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Don’t let activist hedge funds trample ESG’s roses

By Jon Hay
27 Aug 2020

If investors were a family, the activist hedge fund would be the brattish 20-something rich kid with libertarian opinions who relishes annoying everyone else. You wouldn’t expect this character to get on with the woke, vegan responsible investor who loves to hold forth on moral values.

It turns out the activist has not just been mocking the ESG disciple’s sermons — but secretly telling everyone else not to listen.

A study of 1,300 activist campaigns over 16 years has found activists, on average, make the companies they invest in fall behind the market on sustainability — not to mention underperforming financially, after an initial share price pop.

Follow-up research on 500 situations shows activists are actually more likely to pick on companies with strong environmental and social credentials. The laggards they mainly ignore.

To those focused on short-term profit, it seems long-term, sustainability-minded thinking in boardrooms rings alarm bells — this touchy-feely company is not being ruthless enough in pursuit of profit.

There are no doubt conscientious activists. But in aggregate, this style of investing — which is on the rise — is pushing back against companies’ efforts to improve their impacts on people and planet.

People and institutions with money therefore have a choice. If their commitments to ESG are genuine, they must face up to the danger activists pose.

Whether they allocate capital to activist funds themselves, or merely stand by and pocket the short-term gains their campaigns can generate, they have to accept responsibility for everything the activist pushes the company to do, explicitly and implicitly.

If responsible investors truly have higher concerns than the superbrats, they need to start a family argument and lay down some ground rules.

By Jon Hay
27 Aug 2020