Hedge Fund Activists Begin to Include ESG Elements in Intervention Efforts

Corporate Governance, Shareholder Viewpoints

With environmental, social, and governance issues already front and center for institutional investors as shown by BlackRock's recent letter, activist hedge funds are now jumping into the mix, with Trian Partners' embracing ESG as "enhanc[ing] our overall investment process" and Jana Partners joining in on socially-oriented campaigns at Apple.  For activists whose goals focus exclusively on driving up a short-term profit, the primary value of ESG-related issues is in the leverage they can provide to push a target company into making the decisions they desire.  However, as highlighted in a recent article on the Harvard Law School Forum for Corporate Governance, some activist hedge funds are beginning to take specific stances on ESG issues and even join in campaigns to accomplish social objectives as part of their overall strategies.  For example, well-known activist hedge fund Trian has published an ESG investment policy that endorses ESG factors as having "an impact on a company's culture and long-term performance" and gives examples of how it may intervene on such issues.  As noted in the Harvard article, Trian’s policy does not differ significantly from those of major institutional investors.  However, given the difference in business models between Trian and major funds like BlackRock, Trian’s embrace of ESG in its policy can be seen as an added element it may use in its activist campaigns.  Activist fund Jana Partners demonstrated this idea when it joined with CalSTRS in a social campaign targeting Apple, calling on the company to recognize the dangers to teens and children of over exposure to iPhones and to conduct or fund research on the dangers of excessive social media use by teens and preteens.  More striking, however, was Jana’s announcement of the "Jana Impact Capital" fund.  The funds' advisors include the founder of the Sustainability Accounting Standards Board, Sting and Trudie Styler.  The fund will invest in companies with a sustainability mindset.  Jana’s strategy shows the fund views social elements as enhancing its investment portfolio as well as attracting so-called "responsible capital."