Investors Want to Know About the ‘S’ in ESG

Investors Want to Know About the ‘S’ in ESG

This year marks the 15th anniversary of the release of Super Size Me, filmmaker Morgan Spurlock’s gonzo-style look at the fast-food industry. The Academy Award-nominated documentary focused on one of the world’s most venerable brands, McDonald’s, as its target.

To draw attention to rising levels of obesity in the United States, Spurlock ate three meals a day at McDonald’s for a month, chronicling the ill effects on his health for the film. Made on a budget of just $65,000, his film grossed more than $22 million at the box office and added fuel to longstanding criticism of fast-food companies for their role in promoting poor dietary habits.

The back-and-forth between McDonald’s and consumer advocates has carried on since then. This year, for example, activist firm Harrington Investments Inc. filed a shareholder proposal to create a special “food integrity” committee on the Big Mac purveyor’s board of directors.

“The impetus for this proposal comes from the recent breaches of safety and security in their food service, including but not limited to the rising global epidemic of obesity, diabetes and heart disease,” Harrington said in a description of the firm’s shareholder advocacy agenda for 2019.

McDonald’s obtained a so-called no-action letter from the Securities and Exchange Commission (SEC) to put the kibosh on Harrington’s proposal. The SEC’s ruling involved Exchange Act Rule 14a-8(i)(7), which includes “micromanagement” as a basis for excluding shareholder proposals. If Harrington’s proposal would qualify for an exclusion on the basis that it “probes too deeply into matters of a complex nature,” it’s fair to suspect the Commission will grant companies a wide berth in how the rule is applied to social-oriented submissions from shareholders.

However, even as companies continue winning such battles against corporate gadflies and reformers, socially motivated investors and public advocates appear to be turning the tide in the war over how Corporate America does business.

Fast food, tobacco and energy have long been under siege for the social impact of their businesses, but other sectors such as technology and finance have joined their ranks in recent years. Equally important, the army of third-party shadow regulators who intend to influence corporate policies continues to grow.

In fact, the line between “socially motivated investors” and just plain old “investors” has blurred considerably.

Retail investors are showing greater interest in how companies approach issues such as diversity within their boards of directors and executive compensation. Similarly, major institutional investors like BlackRock, the largest investment firm in the world, and CalPERS, which manages the pension and health benefits for California’s public employees and retirees, are incorporating social factors into their asset allocations and proxy votes. Index funds and other financial products that screen companies based on social metrics are also proliferating, with one estimate showing their holdings have increased at a compound annual growth rate of almost 14 percent since 1995 to nearly $12 trillion.

In the past, these social issues have often been put in the same “ESG” bucket as environmental and governmental concerns. They’re becoming standalone considerations with increasing frequency, though. On Thursday, March 21, Intelligize is partnering with IR Magazine on a webinar, Putting the ‘S’ in ESG, to delve even further into this trend, which shows no signs of abating any time soon.

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