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ESG and Stakeholder Intelligence: Navigating Profit and Purpose in 2021

By Caroline SkipseyVP Strategic Advisory

Three quick insights when looking across our ESG Intelligence.

1. 2021 Sees an Uplift in Governance Discussion across Investors

This week the media reported on Four Toshiba executives being “ousted” after an emergency board meeting, the FT reporting that has propelled the Japanese company “deeper into governance crisis”. The executives, including two board members, have been at the centre of a corporate governance investigation that has been reported to amplify the issue of corporate transparency at major Japanese organisations. Toshiba itself was under the spotlight for overstating profits in 2015 and over the past decade, companies such as Nissan, Olympus, Takata and Kobe Steel have all faced scrutiny in relation to corporate mis-governance.

The increasing stakeholder pressure around Governance, transparency and accountability is not solely a concern for Japanese companies, it amplifies an uplift in increasing stakeholder pressure across global companies across ESG issues. From the end of 2020 Polecat’s ESG intelligence has reported a 66% increase in the volume of conversation around corporate governance within investor-related discussion. (See image above).

Poor corporate governance practices have stood at the core of some of the biggest corporate scandals. Volkswagen’s emissions tests scandal, Facebook’s misuse of data and other recent incidents have caused significant financial damage to these companies. In the face of companies’ missteps and expanding awareness of global diversity and income inequality, corporate governance remains a core component of ESG.

2. Signal: Smaller Investors pushing for greater reform in the corporate agenda as companies attempt to balance profit and purpose

Whilst the pandemic has amplified systemic injustices in 2020 and created greater awareness among investors and companies around the importance of the "S" in ESG, the first half of 2021 has seen a rise in investor activism with companies facing more public ESG scrutiny whilst at the same time pressure to maximise investor return as economic recovery from the pandemic is made.

More recently both Danone and ExxonMobil have been at the centre of successful investor activism led by smaller investors such as Artisan Partners, Bluebell Capital and Engine No. 1.

For ExxonMobil, the company’s failure to evolve with the industry’s transition to a lower carbon economy was seen to be significantly impairing its financial position to the detriment of its shareholders. It took newly launched activist hedge fund Engine No. 1 to take on ExxonMobil and win, despite holding just $50 million worth of shares (amounting to a 0.02 percent stake). Engine No. 1 has further sought to “refresh the board with highly qualified, independent directors who have track records of success in energy and can help the board … position ExxonMobil to successfully evolve with changing industry dynamics.” At the company’s annual meeting of shareholders on May 26, Engine No. 1 was able to achieve just that.

In the later half of 2020 Danone’s Chief, Emmanuel Faber had been applauded for Danone’s investment into a sustainable future, insisting that the company’s supply chain was traceable, ensuring farmers were paid a fair price and promoting regenerative agriculture.

Despite owning less than €20m of Danone, Bluebell Capital, with a fraction of the might of groups such as Elliott Management and Third Point, led a successful campaign to oust Danone’s Chief Emmanuel Faber, citing concerns around corporate governance and lack-lustre investor return. The Times reported more recently that Danone’s shareholder register has been “painted as a battleground between activist investors out for a quick buck versus patient capital looking to enhance the impact of their investments.”

3. The Lobby Continues into 2021 for Increased Corporate Governance and Reporting

Whilst the many investors have seen to be hesitant in their criticism of companies already struggling from the effects of the global pandemic. The first half of 2021 has already seen a notable uplift in investor activism as equity markets recovered and strengthened, activists are again putting pressure on companies, particularly over how to use cash reserves built up during the pandemic.

At the same time finally the framework providers for economic, social and governance (ESG) standards are collaborating after years of seeing one another as competitors. The lobby continues globally to make corporate reporting more informed, and accountability more transparent as momentum and concern continues to grow in terms of larger environmental and social concerns such as targets around climate and inclusion and diversity.

The ability to look outside in is key for global corporations and organisations. Expanding horizon-scanning capabilities across broader macro trends has become a necessity. And rather than material issues scanned every year or two, external stakeholders have higher expectations regarding the corporate suite to keep abreast of political, social and economic discourse and to utilise real time intelligence for communications planning and monitoring issues or addressing gaps in corporate policy and governance.

To investigate further the shifts in ESG and Stakeholder Intelligence and hear more about our real time platform and reporting capabilities  arrange a call with Polecat’s team of consultants and advisors by emailing caroline.skipsey@polecat.com