How to Crush Every Investor Relations Challenge in 2024 (2024)

IR professionals are at a pivotal moment. Click here to read more.

Investor relations teams are navigating serious challenges such as ESG controversies, cybersecurity threats, and AI upheaval.Successful IR teams aren’t simply reacting to these changes – they are shaping how their company navigates risk, transparency, and the evolving rules of engagement. In doing so, they're setting the example for all IR teams to become more valuable strategic counselors. Let's take a closer look at some of main challenges IR teams are tackling today and how IR can turn those challenges into opportunities to succeed.

Challenge #1: Discussing AI as a Risk and Growth Opportunity

With AI predicted to generate $15.7 trillion in global economic growth, its integration affects not just operational efficiencies but also introduces complex risks such as data privacy breaches and compliance issues. This is where IROs come into play. IROs must take the lead to ensure that AI usage, associated risks, and governance are communicated transparently. This enables investors to better understand how AI influences both the strategic direction and the risk profile of the company, facilitating more informed investment decisions.

Legislative bodies like the EU are moving toward stricter regulations with the Artificial Intelligence Act (AIA), which carries substantial potential compliance costs. Failure to disclose AI practices could leave investors feeling uninformed and heighten the company’s risk profile. Investor relations teams should proactively address AI governance, explaining who oversees AI decision-making, how the company complies with data privacy regulations, and what ethical guidelines are in place to prevent issues like the spread of misinformation.

Solution #1: Transparent AI Governance and Strategic Disclosure

A company can show foresight by openly sharing its AI development and utilization strategies with all stakeholders. Some companies are already taking steps in this direction:

Vodafone: Offers a downloadable AI Framework that outlines its AI strategy and plans for responsible deployment across its global operations.
Meta: Highlights five pillars of responsible AI, addressing areas like privacy, security, and transparency, especially significant since the launch of ChatGPT.
AstraZeneca: Shares how its scientists leverage AI in critical areas such as the discovery and delivery of new medicines.

Currently, many businesses disclose their responsible AI practices. As demand for data from investors grows and governments seek greater transparency, AI disclosures are expected to expand beyond governance and fairness.

Guidelines for Disclosure

What should an ideal AI disclosure page on a website include?

Risk Management

Key aspects of risk management should be addressed first:

Transparency: Provide clear information about the company’s AI usage, including the scope of applications, data processed, and its impact on operations and strategies.
Governance: Explain who makes decisions regarding AI and how these decisions are made. The significance of governance is underscored by OpenAI’s recent challenges.
Compliance and Ethics: Ensure all AI applications adhere to relevant laws and regulations, particularly those concerning data privacy and protection. Also, outline the ethical guidelines followed in AI usage.
Risk Management: Discuss potential risks associated with AI, such as operational, reputational, and cybersecurity risks, and describe measures taken to mitigate these risks.

The Investment Case

Companies should also explain how AI contributes to profitable growth, which is crucial for a strong investment case:

Impact on Financial Performance: Clearly outline how AI influences the company’s financial performance, including cost savings, efficiency improvements, revenue growth, and AI technology investments.
Future Strategy: Describe how AI fits into the company’s long-term strategy, including potential expansions of AI applications, research and development investments, and strategic AI-related partnerships.
Performance Metrics: Provide specific metrics or key performance indicators (KPIs) demonstrating the effectiveness and impact of AI applications on the company’s operations.
Employee and Stakeholder Engagement: Discuss how AI implementation affects employees and other stakeholders, including training initiatives, workforce composition changes, and transition management.
Innovation and Development: Highlight innovative AI projects or developments and their potential market impact, showcasing the company’s commitment to staying at the forefront of technology.

By addressing AI disclosures proactively, investor relations teams can attract new investors and build trust with existing ones by demonstrating insight into a significant trend and linking AI to profitable growth.

Challenge #2: Creating a Stronger Narrative Around Sustainability

IROs must take immediate charge of crafting and disseminating a powerful sustainability narrative as regulatory landscapes shift globally. In 2023, the European Union enacted legislation that requires businesses to report publicly the impact of their operations on the environment, as well as social and governance matters. The United States followed suit with its own legislation, mandating large publicly traded firms to report some of their climate-related risks. This heightened transparency requires investor relations professionals to prioritize consistent communication about their company’s “E” in ESG. By emphasizing a values-aligned sustainability strategy tied to long-term business goals, they can proactively guide investor and public perceptions.

Solution #2: Proactive Sustainability Communication and Engagement

Embracing a values-aligned sustainability strategy means that IROs will need to participate in proactive sustainability communication, along with their Comms partners. They need to actively shape the narrative around sustainability efforts.

Proactive sustainability communication involves more than just reporting data; it’s about actively engaging stakeholders,building trust,and aligning business practices with long-term sustainable goals.By anticipating challenges and shaping the narrative around sustainability efforts,companies can effectively manage investor and public perceptions.

Investor relations teams play a crucial role in this process.They must go beyond simply compiling data and instead articulate the company’s evolving sustainability strategy clearly and consistently.This means educating executives and engaging with stakeholders through compelling storytelling,visuals,and plain language.By doing so,they can build a credible sustainability stance that resonates with investors and the public alike.

Companies that master proactive communication will be better equipped to navigate the increasingly complex regulatory landscape around sustainability.For example,as stricter regulations emerge,those who have already established a strong sustainability narrative will be better positioned to demonstrate compliance and avoid potential negative consequences.

One notable example of proactive sustainability communication is Patagonia’s “Don’t Buy This Jacket” campaign.By actively discouraging consumers from purchasing unnecessary products,Patagonia not only showcased its commitment to sustainability but also generated significant positive publicity and strengthened its brand image.

Another example is Unilever’s Sustainable Living Plan,which outlines the company’s ambitious goals for reducing its environmental impact and improving social well-being.By communicating this plan transparently and engaging with stakeholders throughout the process,Unilever has gained recognition as a leader in corporate sustainability.

Challenge #3: Facing Cybersecurity Threats

Cybersecurity crime is one of the most pressing and potentially devastating problems facing businesses today. The global average cost of a data breach in 2023 was $4.45 million, a 15 percent increase over three years. Because of the potential risk that cybersecurity creates, the SEC has mandated stricter cybersecurity disclosure rules for publicly traded companies. IR teams must rise to the challenge of communicating complex risk postures and incident responses clearly.

Public companies now face stricter cybersecurity disclosure rules,mandating they report significant cybersecurity breaches within four business days of assessing the incident’s impact.This replaces the prior ambiguous “prompt” reporting guideline,often resulting in inconsistent and delayed disclosures.These initial reports must comprehensively describe the incident,including the attack’s nature,affected systems,potential operational and financial ramifications,and steps taken to mitigate the damage.

Furthermore,annual reports now require companies to disclose their cybersecurity risk management strategies, governance structures,and incident response protocols.This involves detailing how they assess,identify,and manage substantial cybersecurity risks,the roles of the board and management in cybersecurity oversight,and how these processes are integrated into their overall risk management framework.

Solution #3: Proactive Cybersecurity Disclosure and Collaboration

Because cybersecurity threats can significantly affect financial health and investor confidence, a strong and transparent approach to cybersecurity disclosure is essential. This means IROs need to play a stronger leadership role beyond communication. They must collaborate closely with cybersecurity teams to ensure that their company’s stance on cybersecurity aligns with SEC guidelines and investor expectations. This proactive communication necessitates a shift away from mere compliance toward embracing a comprehensive narrative on the company’s cybersecurity approach. By articulating proactive risk management strategies, incident response plans, and investment decisions, investor relations can instill trust and demonstrate preparedness in the face of potential cyber threats. This level of transparency is especially critical considering the substantial costs of data breaches and the complex nature of cybersecurity compliance.

Investor relations officers, empowered by technology and collaboration, stand uniquely positioned to address these challenges. The intelligent use of generative AI and engagement with cybersecurity professionals can support investor relations in creating compelling, consistent, and timely disclosures that adhere to SEC guidelines. For example, a good gen AI tool can scan complex SEC documents stipulating reporting requirements and create, faster and more accurately than a person, a templatized format for reporting. Such proactive communication strategies enhance a company’s reputation, protect shareholder value, and build resilience against rapidly evolving cyber threats.

Challenge #4: Owning ESG

Businesses, especially in America, are navigating the complex world of environmental sustainability and governance (ESG) issues. Politically motivated groups are becoming far more vocal about scrutinizing the ESG practices of businesses – in particular, how a company supports social issues such as LGBTQ+ rights/ For instance, in late 2023,the conservative think tank National Center for Public Policy Research (NCPPR) presented a shareholder proposal to Best Buy.They requested the electronics retailer analyze any potential negative business impacts caused by its partnerships with and donations to LGBTQ advocacy groups,including prominent organizations like the Human Rights Campaign.

Meanwhile, businesses are wary of experiencing the blowback and erosion of shareholder value that brands such as Bud Light and Target have experienced in light of highly publicized marketing activities aligned with members of the LGBTQ+ community.

As a result, increasingly businesses are tiptoeing around terms such as ESG in their public communications due to negative sentiment created mostly by politically motivated parties. But ESG is not going away. Businesses need to come to terms with ESG. They need to stop using doublespeak to discuss ESG because investors won’t stand for poorly communicated ESG strategies. IROs are being challenged to lead the way to a sensible, well-articulated approach to ESG reporting.

Solution #4: Transparent and Genuine ESG Communication

ESG may be a contentious term in some circles, but the underlying principles remain crucial for responsible business practices and long-term success. Attempts to rebrand or downplay ESG commitments, particularly in light of heightened investor interest and regulatory scrutiny, pose significant risks. Instead of playing a semantic shell game, businesses must embrace transparency and demonstrate their dedication to sustainability, ethical practices, and strong governance. Hiding from ESG terminology will erode trust and ultimately undermine a company’s ability to communicate effectively with investors focused on long-term value creation.

Investors are savvier than ever, recognizing that genuine ESG efforts translate into reduced risk, operational efficiency, and a more resilient bottom line. It’s time for businesses to reject the temptation to avoid the term ESG and instead utilize it as a tool to tell a compelling story. This involves clearly defining ESG goals, embedding them throughout the organization, and reporting on progress with verifiable metrics. By taking these actions, companies will not only meet investor demands but also build a more responsible and sustainable future.

We also suggest:

Listen to Investors

Corporate language should cater to investors, not the other way around. As soon as you change the name and call it something else, they will become more suspicious as this is a key decision for them. If you are doing it in order to avoid regulation this is a red flag. All that said, do monitor the terms that investors use and be ready to adapt to how they discuss ESG. In the 21^stCentury, the term sustainability emerged early on to describe the environmental aspect of ESG. Businesses wisely adopted the term to discuss the topic in more detail. Sustainability and ESG have existed alongside each other since then.

Back Your Words with Actions

Regulators around the world expect businesses to share more evidence that they are managing their ESG impact well, and of course ESG reporting standards from independent bodies proliferate. It is not easy to meet various reporting requirements, but it’s a necessary part of IR. So, prepare for it. Do not shrink back.

Businesses must recognize that the war over ESG terminology is, in essence, a distraction. The fundamentals of creating long-term value while addressing environmental, social, and governance concerns are non-negotiable. Proactively addressing ESG risks and opportunities is a strategic imperative. Companies that shy away from open and honest ESG dialogue risk alienating investors, damaging their reputation, and ultimately hindering their own success. The time for gamesmanship is over; businesses need to confidently own their ESG narrative and demonstrate their commitment to a better, more sustainable future.

Challenge #5: Proactive Relationship Building

Being proactive about understanding investors and building relationships with them is getting to be more challenging. Identifying the right investors has always been complex. It requires in-depth research into investment styles, portfolio holdings, sector focus, and other criteria to create an ideal investor profile. On top of that, investor preferences are constantly evolving and getting more complicated. Factors like ESG considerations, market conditions, and portfolio rebalancing can shift investor interests rapidly, necessitating continuous monitoring and adaptation. IR teams often have constrained budgets and personnel, making it difficult to dedicate sufficient time and effort to comprehensive targeting initiatives. Moreover, one of the ways IROs have understood investor activity, tracking third-party data, is less reliable in the age of heightened consumer privacy.

Solution #5: Applying First-Party Data More Creatively

First-party data is like gold. It’s the information that investors offer to businesses, and yet for years IROs have not been harnessing its value as well as they could to create more personalized investor relations outreach. But IROs are finally recognizing the true value of their own first-party data, investing in better acquisition and data management strategies. This can lead to deeper investor insights, more personalized experiences, and highly integrated outreach. But they need more creative approaches to do that – going beyond the basics of “who is visiting my site” but also asking more detailed questions such as:

Where are they spending their time on the website?
How often do they visit?
How long are they staying in the places they visit?

IROs need to invest in better acquisition and data management strategies to gain deeper investor insights, create more personalized experiences, and integrate outreach efforts. This involves analyzing detailed data such as website visit patterns, popular ESG content, and lead form submissions to

identify investor interests and opportunities. Forward-thinking IROs can use this data to adapt their IR outreach planning and prepare more effectively for events like earnings calls and annual investor days.

Consider ESG content. To assess how well businesses manage the risk of ESG, investors are demanding consistent ESG data and narrative to support their investment decision-making. We recently studied traffic on our client’s sites to identify the most popular type of ESG content, ranging from a company’s sustainability strategy to board remuneration approaches. When we break down the results for each client, we can help them understand how to tailor their ESG messaging accordingly across all their IR content.

Consider also the fundamental question of who is visiting your site. When investors willingly share their names and company affiliations by filling out lead forms to obtain more details about a company, they create an opportunity for the IRO to get more granular information about who is interested in the company. This is especially true when first-party data reveals a pattern, say, a high volume of requests coming from the same investor. This data can identify an opportunity (perhaps an institutional investor wanting to take a position in a company) or a threat (an institutional investor with a reputation for being an activist). This data gives the IRO an important advantage.

What’s Ahead

Navigating the challenges of 2024 and beyond requires IROs to be proactive, transparent, and technologically savvy. By addressing AI governance, crafting strong sustainability narratives, managing cybersecurity threats, owning ESG commitments, and applying first-party data, IROs can build investor trust and drive long-term growth. Embracing these strategies will position companies as leaders in the evolving investor relations landscape, ensuring success in a rapidly changing world.