Social media is both the greatest communicative tool in the history of mankind and the worst contextual discussion platform in existence. Being canceled on social media might sound bad, but according to recent reports, companies might find themselves canceled where it matters—investment. And all this is going to come down to a simple three-letter acronym—ESG.
Environmental, Social, and Governance: A Priority in Coming Years
ESG, referring to environmental, social, and governance reporting, is the new hot topic. Defined as a set of standards for a company’s operations that socially conscious investors use to screen potential investments, increasingly aware investors are looking for companies to deliver more than increased share price. Today’s young and increasingly well-off investor wants responsibility in three areas:
- Environmental Impact: Is your company a steward of the environment?
- Social Criteria: Are you committed to social change? Do you treat your employees well? Are you a responsible community member?
- Governance: Is your leadership embracing the values you set forth. How honestly are you committed to disclosing executive pay, audits, internal controls, and shareholder rights?
Whether it’s the rise in mutual funds built around or investors committed to companies focused on ESG reporting or the demands by social media users who threaten to cancel you, reporting could soon become more than a matter of taste.
As we discussed in our recent discussion of SASB reporting and in an upcoming article on the importance of data in reporting these metrics, ESG could become a regulatory disclosure in the coming years.
Q4 2020 Represented a Firestorm of ESG Activism
2020 was a mostly quiet year for ESG activism—until election season. Even in the wake of nationwide riots and autonomous zones, investor activism waited until the Q4 election season to do anything with their money, according to CFO.
“Through the first three quarters of 2020, all was relatively quiet on the global shareholder activism front. Then, in the fourth quarter, activists broke loose. Fifty-seven new campaigns launched, including broadsides against Intel, Public Storage, ExxonMobil, and The Walt Disney Company.”
Though one may chalk it up to activism in times of plenty, (i.e. Nike cares less who’s buying their shoes during a recession than during a decade of growth), there looks to be significant movement on the regulatory and legislative front regarding ESG reporting. From the increases in states enforcing greater diversity at public companies to new regulations from the SEC, 2021 looks to be the year that you stand for something—or report on your commitment to change.
Reporting on Lazard’s Annual Review of Shareholder Activism,
“ESG activism gained momentum with the launch of hedge fund Engine No. 1 in December. The small investment firm initiated a campaign against ExxonMobil, though holding only a $40 million stake in the multibillion-dollar oil giant. It’s calling for more disciplined capital allocation, a plan for sustainable value creation, board refreshment, and an overhaul of management compensation.
“The rise in the launch of ESG-related funds and campaigns focused on sustainability issues enables activists to improve perceived ESG weaknesses in businesses but also bolster fundraising by branding themselves as forward-thinking and socially conscious,” Lazard directors wrote in their report. “This trend is likely to continue as more limited partners intensify their focus on allocating capital in a way that betters society.”
Companies—and investors are looking to invest in companies deemed responsible. From making promises to delivering on them, this will continue to be a key focus in coming years.
Planning and Changing: Discuss ESG Initiatives in the Controllers Council Forum
There are many paths to better business, but one of the most effective ways to learn more is to discuss initiatives with your peers. The Controllers Council was launched to help controllers across the US and around the world to improve skills and discuss changes. Out members-only forum and frequent events will share with you all the latest. Click here to learn more about the benefits of membership.
Additional Resources
New ESG Guidelines to Consolidate Standards and Reduce Confusion
Path to IPO: Could Pre-IPO Company Controllers Benefit from a Part Time Chief?
From Startup to IPO: The First Steps to Manage the First Funding Rounds
