With ESG well and truly part of the corporate vernacular, integrating Environmental, Social and Governance (ESG) strategies and metrics through an appropriate framework is increasingly critical to an effective IPO process.
Listing a company is an extensive and expensive process and, to be successful, companies need to be prepared for increased interest in, and scrutiny of, their ESG commitments.
In addition, investors are placing greater emphasis on non-financial factors as part of their analysis, investment and risk management strategies.
Therefore it is crucial that companies and their advisers include an ESG framework in the IPO checklist.
ESG frameworks are sets of guidelines that help companies manage and communicate their ESG approaches and commitments. There are a number of global frameworks a company can employ including Global Reporting Initiative (GRI), Task Force on Client-Related Financial Disclosures (TCFD) and the UN’s Sustainable Development Goals (SDGs). It is important to consider a framework that aligns with the company’s values, budget and structure. It also needs to provide meaningful data that can be used to enhance business value and its ESG position.
A good starting point for the framework is formulating and articulating the company’s values. These values capture the beliefs and principles that drive the business and should be fully embedded into the corporate culture. Focusing on what is important to the company will help align its business strategy with its ESG objectives and commitments.
Casting an ESG lens over the IPO prospectus will help align its language and tone in the prospectus to the ESG credentials and values of the company, which then aligns with the expectations of investors.
A company that can clearly communicate its ESG objectives demonstrates a commitment to acting as a good corporate citizen. Presenting investors with an ESG framework outlines its commitment to continuous monitoring and reporting on those objectives, something investors now expect as standard from companies.
It’s not just investors, customers and employees demanding strong ESG principles; the global shift towards mandatory ESG reporting and disclosure indicates that it won’t be long until we see regulations requiring Australian listed entities to disclose climate-related risks. Ensuring these risks are considered at IPO-stage will only benefit the company post listing.
Engaging ESG advisers may also be beneficial during the IPO process, as well as establishing an ESG subcommittee to aid in the formulation and ongoing commitment and monitoring of the ESG framework and objectives.
Playing catch up in the ESG space will pose a financial and reputational risk, one that could be detrimental to the IPO process. A robust leadership team and a desire for transparent reporting on the key values of the company through a framework that presents guidelines for the company, will stand it in good stead for future investors and other stakeholders.
This article was first published in the 2023 IPO Watch Australia Report.