For far too long, ESG activism has been defined by proposals designed to improve a company’s financial performance or reduce its risk profile. While “doing well by doing good” can create positive outcomes, it does not preserve systems under threat from profits achieved through externalized social and environmental costs.
The Shareholder Commons (TSC) believes that the critical next step for shareholders is beta activism: voting and engagement intended to stop companies from externalizing costs, even when it means surrendering total financial return at an individual company. Because large investors are almost all diversified, such surrender of individual company profit (“alpha”) will be more than compensated for by improved overall market returns (“beta”) that result from preserving the health of the social and environmental systems upon which all companies and investors depend.
TSC is supporting multiple shareholder resolutions that advocate shifting the focus to beta and monitoring key votes around the world. This gives investors the chance to take a systems-first approach to voting.
The resolutions we have helped to file fall into two broad categories. The first is for companies that have adopted the Business Roundtable’s Statement on the Purpose of a Corporation (BRT Statement). Resolutions propose that companies amend their certificates of incorporation to become public benefit corporations (PBCs). Without such amendments, these companies remain bound by the doctrine of “shareholder primacy.” The commitment to stakeholders at the heart of the BRT Statement will remain illusory: whenever the interests of stakeholders clash with those of shareholders, the companies will have to choose shareholder interests. In contrast, if they convert to PBCs, these companies can make real commitments to stakeholders and stop exploiting common resources and vulnerable populations to increase return.
The second category of systems-first proposals requests reports on the social and environmental costs that companies externalize, and how those costs affect broadly diversified shareholders. These proposals tackle systemic risks, including antimicrobial resistance arising from animal husbandry practices, inequality arising from distorted compensation practices, obesity arising from the mass-marketing of unhealthful food, and the perpetual concentration of power over critically important companies such as Facebook and Alphabet arising from banks’ facilitation of multi-class voting in initial public offerings.
Our Beta Activism for Shareholders webpage provides information on the proposals we are facilitating, along with critical updates regarding global proposals that reflect a beta-activist stance. We welcome partnership and collaboration in pushing capital markets to protect the vital systems on which they depend.
Social and environmental systems are increasingly at risk from corporate behavior, and these risks threaten the economy as a whole – and thus the overall performance of diversified portfolios. These proposals represent an opportunity for investors to begin to change the investing paradigm to one where all investors prioritize thriving systems over individual company returns, creating flourishing markets and a healthier planet.
Frederick Alexander
Founding Partner and Chief Executive Officer, The Shareholder Commons
Sara E. Murphy
Chief Strategy Officer, The Shareholder Commons