ESG | Opinion
An active issue
Robert Blood, managing director of activist tracking and issues analysis firm Sigwatch, looks at how activist groups are driving the ESG agenda.
It is a rare professional investor that can avoid interacting with non-governmental organisations (NGOs) and other advocacy groups nowadays.
Thanks to the global reach of environmen- tal campaigns such as on climate change, even investors in less “adversarial” econo- mies like those in Southeast Asia are feel- ing the influence of NGOs. Just last year, Legal & General withdraw its Future World Fund stakes from Japan Post Holdings and China Construction Bank over the climate issue. Several major Japanese banks and insurers have recently announced their first steps in divesting from fossil fuels in response to intense pressure from European and US NGOs. The ‘global ripple’ of NGO influence is not going to stop at carbon. Activists have learnt from the climate divestment move- ment that support from sympathetic finan- cial institutions is a highly effective way to give a campaign “bite”.
Plastics may be the most obvious issue that shot up the business agenda thanks to NGO pressure, but it is far from being the only one bubbling up to affect investors. As well as tactical campaigns on issues like oil and gas pipelines in the US and labour conditions in Asian apparel production, we also see significant pressure for more investment in renewable energy and the emergence of an entirely new issue, green vegetarianism. Green vegetarianism is about eschewing meat not for the traditional reasons of eth- ics or health, but to save the environment. This has been getting a lot of push in the last 12 months as the leading green cam- paign groups like Greenpeace and WWF look beyond fossil fuels to the next biggest human contribution to climate change - livestock agriculture. Some of these campaigns are aimed at a handful of institutions, others at a broad swathe, but all are single-minded in pick- ing off large investors, often with the delib-
erate aim of doing economic damage to their ultimate targets. As NGOs become more effective, the companies and indus- tries which they target become increasingly vulnerable. For example, activists are well networked in the developing world, and can be the first to pick up and expose prob- lems with local subsidiaries or contractors, certainly before the media, and sometimes even before companies’ own head offices are aware. This intelligence is invaluable in due diligence not only to expose bad apples and weaknesses in companies’ supply chains, but to identify ‘best of breed’ firms – ones that are leading their peers by responding faster and more seriously to NGO concerns. Clients’ ESG agendas are increasingly mir- roring NGO priorities. By understanding where the NGOs that are driving these ssues are coming from, it is possible to plan evolutions of ESG policies and invest- ment portfolios rather than be forced to react to unexpected bursts of stakeholder concern or negative headlines. In the last decade, activists have learnt that one of the most effective strategies for forc- ing market-wide change is to “follow the money”. Investors would not go far wrong by returning the compliment and following them.
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22 | portfolio institutional | April 2019 | issue 83
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