PLANNING FOR AND RESPONDING TO ESG-FUELLED ACTIVIST CAMPAIGNS
R&C: Could you provide an overview of how investor scrutiny of environmental, social and governance (ESG) issues has evolved in recent years? How would you describe the current state of ESG activism?
Wolf: Over the past decade, institutional investors have become increasingly focused on – and critical of – issuers’ management of environmental, social and governance (ESG) risks and opportunities, particularly as index investors focused on the potential negative impact of climate change on long-term value creation. There has been no single watershed moment of change. Instead, the prominence of ESG issues has steadily increased over time. While ESG-related shareholder proposals have been popular for at least a decade, proxy contests focused on ESG issues are a relatively new development. Previously, to the extent ESG concerns were featured in activism campaigns, they were typically woven into the activist’s messaging as window dressing to draw support from index funds and were not central to the activist’s platform. More recently, ESG concerns are becoming a major driver of activism in and of themselves. This is in large part due to the substantial influence of index and pension funds. As permanent capital, index and pension funds already subscribe to the long-term focus underlying ESG principles and represent on average about 20 percent of all large- and mega-cap public companies. Campaigns that focus on an issuer’s poor ESG performance or lack of a coherent ESG strategy have the advantage of receiving a sympathetic ear from index and pension funds, whose votes are ever more crucial to winning proxy contests.
Oct-Dec 2021 Issue
Innisfree M&A Incorporated