The Power of Shareholder Activism: Tools to Make a Change

By Casey Schoff
January 29, 2024
6 min read

According to the 2017 Carbon Majors Report, over half of global industrial emissions since 1988 are attributable to a collection of just 25 corporations or state-owned businesses. While climate activism is often focused on government policy and reform, this statistic makes it clear that businesses should be an increasing concern for environmentalists given their mammoth carbon footprints. Yet many people fail to realize that they can impact business in the same way as the government. 137 million Americans own stock, which is just below the number of people that voted in the 2020 election, and accounts for nearly half of the country’s population. This goes to show the immense, and largely overlooked, power Americans wield as shareholders of some of the biggest polluters in the world. While individually one may feel powerless against a multi-billion dollar corporation, investor activism can be a strong force. 

Depending on the company’s standing on climate change and the actions they have already taken, investors have two main roles when it comes to activism. For a company that has done little so far, investors must encourage this business to recognize the gravity of the issue, and craft a future plan of action to reduce emissions. On the other hand, some companies have already taken these steps, and laid out bold promises and future plans. In this situation, investors must hold these corporations accountable to their promises, and advocate for transparency to follow their progress. While these are far from easy tasks, listed below are some of the ways investors can wield their influence effectively in order to make a difference. 

Work on Shareholder Resolutions

Shareholder resolutions are one of the most powerful tools an investor holds in influencing the trajectory of a business. Every year, shareholders can file resolutions on issues they are concerned about regarding certain corporate policies, allowing them to communicate their values to upper levels of management. Admittedly, there are barriers to accessibility when it comes to shareholder resolutions, as an individual must have $2,000 of stock in order to file one, and deal with a fair amount of SEC red tape. However, there are organizations like the non-profit As You Sow, which regularly files shareholder resolutions concerned with sustainability and social justice goals, that can help investors get involved in putting their influence to good use. 

Vote for Board Members

Board members often direct the larger vision and long-term goals of a company, making a shareholder’s ability to vote for them another powerful tool for change. Every shareholder can usually vote for board members, but often they get one vote per share held, which can dilute the power of individuals compared to institutional investors. However, when individuals share common interests, they can have some influence in choosing board members. For example, individual stakeholders were instrumental to the triumph of a small hedge fund called Engine No. 1 in seating three of its nominees on the Board of Directors of Exxon Mobil in early June 2021. While Engine No. 1 is an institutional investor, it owns a meager .02% of ExxonMobil, meaning it needed lots of support from individual investors in securing the votes to make this change happen. Thus, this victory not only inspires hope that other institutional investors can pioneer similar change in the future, but also confirms the power of an individual shareholder’s vote. Engine No. 1’s victory was monumental as the new board members “could alter the tone of the oil giant’s board meetings" and will force Exxon to reconsider its climate strategy, confirming the importance of board member elections. Not only that, but Engine No. 1’s push for new board members also conveys investors’ recognition that acting on climate change is good for business, and that energy companies must adapt if they wish to be profitable in the future.

Yet institutional investor’s goals can also be contrary to what is best for the planet, in which case shareholders must perform the equally important job of countering the board members they nominate. For example, in 2014, energy giant NRG had a motivated board of directors and was well on their way to a more sustainable business future. But in 2017, the board was ousted by a vocal hedge fund and replaced with a new group much less concerned with environmental issues. Yet, this hedge fund held only 6.9% of the company, meaning individual investors had more than enough votes to counter this new board, had they simply been involved.

Advocate for Disclosure and Transparency

Further, shareholders can advocate for increased disclosure of emissions and environmental impact data, which remains difficult to track down as an investor. Not only is this data hard to find, but it is often unreliable, as there are few standards for measuring ESG performance, and every company tends to measure things in a different way. Due to this variation, companies can get away with greenwashing, or taking action to appear more environmentally-friendly than they actually are. By pushing for greater transparency in environmental reporting and supporting initiatives to standardize these measures, investors have the power to improve the quality of their investment decisions and hold companies accountable to their environmental promises. 

Relocate Your Investment

If all else fails, investors can always withdraw their investment. While ideally companies will be responsive to shareholder action and sentiment, the tactics above will not always be effective. If a company refuses to change despite repeated pressure, odds are that there are much better investments to be made. Sometimes it takes forcing the company’s hand and removing funding to make it realize that it must change or risk losing more investors. Withdrawing funds from unsustainable businesses is not only the right thing to do from an environmental standpoint, but is also a smart long-term investment decision, as these businesses will be unable to survive in the growing sustainable economy.

The Future of Investor Activism

As awareness of climate change and social justice grows, the future of investor activism is bright. Groups like ClimateAction 100+ (which holds $54 trillion in assets), and other similar organizations pool shareholder power in order to ensure companies are taking necessary action in response to climate change. In the social justice field, activists have experienced lots of recent success, as 2021 has seen record highs in the amount of diversity proposals being brought to boards by shareholders and in the levels of support for these proposals.

With investors increasingly concerned about companies’ environmental impact, businesses that utilize reliable sustainability metrics and are transparent with their environmental data will attract more funding as time goes on. Ecolytics has all the tools for businesses to do just that, with a customized impact page that reliably breaks down a company’s footprint and tailored recommendations on how they can improve. As we progress towards an investment landscape where sustainability metrics will rival financial data in importance, Ecolytics has the potential to integrate these two fields, and help investors and businesses make smart decisions for themselves and the planet. If you are interested in learning more about what Ecolytics has to offer, request a demo from us today, or follow us on the social media platforms linked below!

Ecolytics newsletter
No spam. Just the latest releases and tips, interesting articles, and exclusive news in your inbox.
Read about our privacy policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
More posts

Ready to see how Ecolytics will transform your company?

Request demo
Join our newsletter to stay up to date on features and releases.
We care about your data. See privacy policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
© 2024 Ecolytics. All rights reserved.