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BrandonHoltFirstEssay 6 - 06 Jun 2022 - Main.BrandonHolt
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| META TOPICPARENT | name="FirstEssay" |
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| | | ESG and Shareholder Activism | |
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< | For public companies, the equity markets are a central funding source for corporate initiatives. But dispensing equity yields shareholders who also have a say in a company's priorities. This shareholder activism is an increasingly popular tactic to move corporations in a particular strategic direction. Activism that targets ESG--Environmental, Social, and Governance--concerns usually take this form. Climate-conscious operations is a highly visible, and growing, cause for shareholder activists. For example, when ExxonMobil? did not commit to a net-zero status goal like its peers BP and Shell, an ESG-activist hedge fund initiated a proxy contest against the company. After receiving institutional investor support, the successful proxy challenge led to the removal and addition of hand-picked directors on Exxon's board. The new board is now exploring avenues for climate-friendlier operations. | >
> | For public companies, the equity markets are a central funding source for corporate initiatives. But dispensing equity yields shareholders who also have a say in a company's priorities. This shareholder activism is an increasingly popular tactic to move corporations in a particular strategic direction. Activism that targets ESG--Environmental, Social, and Governance--concerns usually take this form. Climate-conscious operations are a highly visible, and growing, cause for shareholder activists. For example, when ExxonMobil? did not commit to a net-zero status goal like its peers BP and Shell, an ESG-activist hedge fund initiated a proxy contest against the company. After receiving institutional investor support, the successful proxy challenge led to the removal and addition of hand-picked directors on Exxon's board. The new board is now exploring avenues for climate-friendlier operations. | | | | |
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< | ESG challenges are not limited to climate issues and they are not only brought by investors with large equity stakes. Given ESG's expansiveness, the home “diversity” seemingly has under "social" in ESG, and the general corporate preference to allow the markets to dictate outcomes, shareholder activism may seem like the obvious argument for how to move the needle on corporate diversity attainment. Even the Financial Times noted companies and boards must be prepared for investors of varying shareholder interests attacking even “squishy matters where blunt profit maximi[z]ation is not the issue.” | >
> | Shareholder activism may seem like an obvious argument for corporate diversity given the home “diversity” seemingly has under "social" in ESG and the general corporate preference for market-dictated outcomes. Even the Financial Times noted companies and boards must be prepared for investors of varying shareholder interests attacking even “squishy matters where blunt profit maximi[z]ation is not the issue.” | | | | |
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< | Shareholder activism are the more obvious avenues to pressure corporations to pursue genuine workforce diversity, these strategies require continuous engagement, proxy coordination, and motivated shareholders. Further, these strategies are generally limited to public companies and do not solve the important issues of time and expediency. | >
> | But shareholder activism is limited. Its strategies require motivated shareholders, continuous engagement, proxy coordination amongst investors, and significant advisory resources (e.g. legal, activist, and financial advisors). The strategies, like board overhauls, are also antagonistic to the business and can be met with resistance that further delays realized progress. And importantly, these strategies are generally limited to public companies, which only represent a minority of US firms. | | | The Proposal: Bank Financing
In their paper “Corporate Carbon Reduction Pledges: Beyond Greenwashing,” co-authors John Armour, Luca Enriques, and Thom Wetzer present their “green pill” solution to pressure corporations into green compliance. The solution requires corporate borrowers to meet agreed environmental goals. The interest rate on their bank credit is indirectly tied to their environmental goal attainment: the greater the attainment, the lower the interest rate. |
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