Investor Relations and ESG Reporting in a Regulatory Perspective: A Practical Guide for Financial Market Participants

About the Authors
Testimonials
Preface
Acknowledgements
Introduction
Contents
List of Figures
Abbreviations
Part I The Financial Markets: An Overview
1 The Benefits and Drawbacks of a Stock Market Listing
	What Are the Financial Markets?
	Positive Aspects of a Stock Listing
	Easier Access to Capital
	Liquidity in the Ownership
	Transparency and Servicing Minority Investors and Stakeholders
	Ease of Ownership Transition and Exit Route to Investors
	Credibility and Marketing
	Employee Engagement
	Negative Aspects of a Stock Listing
	References and Sources
2 The Formation of Stock Prices
	What Moves the Stock Market?
	Factors that Determine Stock Prices
	Communication with Financial Markets Participants
	Types of Markets and Information
	Risk Premium
	References and Sources
3 Ethics in the Financial Markets: Why a Solid IR Framework Is Key
	Acceptable and Unacceptable Information
	Guidelines on Acceptable Information and Expectations Management
	Guidelines on Unacceptable Information
	Reference and Source
4 Understanding Valuation Methodology of the Financial Markets
	Valuation Methods of Different Investors
	The Top-Down Perspective
	The Bottom-Up Perspective
	Abbreviations of Financial Reporting
5 Integrating ESG in Equity Research
	Embracing tangible ESG
	Academic Literature on Best-in-Class ESG Companies
	ESG in the Cash Flow Analysis
		The Profit and Loss Statement (P&L)
		The Balance Sheet (BS)
		The Cash Flow Statement (CF)
	References and Sources
6 Valuation Methodology from the Perspective of Different Investor Types
	Dedicated Available Resources Dictate the Methodology
	Types of Investors
		Institutional Investors
		Retail Investors
	Investment Strategies
	Reference and Source
Part II The Participants of the Financial Markets
7 Understanding the Financial Markets’ Stakeholders and Their Motivation
	The Stakeholders on the Financial Markets
	The Regulatory Separation
	Investment Perspectives
8 Understanding the Role of Institutional Investors
	Portfolio Managers (PMs)
	Good Performance is the Best Marketing Tool
	A Daily Target of Maintaining an Overview
	Attempting to Find Information Advantages
	Types of Portfolio Managers
	An Investment Universe: Investment Mandates and Themes
	Passive Investors
9 How to Communicate with Retail Investors
	Retail Investors
	Investment Banks Are Already Embracing Retail Investors
	Retail Investors in Connection with IPOs
	Communicating with Retail Investors
	Reference and Source
10 The Sell-Side/Equity Analysts, Brokers and Corporate Access
	An Overview of How an Investment Bank Works
	Equity Capital Markets (ECM)
	Equity Analysts
	Types of Equity Analyst Research Reports
	Communication Flow of Equity Analysts
	Company Relations with the Equity Analysts
	Equity Analysts’ Relationship with Investors
	Brokers (Sales and Trading)
	Economists and Strategists
	The Equity Analyst’s Working Day and Private Agenda
	The Daily Relationships—Telephone Contact and Meetings
	Corporate Access: Company Roadshows
	Reference and Source
11 Corporate Finance Advisers
	Introduction to Corporate Finance
	Relationship with Corporate Finance Advisers
	Scope of Corporate Finance Advisers
		Project Coordination
		Presentation Materials
	Valuation
		The Corporate Finance Advisor’s Expertise in Valuation Plays a Critical Role
		Identification of Buyer/Seller (M&A) and Knowledge of the Institutional Investors
		Knowledge of the Financial Markets (IPOs and M&A)
		Negotiation
	The Corporate Finance advisor’s Fees
	The Daily Relationships
	Selection of Corporate Finance Advisors and Control of the Transaction Process
		Be Out Well in Advance and in Good Time
		Clarification of Assignments
		Negotiation of Terms
		Evaluation and Selection of the Corporate Finance Advisor
		Management of the Transaction Process
12 Considering the Role of Non-financial Markets Stakeholders
	External Stakeholders
	Company Competitors
	Media Relations
	References and Sources
Part III Major Legislation Themes Related to the European Financial Markets
13 How Is Legislation Implemented on the European Financial Markets?
	The EU’s Regulatory Wave
	The Context of Financial Legislation
	Timeline of Financial Legislation
	Introduction of Regulatory Frameworks
	MiFID II/MiFIR and MiFIR
	The Framework of MiFID II/MiFIR
	How Does MiFID II/MiFIR Impact Listed Companies?
		(Non-)independent Advisory and Inducements
		Investor Classification
		Conflict of Interest
	Embracing MAR
		What Information Does a Company Need to Disclose Under MAR?
	Delay of Disclosure of Inside Information
		Suspicious Transaction Reporting
		Announcing a Transaction: Market Soundings
		Investment Recommendations
		PDMR Transactions
		Record-Keeping and Insider Lists
	References and Sources
14 Learning from the Impact on Financial Markets of Recent Legislation
	Ensuring Fair and Transparent Markets
	Regulatory Impact on Financial Markets
	Effects from Unbundling Research
	Effects on Corporate Governance
	References and Sources
15 How to Optimise IR Within the Existing Legal Framework
	Mitigating the Sell-Side Disruptions
	Commissioned Research
	Commissioned Corporate Access
	Independent Digital IR
16 The New Wave of ESG Regulatory Framework
	An Apparent Increase in Sustainability
	The EU’s Green Deal
	Major Legislation on Sustainability in the EU
	The EU’s Taxonomy
	CSRD (Previously NFRD)
	SFDR
	References and Sources
Part IV Achieving a Fair Valuation of the Company Through Best-Practice IR
17 The IR Function
	Introduction to Best-Practice IR
	Objectives of an IRO
	Two-Way Communication
	The Goal of Achieving a Fair Value
18 Deciding on IR Ambitions and Its Success Factors
	The Basics of IR
	The Ambition Level of IR
	Prioritising the Level of IR Ambition
	The Requirements for the IR Officer
	A Regular day of an IR
	Competitor Intelligence
	Targeting of Equity Analysts
	Shareholder Targeting
19 IR Within the Organisation
	Reporting to the Senior Management and Board of Directors
	Internal Organisation and Division of Responsibilities
	IR’s Reporting Line
	Board of Directors’ and management’s Role and Involvement in IR
	Collaboration with Internal Line Managers
	Collaboration with the Communication Function
	Examples of Proactive ESG Approaches
		Novo Nordisk
		Rockwool International
		AP Moller Maersk
	References and Sources
20 IR’s Responsibilities of Implementing Policies and Planning Ahead
	The Annual Reporting Wheel
	Aide Memoire
	IR Plan
	IR Policy
	Financial Guidance and Operational Objectives
	Keeping Up to Date on Disclosure Requirements
21 IR Tools to Engage a Company’s Stakeholders
	A Best-Practice IR Engagement with Stakeholders
	Internal Q&A Material
	Annual Report
	Quarterly Announcements/Trading Statements
	Other Stock Exchange Announcements
	Investor Presentations
	Industry and Sector Information
	Meetings with Investors and Equity Analysts
		Roadshows
		Webcasts
		Capital Market Day (CMD)
	The Company’s IR Website
	Benchmarking of IR Relative to the Company’s Peers
	Evaluation of IR Function
	Use of IR Consultants
	Perception Studies
	Who Should Commission an IR Perception Study?
	Digital IR Tools
22 Managing the Expectations of the Financial Community
	A Proactive Approach to Managing Expectations
	Equity Analysts
	Investors
23 Embracing the Digital World of IR Activities
	Transparency Is Increasing for Retail Investors
	Applying Social Media in IR
	Potential Pitfalls of Digital IR
Part V IR in Special Situations
24 Preparation of Difference Types of IR-Related Contingencies
	A Crisis Communication Contingency (CCP)
	How to Design a CCP
	Formulation of Messages
	Action Plan
	The Employees
	Use and Maintenance of Emergency Preparedness
	Internal Workshops and Crisis Simulation
25 Developing a Takeover Response Manual
	Preparing for a Potential Takeover Situation
	An Issues Management Contingency (IMC)
	How to Design an IMC
		Identification of Issues
		Analysis of issues
	Strategy for Changing an Issue to a Non-issue
	Action Plan
	Evaluation of Results
	Use and Maintenance of an Issues’ Management Contingency
	A Takeover Response Manual (TRM)
	The Best Protection Against a Takeover
	Stock Exchange Handbook for Issuers
	The Internal Improvement Opportunities
	The External Improvement Options
	A Work Group List
	Keeping the Emergency Plan Up to Date
	Analysis of Shareholder Structure
	Action Plan
	Knowledge of Valuation Is Key During a Takeover
26 Valuation in a Takeover Situation and Strategic Alternatives
	The Use of External Advisers
	The Preliminary Agreement with the Corporate Finance Advisor
	Valuation
	Alternative Company and Ownership Structures
	White Knights
27 Shareholder Engagement and Monitoring Market Activity
	Corporate Governance
	The Role of IR
	Monitoring Market Activity
28 Investor Activism
	A Historic Perspective
	Investor Activism Today—And Future Trends
	How Should Companies Look upon Investor Activism and Deal with It?
		Is Investor Activism Good or Bad?
		How Does a Company Avoid Investor Activism?
		If the Company Cannot Avoid Investor Activism, What Does It Do if an Investor Activist Suddenly Comes Out of Nowhere and Knocks on the Door—Via the Media?
29 The Company—Before, During and After an IPO
	Before and During an IPO
	After an IPO
Part VI Embracing Non-financial/ESG Reporting
30 The Origin of ESG
	Social Awareness and Social Justice Dates Back Years
	Stages of ESG Development
	A Brief History of Non-financial Reporting Frameworks
	References and Sources
31 Stakeholder Capitalism and Sustainable Leadership
	Including Stakeholders in Neoclassical Economics
	Raising the Bar on Stakeholder Capitalism
	The Advantages of Non-financial Reporting
	References and Sources
32 Institutional Investors Are Embracing ESG Strategies
	Defining Responsible Investing
	Positive Teachings from BlackRock
	Positive Teachings from Norway’s Sovereign Wealth Fund
	References and Sources
33 Consideration Sustainable Finance Disclosure Regulation (SFDR)
	Motivation of SFDR
	Disclosing ESG on Entity and Fund Level
	Classification 1: Minimum Requirements (EU 2019/2088, Art. 6)
	Classification 2: E&S Funds (EU 2019/2088, Art. 8)
	Classification 3: Impact Funds (EU 2019/2088, Art. 9)
	Impact of SFDR
	Relevance for Non-EU Investment Companies
	The Interaction Between Taxonomy Legislation and ESG Reporting
	References and Sources
Part VII The Framework of Best-in-Class Non-financial Reporting
34 Implementing Taxonomy
	Framing the Taxonomy Legislation
	Implementing Taxonomy in Non-financial Reporting
	Economic Activity
	Eligibility
	Reporting KPIs
	References and Sources
35 Implementing Non-financial Reporting Standards
	Scoping a Fragmented Market of Reporting Standards
	Overview of Non-financial Reporting Frameworks
		Global Reporting Initiative (GRI)
		Task Force for Climate-Related Financial Disclosure (TCFD)
		Standards of the Sustainability Accounting Standards Board (SASB)
		International Integrated Reporting Council (IIRC)
		The World Economic Forum (WEF)
	Non-financial Reporting Framework: Why Is There More Than One?
		Practically Navigating the Fragmented Market
	Appendix
	References and Sources
Part VIII Preparing the Company’s First ESG Report
36 For the First Non-financial Report: A Checklist to Get into Gear
	Setting the Agenda for the company’s First Non-financial Report
	Aspire to Integrate Best Practices from the Beginning
	Integrate the ESG Process with Financial Reporting
	Strategically Framing the company’s First Non-financial Report
37 The Importance of Mobilising ESG with Incentives
	Mobilising the Company to Set ESG Goals
	Aligning Incentives with Non-financial Reporting
	Aligning ESG with the Company’s Value Creation
	Including ESG in the Design of the Incentive Structure
	Reference and Source
Part IX Aiming for Best-in-Class ESG Reporting
38 Taking Already Implemented Non-financial Reports a Step Further
	Integrating Non-financial Reporting is an Art
	Asking Questions is the First Way to Begin Change
	Drafting a Tailored Non-financial Reporting Policy
	Teachings from Service Giant, ISS A/S, on Taking the First Steps of the Full Corporate Integration of ESG and Non-financial Reporting
39 Encompassing ESG Rating Agencies
	ESG as a Rating Tool
	Non-financial Reporting Will Become a Prerequisite
	Overview of the ESG Rating Agencies
	The Significant ESG Rating Agencies
	The Transformation of the Equity Analyst
	CSRD Will Professionalise Baseline Data
	References and Sources
Part X Future Trends of Financial and Non-financial Reporting
40 Best-Practice IR is About Being at the Forefront
	Integrating Consumer and Investor Protection
	Considering Consumer Activism
	The Digitalisation of Non-financial Reporting
	European Single Access Point (ESAP)
	MiFID III
	Still Early days for the US’ Considerations on Non-financial/ESG Reporting
	References and Sources
41 Is the Next Decade Scary or Exciting?
	Moving Beyond GDP
	Profit, People, Prosperity and the Planet
	Moving into a Decade of Action
	Considering the Role of SDGs in Corporate Financing
	The Next Decade Will Be Beneficial for Those Who Embrace It
	References and Sources
42 Postscript
43 Summary of Facts and Best Practice
	Part I: The Financial Markets: An Overview
	Part II: The Participants of the Financial Markets
	Part III: Major Legislation Themes Related to the European Financial Markets
	Part IV: Achieve a Fair Valuation of the Company Through Best-Practice IR
	Part V: IR in Special Situations
	Part VI: Embracing Non-financial/ESG Reporting
	Part VII: The Framework of Best-in-Class ESG Reporting
	Part VIII: Preparing the Company’s First ESG Report
	Part IX: Aiming for Best-in-Class ESG Reporting
	Part X: Future Trends of Financial and Non-financial Reporting
44 Overview of Nasdaq’s ESG Reporting Guidelines
	Environmental Categories of Reporting
	Social Categories of Reporting
	Governance Categories of Reporting
Correction to: The Formation of Stock Prices
	Correction to:  Chapter 2 in: P. Lykkesfeldt and L. L. Kjaergaard, Investor Relations and ESG Reporting in a Regulatory Perspective, https://doi.org/10.1007/978-3-031-05800-4_2
Index