Evolving ESG shareholder activism

Despite recent debate, ESG—Environmental, Social, and Governance—remains a key focus for shareholders. Climate risk, emissions, human rights, supply chain management, diversity, and greenwashing are still top of mind and shareholder activism is evolving.

Today’s companies face complex, sometimes competing, stakeholder demands amid an increasingly rigorous regulatory environment.

The question is: How do you manage pressure from diverse ESG activists?

Let’s break down the main avenues for activism. ESG proponents can employ multiple different avenues for activism to achieve their goals:

• Annual General Meetings (“AGM”) – environmental non-governmental organizations (or “ENGOs”) frequently purchase company shares so they may participate in the company’s AGM. Shareholders are entitled to submit ESG-related proposals for a vote at these AGMs and may also present ESG-related questions live at the AGM.
• Informal Queries – activists may directly email company executives to seek clarity about the company’s ESG practices and may request a meeting with management to discuss practices in detail.
• Litigation – activists may initiate a formal complaint through established channels. For example, ENGOs or similar organizations may now apply to the Competition Tribunal for leave to make a private access application for the determination of reviewable conduct, which now includes greenwashing, under Canada’s Competition Act (“Act”).¹
• Publicity Campaigns – activists may also air out their concerns against a company by using various media outlets. They may publish open letters on their websites or social media platforms, or hold public press conferences to target a company.

In the past year, our team has seen and advised on several ESG-related shareholder proposals, including the following topics and requests:

• Modern slavery: a request to disclose measures taken to prevent financing clients linked to forced or child labor
• Climate-risk and resilience: a request to disclose information pertaining to how a pension fund has considered criticism from climate specialists about existing approaches to fund management
• Climate-aligned finance: a request to publish an annual ratio comparing low-carbon energy supply financing to fossil-fuel financing
• Emissions: a request to: i) disclose emissions impacts of the company’s sustainable finance business functions, as well as ii) limitations, if any, of sustainable finance practices in relation to net zero goals.

New laws and standards mean ESG activism is shaping how Canadian companies disclose information, engage stakeholders, and do business. The pressure isn’t fading. We expect it will persist and continue to shape the way Canadian companies operate.

There is a growing need for boards and executive teams to proactively manage their stakeholder inquiries. Canadian companies operating in other jurisdictions are also at risk where shareholder activism is more mature and scrutinizing topics differently.

Hurried responses to ESG-related shareholder proposals and inquiries can increase litigation, reputational, and regulatory risk exposure. Even when proposals fall short, they often shape the dialogue and set the direction for future engagement priorities. Input from relevant subject matter experts is critical. The key is having multidisciplinary teams that are proficient in and have integrated ESG topics into the external relations strategy. Importantly, consistent and aligned communication often requires established processes and responsibilities.

At minimum, our view is that companies should consider the following:

• Collaboration: do we have a dedicated stakeholder relations function that collaborates with other ESG, reporting, marketing, and investor relations teams?
• Governance: do we have an established governance process for consistency and risk management in relation to ESG disclosures?
• Competency: are executives and management sufficiently trained to respond effectively to ESG-related inquiries?
  

These considerations are critical not only for compliance, but also for building trust and maintaining a resilient public reputation.

The ESG landscape is turbulent and fast-moving, molded by new and revised regulatory frameworks, expectations from the market, as well as stakeholder—including shareholder—engagement. These activities demonstrate that we’re still seeing a healthy amount of activism in the ESG space and that climate change and social issues are still leading topics for company stakeholders and ENGOs.

KPMG delivers training on greenwashing, modern slavery, and regulatory requirements, equipping leaders to anticipate and respond to emerging risks and stakeholder concerns. We help leaders anticipate risks, respond to stakeholder inquiries and shareholder proposals, and build governance strategies. Contact us to learn more about executive education, stakeholder engagement, and negotiation support.