By Elisabeth Losasso, consultant with the Luc Hoffmann Institute
When delving into the issue of shareholder activism – the practice of shareholders exercising their rights as owners to influence a company’s decisions – one aspect emerged prominently: the huge but untapped potential of individual shareholders in promoting sustainability.
The most visible form of shareholder activism is large investors who buy a small stake in a company to push through changes in governance, pay structures and so on with the main aim of short-term financial gain. They thrive on the passivity of the majority of shareholders who do not exercise their rights and can sometimes hijack corporate efforts towards sustainability. But the scale of the challenge in mobilising passive shareholders to help counter this impact is enormous and multi-faceted. We’re not just talking about the big institutional investors such as pension funds but also the hundreds of millions of individual investors around the world.
Shareholder activism, used in a broader, more open, and democratic way can be a massively powerful tool for sustainability, and this potential is largely unexploited. There are good examples of individual shareholder actions that pushed companies for a change, and shareholder resolutions have been used in the past by environmental and activist groups including the Aiming for A campaign in Europe, launched by a group of concerned institutional investors in 2015.
So how do we empower and motivate the ranks of passive individual shareholders to exercise their rights to hold companies to account for their environmental and social responsibilities? What’s in it for an individual to become a shareholder activist?
First, we need to raise awareness and make it easier for people to exercise their shareholder muscles. A small investor needs to be convinced that his or her voice makes a difference, despite the dominance of big institutional investors with the weight of their shares. We need new ways to leverage the power of the masses, for example, by groups of like-minded individual investors organised through social media or dedicated electronic platforms. Clustering individual investors around a common sustainability platform must be possible and there are some exciting ideas emerging in this space.
While many proxy advisors enable their institutional investor clients to cast their vote digitally, much less common are those services for individual investors. These proxy voting platforms like Proxymity in the UK, claim to make voting faster, cheaper and more transparent. For small investors, to date there is only one example: OpenInvest in the US, launched in 2017, offers an app that enables voting on shareholder resolutions with a finger swipe.
Recently, two of the UK’s largest fund platforms, Hargreaves Lansdown and Charles Stanley announced plans to develop digital systems that help DIY investment customers exercise their shareholder rights, boosting the cause of shareholder democracy.
If a responsible shareholder attends the company’s Annual General Meeting and resolutions concern only the appointment or removal of directors, interest will vanish quickly. Outside the US, we need more resolutions on environmental, social and governance (ESG) topics, and a regulatory framework that supports shareholders in proposing resolutions and having a say in setting the meeting agenda.
Regarding the number of ESG resolutions, Europe is lagging far behind the US where in the 2018 proxy season (the 12-month period ending 30 June that covers most public companies' annual shareholder meetings) more than 400 resolutions were tabled. In some countries, there are no ESG resolutions at all.
Individual shareholders considering using their shareholder rights should also know that ESG resolutions rarely, with some prominent exceptions, receive majority support. However, evidence shows that ESG proposals are important catalysts of action within companies, even without majority support.
Voting on resolutions is just one instrument in the shareholder activism toolbox. Attending an AGM and posing informed questions is a powerful way to challenge unsustainable business practices and gain the attention of the board and the audience, and it may trigger a management response. This requires analysis and information about the company, time and some courage (not everybody would be willing or able to invest) but there are experienced organisations who provide research, training or representation in AGMs, such as ShareAction in the UK, Ethos and Actares in Switzerland, or As you Sow in the US. There is clearly a need for individuals to learn from these organisations, to use their knowledge and experience in shareholder activism, and multiply it.
Lastly, which topics would motivate a responsible individual investor to exercise his or her shareholder rights? In the US, with the highest number of ESG resolutions, climate change is the primary concern among environmental issues, but a wide range of other sustainability topics are covered. Shareholder engagement (resolutions or questions) can relate to whether the company pays a living wage, its accountability over supply chains, plans for energy efficiency and reports on past emissions, whether it follows global voluntary recommendations on climate-related financial risk disclosure, board diversity and more.
There is a long way to go – but momentum is slowly building in the effort to unleash the power of shareholder activism. As part of its Shareholder Activism for Sustainability project, the Luc Hoffmann Institute is interested in new ideas to mobilise shareholders for sustainability, through technology, communication, and policy best practices.
If you are active in this field, you want to accelerate a project or have new ideas, please reach out to Adrian Dellecker, the institute’s Head of Programme email@example.com
Shareholder activism: Standing up for sustainability? Report on the state of play on the issue and opportunities for action.
Exploring the impacts of shareholder activism on sustainability, a follow-up report by SustainAbility
Owning capitalism – thought piece by Adrian Dellecker, Luc Hoffmann Institute
Sustainable investing is growing – should we be excited? Thought piece by Julian Kölbel, Post-Doctoral Researcher, University of Zurich