Environmental, Social, and Governance (ESG) criteria are a set of standards for corporate operations and behavior which are used by socially conscious investors to screen investments. Over the past several years, there has been a growing effort for a more mainstream incorporation of ESG factors into investment practices. The growing emphasis by investors on ESG factors has created downward pressure on companies to provide disclosures as to how ESG factors are being incorporated into business and operational decisions. This represents a dramatic shift in tactics used by those pursuing ESG objectives which for years were pushed directly on companies. Among the most commonly requested ESG elements of companies today include information on:
- Climate Change
- Diversity and Gender Pay Equity
- Human Capital Management
- Sustainability In Executive Compensation
In 2017, the number of ESG-related shareholder proposals saw a significant increase. A common tactic among the proponents of these proposals is to introduce them and then work to negotiate the implementation of the proposal with the company in exchange for the proponent’s withdrawal of the proposal. The tactic, which was first utilized to push core governance changes like proxy access on companies is now seeing success in the ESG arena. ESG will continue to be a growing focus area of importance for investors and companies are making changes in how they engage stakeholders on these issues.