The New Alternatives

Staring Down The Barrel Of ESG Activism

Understanding the nuances of ESG within the investment community and beyond

In a new white paper, Staring Down the Barrel of ESG Activism, investor relations firm ‘Investor Update’ and PR marketing firm Cision examines new activism in the ESG space. Excerpts are provided here. Access the full article at cision.co.uk.

LONDON, Jan. 18, 2022 /PRNewswire/ — Cision and Investor Update released a whitepaper, Staring Down the Barrel of ESG Activism. The paper, written by Andrew Archer, Head of ESG Advisory at Investor Update reflects the scope, ambition and urgency with which some of the most influential players’ in the ESG industry address activism.

The whitepaper shares insights on:

 

  • Activism as a Force for Good - Integrating ESG and Activism
  • The ESG Arbitrage - The High-Risk Categories of Complacency, Incompetence and Ignorance
  • An Industry in Flux – Changing Structure and Notable Trends
  • Lessons from Recent Campaigns and the key protagonists
  • Consequences of the COVID Pandemic – A Coiled Spring of Deferred Activity
  • Best Defense - Disclosure Dynamics and Proactive Engagement
  • The Future of ESG Activism and The Rise of Constructionism

Excerpts From ‘Staring Down The Barrel Of ESG Activism’

Activism as a Force for Good

Activist Shareholders have long-since labored under a range of critical labelling, from economic opportunists to corporate raiders and worse besides. However, to paraphrase Oliver Stone “Activism, for lack of a better word, is Good. It clarifies, cuts through and captures the essence of the evolutionary spirit. Activism in all its forms has marked the upward surge of corporate efficiency” and in its latest iteration, Activism can be seen to be accelerating change in ESG behaviors across industries and geographies. In truth, it is just getting started and 2021 is set to be the break-out year for this movement which could prove spectacular for some shareholders and an existential threat to the executive teams of those companies who under-represent their own ESG achievements.

In one sense, ESG Activism is not a new phenomenon. Historically, most activist campaigns have used the principle of Stewardship as a part of Governance to create a change in strategic direction or capital structure and on occasion management to crystallize and release value for shareholders. In this sense, essentially, ESG is stewardship — it is how a company chooses to behave in relation to its stakeholders of all kinds. ‘Governance’, as a lever for change remains the primary lever for all activists, but increasingly, the Environmental and Societal elements have found proxy voices of their own, amplified and directed at management teams who are indifferent, slow or ineffectual in their efforts to moderate the impact their companies are having.

There is a crucial difference between those three categories and all represent a different opportunity to Activist Funds in 2021. To take them in turn, it is fair to say that ‘indifference’ is dwindling. Only a year ago it was not hard to identify corporate complacency in the face of the surging influence of all things ESG. Dismissals ranged from ‘fad’ to ‘fantasy’ with a degree of self-appointed exception in between. By the end of 2020 this had almost entirely evaporated and what little remains has morphed into a form of wishful denial.

Activism – An Industry in Decline?

Looking at Activism activity globally we can see that the number of public campaigns initiated actually peaked in 2018 and has since fallen to five-year low. Compounding that apparent decline is the fact that in aggregate only 55% of all campaigns launched were deemed to be impactful in value terms. From a sector perspective, campaigns directed at Consumer Staples companies fell most sharply down 43% YoY and -26% since 2016. Similar declines have been seen in Telcos, Consumer Cyclicals, Technology and Natural Resources all down more than 20% over the last five years and Energy in particular currently 40% off its 2018 peak.

Interestingly, two of the most actively targeted sectors, Financial Services and Industrials have remained relatively stable in terms of number of campaigns. The surprising and isolated area of notable growth has been in Utilities for which campaigns have doubled since 2016, albeit from a low base and this can be directly related to the increased perception among activist investors of the ESG arbitrage described about and specifically the environmental reality gap that has emerged.

Activism, for lack of a better word, is Good. It clarifies, cuts through and captures the essence of the evolutionary spirit...

So is Activism, as it would appear, a declining industry or in fact one in transition? Like many of the industries that activist investors target, Activism has found itself at a cross-roads and in need of a renewed focus, if not a reinvention. If returns and numbers of campaigns continue to fall, the result could be a self-perpetuation of the trend with the direct consequence being reduced access to capital over time. One of the answers to this challenge has been the shift in deal size and its corollary the market capitalization of the target company. In this regard we have seen a marked two-way pull in the form of an increase in the number of large and mega-cap targets and a material shrinkage of the micro and small-to-mid market campaigns.

Campaign Motivations Are Evolving

At a global level, by far the most common form of activist campaigns, nearly 40%, are still directed front-&-centre at the executive boards of target companies. However, this is another area of decline, slipping from 46% at its height and down 25% in absolute terms over the last two years. Governance-related disputes come a distant second at 23% but has been increasing by degree over recent years. Strategy-related campaigns have also picked up of late but the stand-out growth category over all time periods has been the ‘Other’ category which has almost tripled in the last year alone. When combined with Other Governance campaigns theses campaigns have risen 30% since 2016, a highly significant move that reflects campaigns founded on a combination of Environmental, Societal and Governance concerns.

By contrast, the core traditional strategies have all waned in absolute and relative terms. Speaking with CIAM, one of the largest and most successful Activist Funds in Europe provided the following insight into this powerful trend. “CIAM was among the first activists to actively engage on corporate governance matters and at the time it was a novel idea for investors. Today investors are increasingly focusing on ESG concerns and we understand that a lack of focus on these issues leads to undervaluation. In the past year, we have been engaging with companies on environmental matters, including issues such as carbon footprint (Scopes 1, 2 & 3), GHG emissions, and resource intensity.

Access the complete whitepaper here.

 

 

 

Cison and Investor Update also hosted a webinar, Aligning your comms with Investors’ thought processes of ESG Activism. In this webinar, Justin Ruiss, Director of IR Activations at Cision, tackles key areas of ESG investing such as strategic positioning, vulnerability, and defence, and features comments from Gabrielle Wolf, Director of Proxy Solicitation at Innisfree M&A, Amanda Klein, Managing Director at Gashalter & Co. Inc, and author of the Investor Update ESG White Paper, Andrew Archer.
About Investor Update
Investor Update is a fast-growing Investor Relations consultancy providing listed companies with near real-time/ on-demand disclosure and updates of key investors’ holdings in their stock, as well as related services such as Investor Targeting, Proxy Solicitation and ESG analysis and advisory.  Our firm is made up of leading industry experts who are focused on equipping corporate clients (and/or their advisors) with actionable shareholding data/intelligence and advice to enhance, track and plan investor relations activities and outreach, as well as to enable better corporate strategies around M&A or ECM activity, events and ESG. Please visit www.investor-update.com for more information.
About Cision
As a global leader in PR, marketing and social media management technology and intelligence, Cision helps brands and organisations to identify, connect and engage with customers and stakeholders to drive business results. PR Newswire, a network of over 1.1 billion influencers, in-depth monitoring, analytics and its Falcon.io social media platform headline a premier suite of solutions. In addition, Cision has acquired Brandwatch. Cision has offices in 24 countries throughout the EMEA, Americas, and APAC. For more information about Cision’s award-winning solutions, including its next-gen Cision Communications Cloud®, visit www.cision.co.uk