Background:

Companies going public are aligning themselves with sustainability at a rapid pace, to the extent that the marketing phase of IPO roadshows now includes ESG measures as front and centre. ESG can impact a company's market valuation and is likely to be a critical factor to gauge the IPO readiness of the company. As investors become conscious of their responsibilities towards the environment and society as a whole, companies are now feeling the pressure to disclose information about the impact of their actions on the environment and society. More IPO-bound companies have become sensitive to ESG in an attempt to gain a competitive advantage, reduce operational costs, minimize regulatory interventions, and thereby boost top-line growth. Such companies are now expected to prepare comprehensive reporting on ESG aspects as part of their IPO offer documents.

Fixing the ESG game before going public will help companies prepare to be scrutinized. Presenting the company's position on major ESG concerns as part of the IPO tale could be a nice way to future-proof the company's reporting strategy and processes from the start of its public life.

ESG due diligence benefitting IPO:

A recent University of Lugano study ESG and the Pricing of IPOs: Does Sustainability Matter? found a significant relationship between ESG communications and IPO pricing and valuation. The study reveals ESG has the highest economic effect on under-pricing and price revision.

The way a firm responds to ESG-related risks is believed to be a leading indicator of its future financial performance, resilience, and stability. 

Investors are now including ESG elements in investment decisions. At times, investors may only evaluate companies that meet certain environmental, social, and governance (ESG) standards, limiting the company's access to the investment pool.

Consumers place a high priority on a company's values. As the awareness of ESG grows, they expect businesses to contribute to environmental protection and social upliftment. They seek to be associated with brands that share their vision of sustainable development. Employees (especially millennials and Gen Z) are increasingly choosing job opportunities with companies that are committed to bringing lasting change in the environment and society while building reliable corporate governance. Companies could use accurate and transparent ESG reporting and communication on a regular basis as a brand management tool. This creates a positive market reputation for their sustainability approach. Moreover, it minimizes negative attention from activists as well.

How can companies start their ESG journey before IPO?

• Companies should integrate their mission to their sustainability objectives and work towards delivering holistic value.
• A company's mission should encompass all of its stakeholders in addition to achieving shareholder expectations. 
• Identification of ESG-related material risks and opportunities is a crucial part for firms working toward sustainability. 
• A key member from the PR team must be included to knit together the ESG threads into a compelling narrative from an IR perspective. 
  

Trend Setters:

Life Insurance Corporation (LIC)

The government considered getting  ESG ratings for the country's largest life insurer before tapping into the capital markets. This development stands out for the single reason that it's the first time a company in India about to list has sought an ESG score. The ministry is keen to convey that the insurance giant is better placed to anticipate future risks and opportunities. The instructions on ESG score to executives working on the IPO come at a time when SEBI is examining regulatory and supervisory approaches for ESG issuers. 

Allbirds

Trendy footwear startup Allbirds is set to launch an initial public offering (IPO) this fall. The firm is organized as a certified B-corporation, verified to balance profits with purpose and eco-friendliness. To establish its eco-bonafides, Allbirds publishes an annual report that outlines how exactly it aligns its business to sustainability. Allbirds believes sustainability will help it boost sales among conscious citizens who care about climate change. The company is looking to fund managers who are keen on buying the shares of companies that score well on ESG metrics. As part of its IPO process, sustainability rating firm ISS ESG assessed whether it met the criteria for a sustainable public equity offering.