Activist Investors Drop ESG Campaigns on Lack of Profits

By Irina Slav - Jan 09, 2024

• Consultancy Alvarez & Marsal: activist investors were less likely to engage in ESG campaigns this year after they proved to be markedly less lucrative than campaigns that focused on effecting operational or strategic change.
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• The research focused on 550 activist shareholder campaigns that took place between 2016 and 2021 at companies in the U.S. and Europe.
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• Activist investors have been an important tool for bringing the climate change agenda closer to the management of companies in the energy industry.

Activist investors’ love for sustainability-related shareholder campaigns appears to be growing cold in the absence of any practical outcomes, a consultancy has said.

Per Alvarez & Marsal, as quoted by Bloomberg, activist investors were less likely to engage in ESG campaigns this year after they proved to be markedly less lucrative than campaigns that focused on effecting operational or strategic change.

“As investors focus more firmly on returns in 2024 in a challenging market, we expect to see a decline in ESG-related campaigns and a renewed focus on metrics such as margin growth, cash generation and return on capital,” Alvarez & Marsal managing director Andre Medeiros said.

The consultancy looked at 550 activist shareholder campaigns that took place between 2016 and 2021 at companies in the U.S. and Europe.

According to an analysis of the campaign outcome data, the consultancy found that investor campaigns that focused on change in the operational or strategic departments, outperformed the market by an average 9.4% over the past six years.

At the same time, campaigns focused on sustainability-related aspects of a company’s activities outperformed the market at a much more modest rate of 0.2% over the six-year period.

Activist investors have been an important tool for bringing the climate change agenda closer to the management of companies in the energy industry and for forcing public energy companies to make commitments for emission reduction and investments in low-carbon energy.

However, these investments have failed to produce the returns that most investors would like, which recently led to a couple of U-turns at supermajors BP and Shell—both previously fully committed to directing more money to things like wind, solar, and EVs, while reducing their core business of producing and marketing oil and gas. The reason cited for the change in strategy was consistent underperformance of these investments as opposed to cash spent on core business.

By Irina Slav for Oilprice.com