Businesses should “assess vulnerabilities” to prepare for potential rise in environmental, social and governance (ESG) shareholder activist campaigns, says Sinead O’Callaghan, partner at Cooke, Young and Keidan.
“Companies should already be working ESG concepts and talking points into an emergency plan for shareholder activism, and to be prepared to respond to criticism if they find themselves subject to that,” she says.
Organisations are expected to have ESG expertise at board level to provide “effective oversight” which can be a “very easy thing for activists to target”, adds O’Callaghan.
Activism on the rise
The number of shareholder activist campaigns are set to increase in 2021, according to a report by Bloomberg. The total number of campaigns launched through June 21 at companies with a market value of more than $1bn reached 116, compared to 87 in 2020 and 115 in 2019.
The pandemic has brought ESG-related issues into sharp focus and made companies more vulnerable to scrutiny.
As such, companies must become well-aligned with ESG concepts to avoid being targeted by shareholder activists, according to Lisa Beauvilain, head of ESG and sustainability at Impax Asset Management.
“[Companies] have to think about how to align [the] business model, activities, products and services much more strongly to this transition to a low carbon and sustainable economy.”
Recent examples of ESG-focused shareholder activism include Engine No. 1’s high-profile campaign against ExxonMobil earlier this year.
Campaigns that take a more aggressive and critical approach, like those appearing in the media, usually come as a “last resort”, says Beauvilain.
“It’s much harder to change a company strategy, and you may well need to have a much more aggressive and transactional approach to those kinds of engagements.”
Communication between board members and stakeholders is important, says O’Callaghan. “If the company has the right attitude and is willing to engage with stakeholders, they might achieve everything they want to achieve through those relatively low-key discussions.”
Fergus Hodgson, director at Econ Americas, says investor activism has grown more pronounced in recent years with more people investing autonomously and organisations having greater transparency.
“These days, especially with such high price-to-earnings ratios and many zero-dividend stocks, companies are as vulnerable as ever to swings in public sentiment.”
In March, Deliveroo shares fell 30 percent on its first day of trading, with fund managers shunning the listing due to concerns around the company’s treatment of workers.