Quarterly earnings calls need an overhaul. Management expends great effort preparing for them, investor relations officers view them as crucial venues for sharing the equity story — the strategic vision that provides a rationale for investing in the company’s stock — and quarterly results still move markets. So why should these calls emphasize short-term profit-taking over long-term investments in employees, research and development, and sustainability, given that environmental, social, and governance (ESG) issues have direct, material effects on how well companies succeed in the long run?
We believe that companies must integrate ESG wholly into their business strategies rather than relegating them to a sidebar. But we also recognize that it’s challenging for corporations to include more ESG information in quarterly earnings calls for a variety of reasons.
First, companies are in the habit of reporting on ESG through other channels, such as corporate websites, CDP (formerly the Carbon Disclosure Project), annual sustainability reports, and ESG investor calls. These channels may not require or receive the same level of analysis that earnings call disclosures do — and thus companies may be unaccustomed to reporting with rigor on ESG activities. Also, companies generally do not track ESG’s financial effects but instead report on financials and ESG completely separately. The result is that ESG data may seem “soft” to some observers.