Strong ESG narratives drive valuations

It has never been so crucial for CEOS, CFOs and boards to focus on having a robust and consistent narrative. The narrative is the key to communicating effectively with stakeholders and the markets. Moreover, it underlines and drives the valuation of a company.

A narrative expresses the company strategy is an expression of capital allocation and decisions about where money is scheduled to be invested or divested. These decisions directly impact people in the company and those outside the company.

With the ESG transition, companies are asked to report both financial and non-financial data. This alone puts a lot more pressure to have data and clear metrics that drive the results and strategy of a company.

Being fluid around both is vital, and part of this is because of the multiple challenges to face.

When it comes to data — ESG is new. There are a lot of different models out there, and analysts have their views and approach. So, it can be somewhat opaque for the board of a company. But, I have had many conversations with executives who ask what the market is looking for, how will we be measured, and how do we know if this set of reporting data will meet the market demand.

Another point is around the communications environment that we operate within. The explosion of platforms and technology means that everyone who has a mobile device has the technology to comment on a company’s message.

I advise companies and CEOS to pause and think how their narrative and messaging will be received across multiple audiences is critical. It requires humility and getting out of ‘group think’, which can undermine many reporting and communications processes.

Dealing with multiple audiences is very challenging, and it puts in place the risk of overreaching or, in some cases, ‘greenwashing’. The perception of a company and its actions can be very quickly formed, and it is hard to change. So I would always counsel that less is more, stick to the facts, be honest with the narrative development.

In many ways, the ESG transition is a journey on the road to perdition. It is going to take time to get it right. There are many moving parts. There has never been such a demand for data, metrics, and evidence that a business is making the changes, making it a challenging environment to operate within and navigate successfully.

Originally published at https://www.themartelloadvisory.com on May 14, 2022.

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I work with companies and investors responding to the ESG transition.

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Jonny Mulligan

Jonny Mulligan

I work with companies and investors responding to the ESG transition.