially, ESG is getting hyper-competitive.
What else investors are looking for in future strategies
Of course, when investors flick over to the future strategy section of an annual report they are looking for more than just assurances on ESG.
Key among the factors they will look for is innovation strategy, especially as it relates to customer-centricity.
Where once organisations may not have considered customer experience a first-order priority, today global disruptors like Uber, Airbnb, Amazon, and Netflix have altered consumer expectations irreversibly. How companies plan on adjusting to these raised expectations is pivotal.
A strategy for using data effectively is also key. Game-changing tech, like machine learning and AI, is fuelled by data, meaning that data is shifting from something that is stored and managed, to something that can fuel a competitive advantage and growth.
A sound plan for digital and tech innovation is also high on the priority list for most investors. The Internet of Things, driven by 5G, is putting real pressure on companies to prepare for the possibilities of a truly interconnected world. Shareholders are eager to see that the company in which they are invested is ready for this step change.