Stakeholders v. Shareholders: reimagining environmental justice

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An introduction to ESG through investor/shareholder activism

For giant corporations and businesses around the globe, climate justice goals have often reflected less of a conscious accountability towards the larger issue of environmental rights and more of a strategic matter of regulatory compliance at best. Although concerns on sustainable investment practices and carbon output by business giants have been parts of several environmental and social justice conversations preceding the current consciousness of climate crisis, however, institutional responses in the form of introducing and including environmental, social and corporate governance (ESG) as part of the framework of fiduciary responsibilities has been one of the more concrete steps towards integration of ESG with decision-making and investment practices.1 Previously considered as a barrier to long-term financial performance, a failure to incorporate and comply with drivers of ESG is now being increasingly considered as a failure of fiduciary duty.2 While the afore-said institutional measures can be perceived as markers of progress, there have been few recent instances of organized corporate actions that have led to a greater impact in terms of holding investors and business giants accountable and has reignited critical conversations within both the praxis and the discourse.3 In addition to taking a closer look at some of these well publicized instances of shareholder/investor activism, this post further intends to analyze whether such actions can act as precedents for creating obligations beyond the framework of fiduciary duties.

The case of impact investment firm, Engine No. 1’s successful infiltration of oil, gas and energy giant ExxonMobil’s Board of Directors by placing three highly-qualified independent directors with experience in clean energy earlier this year has been widely recognized and hailed as a ‘watershed moment’ in corporate history.4 The background to this success story was long in the making and contains crucial insights on how to strategize and prepare for combating resistance and hesitation to energy transition changes. Inspite of holding a negligible stake of 0.02% and facing outright opposition from the top management at ExxonMobil, Engine No. 1 was able to consistently strategize and gather support from several significant stakeholders such as BlackRock, State Street, Vanguard in their favour.5 The consolidation and consensus of some of the largest investment groups towards realizing the commercial repercussions of inadequate climate-oriented long-term policies has created a space for more effective engagement. There is a renewed interest and direction to the ongoing discourse of impact of climate change on investments, making way for a slow but sure paradigm shift. Historically, investors have often been averse to lending their support to any policies or decisions without a tangible prospect of profit diversification. However, Engine No. 1’s success has precipitated a change in not viewing profit maximization as adversarial to the support and legitimization of ESG goals. It would be a travesty to talk about the success and effectiveness of investor activism without affording due credit and recognition to the institutions and supporters outside of the corporate genealogies. In the case of Engine No. 1, their organized campaign could not have received the required momentum without the support of the California State Teachers’ Retirement System (CalSTRS), the California Public Employees’ Retirement System (CalPERS), the New York State Common Retirement Fund and major proxy advisers such as Institutional Shareholder Services (ISS) and Glass Lewis.6


Relevance of institutional frameworks in the context of ESG-led initiatives

Once it is apparent that one need not make concessions on profit maximization for navigating the path to a sustainable ESG future and not all interventions require external mobilization of resources, a larger discussion that begets attention is whether activism can be potentially extended to developing a framework of institutional obligations within the spectrum of access to environmental justice. The rise of voluntary institutional disclosure frameworks in the U.S., such as Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI), are facilitating investors in their decision-making process by providing companies with reporting standards.7 Further, the EU’s Non-Financing Reporting Directive (NFRD) has mandatory disclosure requirements with respect to ESG policies, outcomes and risks.8 Under the EU’s Corporate Sustainability Reporting Directive (CSRD), companies have increased reporting obligations under the double materiality perspective that would ensure a heightened oversight of ESG related outcomes, risks, policies and opportunities.9 While all of these measures are designed with the intention of ensuring accountability, transparency and mitigating the risks of non-compliance with respect to ESG obligations, their efficacy benefits significantly from the complementarity between said institutional measures and the actions of activist shareholders.


Transformative potential of investor/shareholder activism beyond ESG goals

Engine No. 1’s success is already witnessing some ripple effects. There have been few other notable instances of positive investor intervention, especially with respect to setting ESG goals. Companies like Chevron, ConocoPhillips and Phillips 66 have all witnessed majority shareholder voting in favour of emission-cutting proposals and initiatives in their respective board meetings.10 The focus and target of activist investors and shareholders is not merely limited to large corporate giants in the oil-gas-energy sector but also extends to public companies. A ‘say on climate’ campaign spearheaded by the British hedge fund, the Children’s Investment Fund Foundation, intends to compel every public company to adopt a net-zero transition plan within the next 3 years.11 The outreach and impact of this campaign has empowered shareholders to further disrupt the status quo of complacency and reluctance of several companies across Europe, Asia, Australia, the U.S. and Canada.12 In order to make transitions to net-zero economy compatible with business and investment infrastructures, decision makers and stakeholders across companies will need to work towards developing collaborative long-term strategies that would facilitate their transformation internally.13 Some other areas of investor activism are responsible for the internal reorganization of the company structure in terms of both appointment as well as removal of key managerial personnel such as CEOs and founders.14 Additionally, issues of social justice are also bringing together alliances of investors who see economic instability as a corollary to social unrest.15 On the one hand, where shareholder advocacy groups are increasingly compelling board members to acknowledge the impact of social movements, on the other hand, they are lobbying for adopting institutional policies such as the publication of diversity and inclusion reports.16

While it is crucial to understand and recognize the role of activist shareholders and investors in bringing about changes, it is equally important to realize that not all changes need facilitation through activism. According to a recent survey conducted on institutional investors, lack of responsiveness towards ESG oriented resolutions within the board was one of the primary reasons because of which activist shareholders have been successful in gathering support.17 One of the widely recognized fiduciary duties of a board across companies and jurisdictions is to ensure the smooth running of a company and to always act in the best interest of the company and its shareholders. Therefore, when a board is faced with instances of proxy campaigns and call for action by activist investors and shareholders on various matters of importance, it is imperative that such vigilance and engagement is perceived as adjunctive to the best interests of the company instead of being seen as a challenge. The board must always be open and mindful to the larger concerns of its shareholders and should always be in a position to effectively communicate its concrete plans and their execution. It is rarely the case that the board in a company is completely oblivious of the ESG concerns before they are taken up as actionable demands by activist campaigns.18

While it appears reasonable to characterize this rise in instances of investor activism as innovative in response to the urgent concern around climate crisis, it would be premature to interpret Engine No. 1’s success entirely as an outcome of collective climate consciousness. The different agendas that have been taken up by several activist investors/shareholders are ultimately a reflection of the lack of evolution of directors and board members in companies. The resistance to transitioning is often determinative of a company’s future economic position and it is in this context that an activist shareholder/investor intervention is initiated. The activist investor acts as an ombudsman with a view to ensure that a company is willing to adapt to incremental long-term changes. One of the objectives has been to emphasize on the fact that recalcitrant business behaviour is non-rewarding and detrimental in the long run, especially when it comes to behemoth corporations and businesses with established policies and practices.

Therefore, what Engine No.1 and other activist shareholders/investors have essentially accomplished is an expansion of the ambit of fiduciary duties to accommodate coexistence of profit along with climate/social justice goals. In this particular instance of Engine No. 1, the inclusion of sustainable climate-based policies can be effectively read into the broader framework of existing fiduciary duties such as the duty to care and the duty to disclose, among others. As far as supporting causes and agendas is concerned, any issue that has the potential to impact rights and thereby access to justice, can be afforded a wide enough interpretation within the existing framework of fiduciary duties and become a tipping point. It is important to let the conversation remain open and inclusive around the framing of issues eligible for activism. The stakeholders in each case are affected differently depending on how certain issues are considered to be more pressing than the others. So, while there currently exists an unyielding impetus for integrating climate justice objectives into corporate governance structures, the option of shareholder/investor activism must be exercised for always bringing other critical concerns to the forefront.


On the road to access to environmental justice

Since the instances of investor/shareholder activism including that of Engine No. 1 cannot be entirely distinguished from the fulfillment of their fiduciary duties, it is therefore rational to consider every decision-making member of the board of a company as a climate fiduciary working towards facilitating access to environmental justice while balancing economic interests. Engine No. 1’s actions successfully managed to rouse ExxonMobil out of its complacency inspite of the grave power imbalance between both the parties. ExxonMobil was compelled into recognizing its neglect and disregard towards both climate-oriented goals and the consequential impact on its shareholders. While Engine No. 1’s objectives were hardly altruistic, the outcome of its actions is one small step closer towards access to environmental justice. Access to environmental justice, like any other access to justice concern, requires that the rights of all relevant stakeholders be safeguarded and that there are remedies in the event said rights are violated. Historically, it has been almost inconceivable to imagine certain corporate actions stemming from fiduciary obligations being responsible for agitating and organizing against the core capitalist priority of profit maximization. However, in the face of raging climate crisis and the grave repercussions that are being documented and lived everyday, quotidian corporate obligations are being reimagined to include an enduring commitment towards the environment. Issues of sustainability and equity have graduated from being mere token image-building tools for companies to being inherent to the access of environmental justice. While corporate apathy and a resistance to adapt continue to inhabit these liminal spaces, the narrative is expanding to accommodate ideas such as that of ‘conscious capitalism’.19 Conscious capitalism can be understood to loosely indicate the precedence of stakeholder capitalism over shareholder capitalism.20 The underlying idea herein is to make the decision makers responsible fiduciaries while centering the rights of all its stakeholders. Any and all acts performed in this direction can be considered to be a radical act towards subversion of dominant narratives. Lastly, while it appears that the challenges to the realization of environmental rights are likely to become increasingly complex and harder to overcome, it remains to be seen if this unlikely alliance of environmental concerns with corporate interests can gradually dismantle the conventional barriers to access to environmental justice.

1Fiduciary Duty in the 21st Century Programme: Final Activity Report 2015-2019, available at

2 Ibid.

3 Sam Forsdick, ‘Activist shareholders reach a ‘watershed moment’ in their ESG fight’ (2021) available at

4 Jaclyn Jaeger, ‘Activist investor win at ExxonMobil should be wake-up call for companies’ (2021), available at

5 The CEO of ExxonMobil, Mr. Darren Woods, while rejecting the proposed changes by Engine No. 1 stated, “We respectfully disagree with Engine No. 1’s conclusion and proposed approach. Our current board of directors is among the strongest in the corporate world.” Also supra note 3.

6 Ele Klein and Danny Goldstein, ‘Engine No. 1 Lessons for Environmental Proxy Campaigns’ (2021), available at

7 Catherine Clarkin, Melissa Sawyer and Joshua Levin, The Rise of Standardized ESG Disclosure Frameworks in the United States, Harvard Law School Forum on Corporate Governance (2020); Julius Redd, Stacey Sublett Halliday, Jesse Glickstein, ‘Addressing Environmental Justice As Part Of ESG Initiatives’ (2021), available at

8 Directive 2014/95/EU. See, Julius Redd, Stacey Sublett Halliday, Jesse Glickstein, ‘Addressing Environmental Justice As Part Of ESG Initiatives’ (2021), available at

10 Supra note 4.

11 Ibid.

12 Ibid.

13 Ibid.

14 At P&G, investor activism resulted in nomination of a prominent activist shareholder to the position of directorship, as reported here: Some instances of CEO resignation as a result of investor activism happened at Westpac Banking Corporation, Hugo Boss, as reported here:

15 Supra note 3.

16 The shareholder advocacy group As You Sow has successfully lobbied for American Express, Campbell’s and Monster Beverage to publish diversity and inclusion reports, as reported in Supra note 3.

17 Morrow Sodali’s 2021 Institutional Investor Survey’, available at 66% of respondents cited lack of response to an ESG shareholder resolution.

18 Supra note 4.

19 Lila MacLellan, ‘The Purpose of Companies’ (2019), available at

20 Lila MacLellan, ‘The activist fund that shook Exxon is now investing in GM’ (2021), available at

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Stakeholders v. Shareholders: reimagining environmental justice