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Shareholder activism is a powerful tool to help us achieve a stable and sustainable economy and environment
Joe Brooks is project officer at ShareAction
Whether it is getting fossil fuel companies to commit to emissions targets or ensuring the fair treatment of workers along supply chains, from picket lines to board rooms this year has seen the trend of shareholder activism rise globally.
When shareholder activism - which involves exerting pressure on companies’ boards to change their behaviour for the long term interests of all stakeholders - took off in the 1980s, sustainability or environmental, social, and governance (ESG) issues barely got a look in on the board agenda.
The aim was to increase returns for the investor at all costs, regardless of the impact on workers, society and the natural world. While this still persists, a lot has changed.
Recent public protests by climate activism group Extinction Rebellion and the international youth movement led by Swedish campaigner Greta Thunberg have shifted momentum in the climate conversation.
A recent report by the Intergovernmental Panel on Climate Change (IPCC) has also created a sense of urgency, by stating that our window for averting catastrophic climate change is rapidly closing.
Climate change has been thrust into the foreground of the public consciousness, and institutional investors are under pressure to act.
Because publicly listed companies are ultimately accountable to their shareholders, holding shares in a company allows a climate-aware investor to keep their seat at the negotiating table.
With skin in the game, they have the right to engage with senior executives on their climate strategy, and failing that, to vote for motions at the company’s annual meeting each year that force board members down a greener path.
This is preferable to selling one’s shares – or divesting – immediately. This strategy should be used only as a last resort when robust, time-bound engagement with a company has failed.
The problem is that these shares could be fished out by someone less alert to the risks of buying shares in, for example, fossil fuel companies and equally less concerned about using their shareholder power to reduce corporate harm to communities and the environment.
More worryingly, in the automated world of trading shares, they could even be bought up by a machine and shared out through various robot platforms.
However, the divestment movement has been incredibly successful to date and could be a reason why investors are feeling the heat to prove robust engagement.
This year’s BP Annual General Meeting (AGM), a mandatory yearly gathering of the board of directors and interested shareholders, signalled a major shift for investors and shareholder activism.
While protestors lined the streets outside, a number of institutional investors, including Aviva Investors and Hermes EOS, stood up inside the room to voice the same climate concerns.
These actions showed the positive role shareholder activism could play in the fight against climate change, particularly when led by powerful stakeholders such as investors.
Shareholder activism is not limited to climate concerns, however. The Nigerian Union of Petroleum and Natural Gas Workers has attended Shell's AGM to question the board of directors about workers' rights in its supply chain.
This form of dialogue is critical to protect vulnerable workers with limited access to legal representation in their home country, putting the issue firmly on the company’s agenda.
So, what should investors do?
There is growing momentum behind the climate movement. Investors must capitalise on this current trend.
Forceful investor engagement is the key. Investors must be consistent and persistent - making public statements, speaking at AGMs, and using their voting rights to drive change at companies contributing the most to the climate crisis.
Shareholder activism is a powerful tool to address the climate emergency. Investors and activists should join forces to stop new investments in projects that contribute to the problem and encourage more sustainable solutions to help us achieve a stable and sustainable economy and environment.
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