“ESG” stands for Environment, Social and Governance and describes a handful of criteria used by both issuers and investors to focus on a corporation's impact and activity regarding topics like environmental protection, climate change, support for the local and global community, diversity in hiring and advancement, and employee compensation.
This investment methodology, once considered novel, has moved into the mainstream. Institutional investors in particular have been vocal in expressing their belief that maximizing returns to shareholders can no longer be a corporation's only goal, and are increasingly focused on evaluating company performance against ESG key performance indicators in order to determine the sustainability and future financial performance of issuers. Securities regulators are also following this trend and are beginning to implement disclosure requirements for issuers based on ESG factors and aimed at increasing transparency into ESG performance for investors.
In recent years, activist shareholder groups focused on ESG matters have been gaining attention as they have demonstrated that, with the help of the institutional investment community, they are able to replace directors and elect board members with experience that caters to their ESG agenda.
When shareholder dissatisfaction rises to the point of activism, the defence process can be expensive and in some cases, harmful to a company's reputation. As it becomes clear that Canadian companies can no longer afford to ignore ESG concerns, it is worth asking the question, how do these companies prevent, prepare for and respond to ESG activism? In considering this, companies may wish to consider the following:
Preventing | Preparing | Responding |
|
|
|
Although being truly prepared for ESG activism will require company-specific analysis as well as the meaningful involvement of the board and management, it will be important to both stay on top of trends in shareholder activism and trends in corporate governance.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
nortonrosefulbright.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.