By Jamie Stanton, senior director of investor relations, Q4
Shareholder activism has become an increasingly popular strategy for investors looking to effect change in the companies they invest in. Activist investors are using ESG techniques to target companies that are seen as underperforming in these areas.
ESG activism has become a popular tool for activist investors to target companies they believe are not doing enough to address environmental and social issues or are failing to properly manage governance issues.
Shareholder activists will often use ESG metrics in order to identify companies that are lagging their peers in areas such as carbon emissions reduction, diversity and board composition. They will then attempt to effect change by engaging with management or launching a campaign to push for change at the company.
Companies can prepare for activism by ensuring they are transparent and proactive in addressing ESG concerns. This includes being transparent about their ESG performance, engaging with investors on these issues and taking steps to improve their ESG practices where necessary. Companies should also have a strong and engaged board of directors who can effectively respond to activist campaigns – it’s important for IROs to recruit allies within their company to help with the ESG story.
Plan of actionWhen facing an activist campaign, companies have several options available. These include engaging with the activist to address its concerns, launching a counter-campaign to persuade shareholders to support management or even considering a sale of the company.
It is imperative for companies to have a clear plan in place for responding to activism, including a crisis management plan and clear rules of engagement for dealing with activists. IR professionals can prepare for this kind of risk with a ‘break glass’ style of plan.
Such a plan would include items such as doing a vulnerability assessment, assembling the right people for these discussions and looking at recent voting and proxy trends in activism. Companies should consider engaging with investors on a regular basis to address any concerns they may have.
They should also be prepared to communicate their ESG performance in a clear and transparent manner and be open to engaging with activists to address any concerns they may have. Additionally, companies should consider developing a strong, diverse board of directors with relevant experience and expertise, and establishing clear lines of communication with shareholders.
In summary, ESG activism has become an increasingly popular tool for activist investors, and companies should be prepared to respond to these campaigns by being transparent and proactive and engaging with investors on ESG issues. By doing so, companies can mitigate the risk of activism and maintain shareholder support.
