Starbucks's decision was not only motivated by its concern for plastic waste's impact on the environment. It was also influenced by the increasingly louder voices of investors around environmental, social, and governance issues, as well as customers' shifting preferences for sustainable brands. In this instance, As You Sow, a nonprofit group, organized a Plastic Solutions Investor Alliance made up of 25 investors managing over USD 1tln in assets to apply pressure on companies like Starbucks, Nestlé and PepsiCo to reduce their usage of single-use plastic due to associated environmental consequences.
In March, the organization wrote a shareholder proposal to Starbucks requesting that it reports on sustainable packaging and eliminates plastic straws. It's no surprise that Starbucks took action, given that better meeting investors' and consumers' demands has the potential to improve its reputation, access to capital, and ultimately its long-term value. Starbucks is just one example of an increasing number of household names influenced by shifting investor demands.
Academic research suggests that successful shareholder engagement can reduce downside risk and enhance financial returns of targeted companies. At the 13D Monitor Active-Passive Summit in April, Clifton Robbins, the CEO of activist hedge fund Blue Harbour Group, discussed how his fund's focus on engaging with companies on ESG issues is rooted in financial interest. He emphasized how his conversations with CEOs and company management of prospective and current investments have shifted from focusing solely on the financials to asking additional questions around ESG-related issues like board diversity, which can help to identify untapped value.
We believe that corporate engagement and shareholder action is going to continue to play a larger role in shaping corporate decision making going forward. According to the Global Sustainable Investment Alliance, corporate engagement and shareholder action increased by 41% between 2014 and 2016. Further, data compiled by Ceres shows that of the 779 climate-friendly shareholder proposals filed between 2013 and 2018, 41% were adopted without the need for a vote.
The US Sustainable Investment Forum found that even when ESG-related shareholder proposals fail to receive a majority vote, they often succeed in encouraging companies to make some or all of the changes requested because the resolution is supported by a large number of shareholders.
A highly active and targeted ESG engagement equities strategy is the primary avenue for investors to achieve impact delta – intentional, quantifiable change compared to business-as usual - in listed equities.
Contributors: Andrew Lee, Laura Kane, Anthony Marcozzi