How can shareholder activism be harnessed as a force for global sustainability? This was the challenge facing representatives of corporations, investors, government, academia, NGOs and foundations, brought together by the Luc Hoffmann Institute recently to exchange knowledge and discuss a potential way forward.
‘Shareholder activism’ when shareholders influence a company’s decisions by exercising their rights as owners is on the rise. Typically, an individual or institution buys a small stake in a company and uses it to push through changes in governance, or achieve short term financial gain. A minority of these ‘activist investors’ have a disproportionate influence on corporate decision-making and this can hamper a company’s longer-term sustainability plans.
There are also many institutional investors who hold large shares in companies that do not exercise their rights (known as passive shareholders) or outsource decisions to proxy companies with little accountability. With millions of people as owners and active shareholders, there is significant potential to collectively decide on corporate strategies, particularly on environmental, social and governance (ESG) issues.
Meeting participants felt that corporations are crucial partners in sustainability efforts and shareholder activism, as one instrument to influence decision making, is worth investigating. Yet there is a clear need to address the gap between the sustainable philosophy and public rhetoric of many corporate leaders and decisions taken in boardrooms.
To date there has been no concerted or coordinated attempt to determine the connection between active shareholding and long-term global sustainability. There was a feeling that the time is ripe for an initiative that accelerates an opportunity surrounding shareholder activism which is rapidly opening up.
Participants suggested a number of activities and focus areas to take the topic further, potentially by the Luc Hoffmann Institute and other actors. 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.
This meeting was a culmination of six months’ work the Luc Hoffmann Institute has been undertaking to investigate the state of knowledge on shareholder activism for sustainability and to ascertain whether there may be a future role for the institute in this area. This included interviewing dozens of stakeholders and producing a report Shareholder activism: standing up for sustainability that was presented at the meeting. In collaboration with the institute, SustainAbility have produced a follow-up report Exploring the impacts of shareholder activism on sustainability the key findings of which were also presented.