Activist Shareholders: Front Lines on ESG Push

 “Corporate America reacts with near silence to draft abortion ruling. – Executives are reluctant to engage in one of the most divisive debates in US.” – Financial Times, May 5, 2022

PROXY SEASON

That’s on the one hand.

On the other hand, there are proxy proposals by both retail and activist investors related to what corporations are doing internally about abortion. Those corporate leaders, who aren’t saying much or anything, better be all-ears. This is proxy season. And it is an unusually active one for shareholders pushing back against abortion limits. The new protest chant for mobilizing support for retaining abortion rights could be: Buy stock.

Meanwhile corporations should anticipate that abortion could catapult them into being the “Next Disney.” Only on a different matter.

SEC POLICY CHANGE

One might say that the SEC set this in play.

Recently, reported Bloomberg Law, the SEC had made a policy shift. Essentially that will allow more retail and activist investors to place proposals about climate and social matters as a proxy. During 2021, the SEC had turned down 30% of corporations' requests to put the kibosh on those proposals. That means there are fewer approvals of the corporations' requests for "no-action letters." The situation has unraveled so quickly that some corporations have thrown in the towel in even asking for them.

ABORTION AS ESG MATTER

During this proxy season those shareholder proposals about defending abortion rights will speak up loud and clear to public companies about what is perceived to be the right thing to do on this issue. Yes, abortion has become an ESG (Environmental Social Governance) matter. Bloomberg Law notes:

"Walmart Inc., Lowe’s Cos., and TJX Cos. represent what’s potentially the tip of a burgeoning trend in shareholder activism in this area [abortion rights]: All three companies will face votes on proxy proposals in the coming weeks aimed at shaping internal policies related to abortion access."

 OVERALL, SHAREHOLDERS AS FRONT-LINE GAME-CHANGERS

In the January 2022 edition of Corporate Counsel, Paul Weiss Chairperson Brad Karp and David Curran, Co-Chair of the law firm’s Sustainability – ESG Advisory Practice, warned of this development. What they spell out is this:

“… companies are increasingly held accountable … by shareholders for their ESG performance. [These are] buoyed by support from large institutional investors and advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis ... Activist shareholders [are] winning proxy battles and gaining access to previously undisclosed documents. This is a game-changer.”

IN ADDITION TO THE RIGHT THING TO DO

The investor push on abortion rights also might contain a big piece of self-interest. Abortion limits have evolved into a high-profile ESG matter. Therefore, that directly affects the acceptability and pricing of what are classified as “Sustainable Investments.” According to Bloomberg Intelligence, by 2025 ESG Investments could reach $53 trillion. That would represent more than one-third of the projected $140.5 trillion of the total assets under management.

A major risk in any Sustainable Investment is this: In that same Corporate Counsel article, Karp and Curran refer to “weak links.” The validity of an ESG investment could blow up if some aspect of corporate values or behavior – or that of members of its supply chain – conflicts with formal ESG criteria. Corporate mindsets or actions taken regarding abortion could mutate into such a weak link.

INTERSECTING FORCE FIELDS

So, here corporations are. They are being tossed around amid intersecting force fields. Those include the accelerating momentum of the ESG movement, the urgency of the abortion issue, activist shareholders, and the big money involved in Sustainable Investing.

This proxy season will be closely watched.

Connect with Editor-in-Chief Jane Genova at janegenova374@gmail.com. Now and then she does freelance assignments for professional services firms such as Paul Weiss.

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