Investing in change
Shareholder activism forces companies to listen to criticism of their social and environmental policies and sometimes even to change their course. Read More
In March 2019, when five indigenous Tupi and Guaraní people attended a huge corporation’s shareholder meeting in Brazil, they were practicing a type of activism that has become popular in recent years, especially among climate activists: Shareholder activists deliberately invest in companies with questionable ethical or environmental standards to effect change from the inside.
In Brazil, the Tupi and Guaraní people went to the meeting to denounce the behavior of the Rumo national railway company in front of investors. The company had repeatedly ignored their reasonable demands to be included in the planning for expanding tracks in their traditional territories. So while hundreds of protesters occupied the entrance to Rumo’s headquarters during the annual shareholder meeting, a few attended the meeting in person. They had bought six shares in the company at approximately $4.30 a pop, making them shareholders with a legal voice at the assembly. As Tiago Karai, a leader of the Guaraní community of Tenondé Porã, explained “by owning company stock, our intention is not to make a profit but to earn the right to have our say, to bring reality into the assembly”.
It does not take a large investment to gain influence over a company.
Like the indigenous communities in Brazil, NGOs from North America to Europe and Australia have focused on exerting influence on corporate decisions as shareholders. In most cases, it does not take a large investment to buy a few shares and thereby gain a certain – albeit very limited – influence on the company. Even a minority shareholder has the right to vote at the shareholder meeting, and, more importantly, is entitled to file shareholder resolutions. If these resolutions are supported by a certain percentage of shareholders, they have to be introduced and voted on at the annual meeting.Some NGOs therefore buy into companies, formulate resolutions calling for them to act on environmental and social issues, and then try to convince other shareholders to get behind their concerns. In most cases, they argue that a company’s long-term economic future will be jeopardized if it does not take environmental damage or the finite nature of natural resources into account in its corporate strategy.
Changing a company’s course from the inside out. © Yibei Geng/Unsplash
Even though most of these resolutions do not garner majority support at the shareholder’s meeting, they point to risks in the business strategy and draw the investors’ attention to potential shortcomings. “The rules to file a resolution vary from one country to another. But in the UK, you need a group of 100 shareholders with £100 worth of shares, on average, to come together and agree on a wording,” Jeanne Martin of British ShareAction NGO explains. “Once they’ve done that, everyone in the company will be asked to vote on it, so it’s quite a powerful tool to get your issue on the agenda of the company you’re targeting — but also of its shareholders.”
When oil companies phase out oil
Shareholder resolutions on social and environmental issues have been on the rise in recent years and are gaining an increasing percentage of votes. In 2017, NGO PRI counted 241 resolutions filed by shareholders in the US addressing issues such as wage inequality, pesticide use and food waste. The Sustainable Investments Institute recorded 494 such resolutions worldwide. So far, most resolutions on climate issues have focused on disclosing climate risks and asking companies to file reports and strategic plans pertaining to mitigating these risks. But some even go further, and activists have enjoyed some notable successes.
The As You Sow NGO claims that after filing a resolution at the 2017 McDonald’s shareholder meeting, which about a third of shareholders voted for, the company committed to fazing out polystyrene foam packaging.Even though a direct link between the resolution and the company’s decision cannot be proven, the NGO is convinced that the shareholders’ stance has driven the company’s policy change. Similarly, KFC, Burger King and Wendy’s signed agreements to only purchase chicken raised without antibiotics important to human medicine, and Unilever and Chipotl announced considerable waste reduction.
And there are more examples: In 2015, the Australia and New Zealand Banking Group (ANZ) announced it would not finance any new conventional coal-fired power plants. This decision was preceded by two much less ambitious shareholder resolutions in 2014 and 2015 that called for ANZ to give investors more information on the carbon footprint of its loan book. These only attracted a minority of votes, but might have made the bank rethink its stance on carbon economy.
ShareAction claims that after it filed a shareholder resolution at Barclays, the firm announced plans to become a “net-zero bank”, namely, to comply with the Paris Agreement to cut scope 3 emissions by 2050. In 2020, oil giant BP reacted to pressure by several activist groups and agreed to draft a climate resolution on its own in cooperation with the Follow This NGO. Prior to the shareholder meeting in May 2020, BP had announced its decision to cut oil and gas production by 40 per cent from 2019 to 2030.
“It’s quite a powerful tool to get your issue on the agenda of the company you’re targeting.”
Most successes are taking place even before the resolutions are presented to the shareholders though, as companies are agreeing to terms beforehand. As You Sow reports that in 2020 alone, Campbell’s agreed to reduce pesticide use and implement new sustainable sourcing programs for the tomato, wheat and potato supply chains, Starbucks promised to transition to reusable packaging and halve global packaging waste by 2030, Kellogg Compay plans to phase out pre-harvest glyphosate use in wheat and oats, Goldman Sachs, Wells Fargo and Morgan Stanley say they will start measuring financed emissions, and companies such as Marathon Petroleum have pledged to set new emission reduction targets.
“By owning company stock, our intention is not to make a profit but to earn the right to have our say.” © Adobe
Taking it to the courts
In recent years, activists have received backing from some of the largest asset managers in the US, namely BlackRock, State Street, and Vanguard, who have included social and environmental issues in their shareholder voting guidelines. In 2017, all three voted for resolutions asking oil giants ExxonMobil and Occidental Petroleum to file reports on the effects that future climate change regulations could have on their business –which won majority shareholder support.
Activists have received backing from some of the largest asset managers in the US: BlackRock, State Street, Vanguard.
Other shareholders have even resorted to demanding their rights in court: While the claim of a shareholder against Edison International alleging that the company provided misleading information about its climate change mitigation measures and the heightened risk of wildfires in California has been dismissed, the Client Earth NGO has been more successful.As a shareholder in Polish Energy company Enea, ClientEarth, the NGO claimed that the company’s investment in a new coal plant was a huge financial risk, and the courts ruled that the majorly state-owned company had to back out of the project. A claim from a coalition of pension funds and investors suing PG&E because the value of the bonds had declined as a result of the company’s failure to disclose the risks posed by their lax wildfire safety practices is still pending.
