Environmental, Social and Governance (ESG) performance and disclosure are increasingly important factors for investors when evaluating a healthcare company’s value. And increasingly, ESG performance is critical when considering a new investment. The 2022 Edelman Trust Barometer Special Report: Healthcare Institutional Investors revealed that 73% of investors will not invest in a company without an ESG mandate. No matter where a healthcare company is with regard to its ESG performance, the benefit of communicating progress to investors is clear. Below are five ways healthcare companies can leverage good practices in communications to help investors recognize ESG performance:
- Integrate ESG into the business strategy
Just as a business strategy is designed to help a company succeed and withstand hardship, integrating ESG into the business strategy tells investors the company understands ESG is not just a fad or buzz word, but an important part of long-term value creation. The Edelman Trust Report found that 81% of healthcare investors believe a strong ESG performance deserves a premium valuation to its share price, proving that investors recognize the benefits of companies not only having an ESG strategy, but effectively executing against it. Having a sound, thoughtful ESG strategy is important. In fact, our study also found that 79% of investors believe healthcare companies that prioritize ESG represent a better opportunity for long-term returns. Companies are well served to prioritize implementing and communicating ESG strategy to drive operational performance and keep investor interest.
- Ensure your ESG strategy demonstrates company resiliency in a crisis
Strong ESG disclosures assure investors that a company has thoroughly examined its strategy for the future by considering risk factors that may arise. In fact, Edelman’s special report found that 76% of investors believe a healthcare company with a strong ESG performance is more resilient in a crisis. In healthcare, it’s not a matter of if but when a crisis situation will occur. Crises can serve as pressure tests for a company’s ESG strategy, and it is good practice to continually assess risk factors associated with ESG and to look for opportunities for continued improvement, which will best position healthcare companies as a sound investment to better weather the next storm.
- Follow through on ESG commitments with a formalized plan for integration
Simply having ESG disclosures is no longer enough – companies must show they’re actively implementing their strategy and delivering on tangible KPIs. According to our findings, 82% of investors must trust that a healthcare company is proactively prioritizing ESG practices before making or recommending an investment. Companies that showcase ESG as a priority with progress toward measurable performance metrics can help investors understand the company’s commitment toward ESG and in return may get a premium.
- Set specific & ambitious, yet achievable, ESG goals
When ESG first became an area of interest to investors we saw some companies “greenwashing” their goals and results – or in other words, conveying false or misleading information about the company’s ESG effort. But today, savvy investors can see through greenwashing – while 73% of investment firms are currently engaged in impact investing in healthcare, 73% also expect healthcare companies to have sufficient ESG mandates, or they will not invest, according to Edelman’s Healthcare Institutional Investor Special Report. Setting specific, ambitious yet achievable ESG goals, demonstrates to investors that ESG is a top priority, will be an area of attention and focus, and can be counted on to deliver – thus improving overall performance rather than adding an extra burden.
- Prioritize ESG as a core element of investor communications
We know reporting on results builds credibility and maintains investor trust, but it also is a key differentiator. The 2022 Edelman Trust Barometer Special Report: Healthcare Institutional Investors revealed that 68% of investors believe healthcare companies have historically communicated poorly with investors. Given the importance of ESG to investors and the perception of historically poor investor communications, companies should consider developing a communications strategy that integrates ESG performance consistently and thoroughly as a core element of investor communications. Knowing how and through what channels to communicate ESG objectives and performance is arguably just as important as the information itself.
Healthcare companies with strong ESG disclosures and results not only create a positive impact to our planet and society, but can also have the potential for a premium on their valuation. Even amid a trying market, a company can benefit from prioritizing ESG communication to investors, demonstrating it has strategic vision and is more likely to withstand a crisis or a recession.
Tara Casey, Maria Arnone, Mathilde Sellars