ch.18 Activist and Impact Investing

Activists

• An investment strategy where an investor seeks to influence or change a public company’s corporate policies, strategies, or management.

impact investors

• Investing with the dual objective of financial return and social/environmental benefit. ( ESG investing)

METHODS OF ACTIVISM

• Activists utilize a spectrum of techniques to influence corporate policy

• If management is unresponsive, activists pivot to "publicly shaming" the company, staging proxy fights, or submitting formal proposals.

METHODS OF ACTIVISM:

Shareholder Proposals:

• Under SEC Rule 14a-8, a shareholder owning more than $2,000 of a company's stock or 1 percent of outstanding shares can submit a shareholder proposal.

• proposals are included in the proxy statement for shareholder vote.

• Advisory and non-binding.(passed vote but doesn’t require implementation)

METHODS OF ACTIVISM

public attacks

• activist openly criticizes a target company to gain public and shareholder support for change

• example: CalPERS, which publishes an annual list of "worst companies" to highlight corporate laggards.

METHODS OF ACTIVISM

proxy fights

• A method where shareholders use a proxy ballot to challenge a company, often to gain board seats and influence corporate change. (attempts to solicit collective proxy votes from other shareholders to gain board seats)

METHODS OF ACTIVISM

Private negoation

• "behind-the-scenes" approach where an activist investor engages directly

INSTITUTIONAL ACTIVISTS

Large organizations use equity ownership to influence corporate management

Public Pension Funds

• prioritize social and political issues alongside financial returns, such as employment rights and political spending.

INSURANCE COMPANIES, BANKS,

AND MUTUAL FUNDS

• Historically passive, these institutions have become active due to the rise of passive indexing.

Hedge funds also have activist investing approaches: here are popular strategies

Engage Management​

Capital Structure​

Corporate Governance​

Business Strategy​

Asset Sale​

Block Merger​

Financing and Bankruptcy: vulture funds​

High Profile Activists​

• Carl Icahn/Icahn Enterprises: inefficient management and resource use​

• T. Boone Pickens: corporate governance to unlock value; greenmail​

Gadflies​

• Gilbert Brothers: board composition and governance​

• Evelyn Davis: individual investors​

Impact investing

An investing approach that generates both​’s

• a financial return, and​

• positive, measurable social and/or environmental benefits.

Exists primarily within the alternative asset category.

Impact investing

Effectiveness of Impact Investing​

• Impact investments can achieve market-rate returns,

• Their effectiveness is difficult to quantify due to a lack of standardized metrics for social and environmental outcomes.

• Sustainable Accounting Standards Board (SASB)​

Impact investing

Social Impact Bonds​

• A contract where the gov/ public sector only repays private investors

  • if the funded social program meets specific, pre-defined performance targets.

Impact investing

Green Bonds​

• fixed-income instruments specifically earmarked to raise money for climate and environmental projects,

• they allow issuers to tap into a growing pool of ESG-focused capital

impact investing

ESG principles

• Sustainable Accounting Standards Board (SASB)​: companies to disclose financially material sustainability information to investors.

• Premise: Companies that display positive ESG attributes are better positioned to outperform.​

Activist vs Impact Investing ​

• Activism is an attempt to exert shareholder preferences.​

• Impact is an attempt to generate profit while achieving social and environmental benefits.