In 1987, the UN World Commission on Environment and Development commissioned a report aimed at shaping national policies and key measures designed to protect the planet. Officially titled “Our Common Future”, but generally referred to as the ‘Brundtland Report’ (after Prime Minister Brundtland of Norway, who served as Chair of the Commission), the study developed the concept of ‘sustainable development’ and defined the term as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’

As applied to corporate policy in the business world, the concept encompassed three main areas: economic, environmental, and social sustainability, and became popularly known as Environmental, Social, and Governance objectives, or ESG. Activist investors seized on the concept and demanded that ESG policies be implemented by corporate boards around the world. We will examine the role that ESG is playing in contemporary proxy voting. We will examine the role that ESG is playing in contemporary proxy voting.

The Three Pillars of ESG

Despite the common reference to ‘ESG’, the Brundtland Report factors of economic, environmental, and social sustainability continue to be the focus of ESG and have been cited as its ‘Three Pillars’. The economic factor calls upon companies to develop a responsible economic system, one that encourages limiting the use of non-renewable energy resources and producing goods and services pursuant to a responsible economic system. The environmental pillar calls for protection of the environment by way of saving and preserving natural resources, assessing a company’s carbon footprint, and managing waste. Finally, the social sustainability pillar necessitates values that promote fairness and respect for individual rights, including combating social exclusion and adopting fair trade policies.

The SPAC’s founders may have had a specific acquisition target in mind at the time of SPAC formation; however, the target is not even identified prior to soliciting investor funds. For obvious reasons, SPACs are also known as ‘blank check companies.”

Returns on Investment

Advocates of ESG argue that the concept is not just about ‘doing the right thing’, but that adherence to such policies also benefits the investor’s bottom line. According to a Goldman Sachs analysis of the impact of ESG on 1200 global companies, businesses with higher ESG ratings returned an average of 9% ROI, while those with less than a 4-star rating averaged a 2% return. Asset management firm Schroders applied a Sustainability Quotient to ESG funds and also found that they outperformed their traditional benchmarks. However, such statistics are not without their caveats: although both the ESG funds and traditional funds performed well before the financial crisis–which saw low interest rates and high asset values—traditional funds were allowed to sell bad assets at higher prices, and, ESG funds had a smaller allocation in small cap companies which also affected performance.

ESG and Proxy Voting

The March, 2022 ‘Proxy Season’ has witnessed an all-time record number of pro-ESG proxy filings.
Activist investors have seized upon the proxy voting processes of their companies to promote changes in the way their companies respond to and adopt ESG initiatives. Their proposals demand such policies as an end to all fossil fuel projects, guaranteed percentages of diversity representation on Boards, increased sick leave for part-time workers, and eliminating the use of plastic, among other demands.
ESG advocates cite long-term ESG changes as a means of achieving long-term value for investors. It is anticipated that over 300 pro-ESG proxy proposals will be presented for a vote at AGMs this year, coming on the heels of a record ESG proxy campaign in 2021.

A Polarizing Bubble

However, not all investors are in agreement with far-reaching, even radical, ESG proposals, arguing that the relative newness of the ESG ‘movement’ and a lack of sufficient data as to results inhibit an accurate analysis of how beneficial some ESG changes are. Various prominent analysts have warned that investor activism is creating a ‘bubble’ that is serving to polarize corporate management and even stigmatize companies along ESG-rating lines, rather than bringing about change at a sensible, rational pace. As an example, Morningstar’s proxy database tags proposal filers as ‘pro-ESG’ or ‘anti-ESG’ and pigeonholes funds themselves as to whether they qualify for Morningstar’s sustainable fund designation. Although this puts pressure on funds—as intended–to conform, critics note that many of the so-called ‘good actors’ are not in fact living up to their own erstwhile adopted policies.

Not so ‘anti-ESG’

Lest one believe that those proxy filers characterized as ‘anti-ESG’ are actually bad actors, it should be pointed out that numerous proxy filers who have been so derided routinely call for such proposals as greater diversity, increased corporate charitable giving, and human rights policies in sync with those of the ‘pro-ESG’ filers. This makes ratings such as Morningstar’s all the more problematic and divisive.

Constructive? Or Disruptive?

At the end of the day, the issue will be: is investor activism offering a constructive path to sustainability change? Or, serving as a disruptor to what corporations are increasingly adopting and accomplishing on their own?
Time—and returns—will tell.

Executive Summary

The Issue

How responsible corporate governance can meet the needs of the present without compromising the ability of future generations to meet their own needs.

The Gravamen

Many ESG initiatives are a means of serving both the interests of sustainability and the interests of ROI for corporate stakeholders.

The Path Forward

ESG initiatives need not necessarily call for radical disruptive change at a time when corporate governance worldwide is turning to responsible sustainability on its own initiative.


1. Sustainability Analysis

Investors as well as
fund managers need to take a realistic look at where their companies stand with respect to the Three ESG Pillars.

2. Prioritizing Change

Not all corporations fit neatly into the rubrics of ‘bad actor’ and ‘good actor’, and the prudent investor should take the time to analyze which ESG principles are most in need of refining at their company.

3. Evolution Before Revolution

Upon determining where change is needed for responsible corporate governance, financial stakeholders should approach existing Board members with their proposals, as they may very well find a receptive ear.

4. Proxy Proposals

In cases where a Board is not receptive to adopting reasonable ESG proposals, the proxy filing process is the next logical step.

Further Reading

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