ESG on the Earnings Call: Nasdaq Data Shows Huge Quarterly Jump in Conversations

In current market conditions, ESG can help position companies for longer term, say Nasdaq ESG Advisory experts

Nasdaq has recorded a significant jump in ESG issues being discussed on corporate issuers’ quarterly conference calls, with around 65 percent of Russell 3000 firms and 76 percent of MSCI USA ESG Leaders talking ESG in Q1 2022.

The most popular ESG topics over the quarter were climate transition, sustainability and supply chain management, followed by company culture and human capital management.

Nasdaq’s figures include big quarter-on-quarter jumps in conversations around some of the biggest ESG themes. Among MSCI USA ESG Leaders, for example, 49 percent of firms discussed their climate transition plans on Q1 2022 conference calls, up from 28 percent the previous quarter.

Click here to access the full Nasdaq quarterly conference call analysis report.

To download our Q2 2022 quarterly ESG report, click here.

Currently, the main players driving the uptick in the climate transition conversation tend to be industrials, utilities, and energy sector companies, but Nasdaq believes that the expectations for companies outside these sectors to assess their climate transition risks and disclose plans for mitigating and managing these risks will continue to rise in the next few quarters.

Shea Drake, a senior analyst on Nasdaq’s ESG Advisory team, says that while the key ESG themes remained unchanged from the previous quarter, the team was surprised to see just how quickly momentum had grown around these topics. "We were expecting to see an increase, but to see the jump we saw quarter over quarter was pretty impressive," she says.

The sell-side spotlight

Nasdaq’s research uses natural language processing to analyze more than 3,000 earnings transcripts across the Russell 3000 and MSCI USA ESG Leaders indices to identify and gauge trends in key conversation topics across the previous quarter’s earnings season in order to help guide companies in how they shape their ESG messaging going forward.

The firm found that climate transition in particular is also increasingly coming under the sell-side spotlight. In fact, nearly half of all ESG-related questions on the earnings call Q&A were related to climate transition, with analysts questioning company management about climate three to four times more frequently than any other topic.

"The trends we are seeing indicate that investors are increasingly taking an interest in the growing vulnerabilities companies are facing related to climate change, adverse economic conditions and heightened geopolitical risk," says Michele Holtkamp, another senior analyst on the Nasdaq ESG Advisory team. "That in particular is why we look at the Q&A segment of the earnings call, to understand how frequently companies are being asked about these issues, regardless of whether they mentioned the topic in question in their prepared remarks."

The wider benefits of talking ESG

While the figures show a big jump in conversations taking place overall across the different indexes covered in Nasdaq’s research, Drake and Holtkamp point to differences across both sector and market cap.

For example, supply chain management takes "center stage" at industrials and consumer discretionary names within the MSCI USA ESG Leaders Index, where 51 percent and 46 percent, respectively, discussed the topic on earnings calls, along with more than 40 percent of IT issuers within both the MSCI and Russell 3000 indices.

Despite differences – with some companies, such as those in industrials and utilities, "dominating the discussion around climate transition" – Holtkamp adds that "across all sectors, we’re seeing persistent focus on human capital and supply chain management. These issues are pretty hard to ignore." She also notes that in the prior quarter review, commentary from the tech sector suggested these companies expected supply chain constraints to decline in subsequent quarters. Now, in the Q1 earnings discussions, the prevailing theme of discussions on this topic is how companies have strengthened their supply-chain management programs to increase their relative resiliency and drive profitability.

Looking at differences across cap size, Drake says it’s true that at the moment there is less pressure on smaller firms around ESG. "But that’s not to say they shouldn’t be thinking about ESG issues," she says.

"As expected, large and mega-cap companies were the ones primarily leading the conversation, and we’re also starting to see an uptick from mid-cap companies. Currently, small-cap companies definitely do not bring as much ESG conversation to the table and that’s because they’re focused on growing their businesses and also making sure they’re satisfying their shareholders first."

But Drake adds that with issues like ESG, what you often see is a "trickle-down effect." Indeed, conversations have already begun at the small-cap level, she notes, with the expectation that momentum will grow over time.

"Conversations don’t have to be as robust as with an ESG leader yet," she notes. "Moving forward, however, we expect ESG components to be integrated into the earnings call for small-cap companies, too."

Holtkamp adds that Nasdaq is also increasingly seeing companies start their ESG journey earlier and earlier – some even before going public. "Pre-IPO companies are not trying to do everything at once, but by dedicating some attention towards getting the ball moving on key elements that build a strong foundation earlier on, they position themselves for stronger performance right out of the gate," she explains.

As ESG issues have become increasingly key to company narrative, Drake says talking about these topics offers a wider benefit for both firms and the investment community: "With the current market conditions, ESG is almost a fallback point for companies to explain how they are preparing for long-term value creation via non-financial risks and opportunities."

Click here to access the full Nasdaq quarterly conference call analysis report, featuring charts and commentary from Nasdaq for more information on how:

• Climate, sustainability and supply chain were the key ESG topics during Q1 earnings calls and why companies may want to be clear on their strategy around these themes;
• Larger companies receive more attention, but it is important that issuers across the market-cap spectrum define their ESG strategy;
• Incorporating ESG themes within your prepared remarks can help guide the narrative for your company and the investment community.

To download our Q2 2022 quarterly ESG report, click here.