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Earlier today, we published Shareholder Activism in Q3, our data-led look at activity over the last three months. I've picked some of my highlights below but you can download the report here.

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Josh Black

Do you think "responsible investing" could be seriously damaged by anti-ESG state policymakers?

36% - Yes, certainly
28% - No, ESG is too important
36% - Too early to tell


We discussed this notion in ESG Activism in 2022

Josh Black, Editor-in-chief, Diligent
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Insightia's Shareholder Activism in Q3 has started to register the size and shape of the comeback in activism.

The report, which is now available to download, shows sizeable increases in activity in North America and Asia, while Europe continues to lag behind even recent, subdued years for public campaigns.

That suggests that stock market declines, even if they paused briefly over the summer, have sharpened rather than dampened the appetite for engagement by hedge funds.

In the U.S., at least, activists are starting to edge away from the technology sector and are favoring consumer cyclical, energy, and financial firms in search of growth or yield. Otherwise, investors have targeted a broad range of industries with a slightly narrower range of demands.

There has been less M&A activism than might have been expected this year, perhaps because arbitrageurs have been sucked into the Twitter drama and the mixed outlook for the economy makes deals harder to push for and even harder to break up. 

But companies have had to brace themselves for tough conversations about their strategies in at least one respect. A big shift has been notable in the number of companies targeted with demands related to their capital structure and/or returning cash to shareholders, both of which were up more than 30% year-to-date at the end of the third quarter. Much of the growth was in Asia, as I noted earlier this year, but U.S. companies have been far from immune.

The number of companies subjected to public activist demands related to environmental, social, governance, and remuneration issues has soared, in part because more shareholder proposals have been allowed to go forward by U.S. regulators and investors have taken the torch to Asia. Indeed, more Asian companies have been subjected to these demands in all four categories than in any recent full year.

2022 has also yielded a much more generous bounty of board seats for activists than at this point in 2021, albeit still lower than before the pandemic. That dynamic was visible everywhere in the U.S. and Asia, which had boisterous proxy seasons, but also in Canada. Board seat gains were down in Europe, where activity has been much slower, and Australia, where proxy season is just beginning.

The full report, including detailed regional statistics, key takeaways, and the most active activists for each region, is now available for download.

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Deforestation is climbing up the ESG agenda and will likely be a priority for investors this coming season.

While proposals of this kind remain few in number they rank among the most successful environmental engagements in recent seasons.

The one proposal subject to a vote this year concerning reporting on deforestation risk won 64.6% support at Home Depot's May 19 annual meeting, despite management arguing that enhanced reporting on the subject would "only create an additional administrative burden."

More proposals on the topic would have made the ballot this season had issuers such as Conagra, Citigroup, and Lowe’s not reached withdrawal agreements with Green Century Capital Management to strengthen their deforestation policies.

Next week Procter & Gamble (P&G) investors intend to oppose the reelection of CEO Jon Moeller and directors Angela Braly and Patricia Woertz, owing to the board taking "insufficient action" to address the consumer goods giant's "ongoing exposure to deforestation, primary forest degradation, and human rights violations in its pulp and palm oil supply chains."

A similar campaign last year, which exclusively targeted the removal of Braly, proved unsuccessful, with her reelection facing just 8% opposition.

Deforestation resolutions were a big hit last year, with the one proposal subject to a vote at Bunge, seeking reporting on its soy supply chain, winning 98.9% support after management endorsed the proposal. Multiple companies, including JP Morgan, Procter & Gamble, and ADM, were also among the many to reach withdrawal agreements on the topic.

What makes deforestation a particularly hot topic for investors is the role it has to play in emissions reduction, something more investors are becoming aware of as they educate themselves on decarbonization.

According to the Intergovernmental Panel on Climate Change (IPCC), deforestation accounts for 11% of global greenhouse gas (GHG) emissions, surpassing aviation and cement production. Protecting and revitalizing forests could avoid significant emissions, potentially accounting for nearly 40% of the decarbonization needed by 2030 to limit global warming to two degrees.

The Glasgow Financial Alliance for Net Zero (GFANZ) highlighted the importance of deforestation to decarbonization in a recent action statement. On September 23, the coalition urged its 500-strong signatories to embed deforestation into their transition planning by developing policies to "identify curtail financing of such activities."

BlackRock also put deforestation on the map in February, revealing in a March whitepaper that it expects companies to disclose "detailed information" on their approach to managing material natural capital-related business risks and opportunities, as well as how they contribute to biodiversity and ecosystem health.

"Investors' expectations of companies in relation to how they manage their dependencies and impacts on natural capital are growing, given the increasing fragility of the natural resources many depend on in their businesses," the whitepaper reads. "We view the careful management of natural capital as a core component of a resilient long-term corporate strategy for companies that rely on the benefits that nature provides."

NEW: Christina Bresani of William Blair joins Kieran Poole to discuss how publicly-traded companies can prepare themselves when faced with activist investor action and how to establish appropriate proactive protocols.
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