Research:

Investors, Shareholder Activism & Sustainability

By Michael Harvey

A welcome feature of the AGM season over recent years has been the growth in activity on environmental and social topics as diverse as climate change, iPhone addiction, the gender pay gap, fake news, the opioid crisis and gun laws.

A growing number of investors are adopting shareholder activism as a tool to drive corporate sustainability with increasing success. Actors such as the Farm Animal Investment Risk & Return (FAIRR) and ShareAction are highlighting specific corporate sustainability issues such as antibiotic overuse in livestock supply chains and raising investor awareness of the associated risks.

Shareholder activism: Where shareholders attempt to influence a company’s decisions by exercising their rights as owners.

Despite the growth of sustainability-motivated activism, such activists are usually local and small in comparison to mainstream shareholder activism that focuses narrowly on improving financial performance. Such financially-motivated of activism has significantly increased - with potential negative implications for sustainability. This form of activism can be detrimental to the sustainability strategies of their corporate targets. Short-term activists are unlikely to value long-term sustainability investments, and these are likely to be affected when a company becomes a target of an activist campaign. Moreover, shareholder activist campaigns can be highly disruptive to companies in terms of cost and time, further distracting from long-term strategy.

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Critically, we also see an opportunity to embed sustainability into financially-motivated shareholder activism, as well as engaging institutional investors to adopt more active engagement approaches.

Engaging activists to galvanise progress on sustainability

There is evidence that shareholder activism can be a successful tool in driving improvements in corporate sustainability (for example ExxonMobil will soon start publishing reports on the possible impact of climate policies on its business, bowing to investor demands for improved disclosure), however it is not clear that actors in the wider NGO and sustainability sphere are fully utilising this mechanisms to support their aims.

We believe that there is an opportunity to spur progress on sustainability through:

  • Enabling cause-led stakeholders ranging from individuals and family offices to foundations and NGOs (including those who traditionally don’t see themselves as investors) to adopt shareholder activist tactics, build coalitions and engage companies and investors on sustainability issues.

  • Encouraging these stakeholders to educate and inform financially-motivated shareholder activists on the material sustainability risks and opportunities relevant to target investments and the benefits of integrating environmental, social and governance (ESG) factors into decision-making.

Critically, we also see an opportunity to embed sustainability into financially-motivated shareholder activism, as well as engaging institutional investors to adopt more active engagement approaches: This must be done by helping investors to see sustainability-motivated shareholder activists as valuable partners, collaborators and sources of insight on the risks presented by the erosion of environmental and social capital in the short, medium and long term.

The Shareholder Activism for Sustainability Project

With the Luc Hoffmann Institute, we are pleased to be partners of the Shareholder Activism for Sustainability project. This project aims to convene diverse thinking and practice on the issue of shareholder activism and generate new insights into its intersection with sustainability.

In April 2018, the Luc Hoffmann Institute published Shareholder activism: Standing-up for sustainability? The report examines the current landscape and highlights opportunities, risks and challenges of shareholder activism for sustainability. Exploring the Impacts of Shareholder Activism on Sustainability builds further on that research.

At our recent event, hosted by the Luc Hoffmann Institute, we explored these opportunities with representatives of corporations, investors, government, academia, NGOs and foundations, brought together to exchange knowledge and discuss a potential way forward.

Participants suggested a number of activities and focus areas to take the topic further. These include building a coherent and compelling narrative around the issue; examining ways to strengthen the policy framework; convening a platform for NGOs to amplify the voice of asset owners; creating links between the communities involved in shareholder activism, both current and potential; and promoting collaboration between value and non-value driven activists.

Over the coming months as part of the Shareholder Activism for Sustainability project we will drive this forward with our partners and welcome the support of any interested parties.

About the author

Michael Harvey

@michaelharveySA

Based in London, Michael leads strategy development and research projects with a focus on finance and innovation. Currently in search of the perfect flat white.