Data from Insightia, a Diligent brand, shows that the complementary efforts of investors and regulators are ensuring that ESG remains a corporate priority.

According to the report, produced in association with White & Case and Alliance Advisors, investors are pressuring companies to make good on their social obligations to stakeholders and expressing greater frustration at executive compensation. The report also shows that Europe is facing a surge of shareholder activists demanding the sale of undervalued companies to unlock value-creation opportunities.

Regulators are taking the lead on environmental concerns. As part of the Corporate Sustainability Reporting Directive (CSRD), issuers will be required to enhance their ESG oversight and reporting with comprehensive greenhouse gas (GHG) emissions disclosures among other new requirements.

“Recent regulatory developments are set to revolutionize the way issuers worldwide oversee and report on ESG-related risks, as well as how investors engage with companies on these topics,” said Josh Black, editor-in-chief at Diligent. “At the same time, boards and management teams need to remain focused on addressing performance-related concerns, including around corporate strategy, profitability, and executive incentives.”

Emissions reporting in the foreground

CSRD has ushered in a new era of ESG accountability, mandating European issuers with upwards of 250 employees annually report on sustainability policies and targets, including their Scope 1, 2, and 3 emissions, starting in 2025.

Additionally, climate change remains firmly on investors’ agendas, with various shareholder groups becoming increasingly vocal about the financial sector’s continued financing of fossil fuels through the filing of shareholder proposals and lawsuits.

Cost-of-living crisis response  

FTSE 350 executive pay hit record highs in 2022, with total CEO realized pay averaging 3.03 million pounds ($3.76m), compared to 2.1 million and 2.6 million pounds in 2020 and 2021, respectively.

In response, investors have warned they will not tolerate outsized CEO payouts that fail to account for rising inflation. In the first three months of 2023, the 35 “say on pay” proposals subject to a vote at FTSE 350-listed companies won 92.9% average support, compared to 93.5% throughout both 2020 and 2021 according to the report.

Meanwhile, ESG shareholder proposals are refocussing on human rights and employee welfare, calling on issuers to implement a Real Living Wage and address human rights concerns.

Activists push for sales

At a time when interest rates and inflation are limiting growth options, activist intentions have shifted from blocking deals to demanding the sale of long-undervalued companies. Fifteen companies faced demands for a sale and/or acquisition of a third party last year, an increase from 13 in 2021, while the number of companies facing opposition to M&A transactions fell to 15 in 2022, from 29 in 2021.

U.K.- and Europe-based companies also saw a 67% “at least partially successful” rate for campaigns for or against a merger in 2022, compared to 35% and 49% in 2020 and 2021, respectively.

About the report

Data from Insightia’s Activism, Activist Shorts, Voting, ESG, and Governance modules, as well as Diligent’s Compensation and Governance Intel (CGI) and Manzama solutions, run from January 1 to December 31, 2022. 2023 data is as of February 28, 2023. Further data is available on request, although bespoke analysis may take 48 hours. For more information, please email insightia.info@diligent.com.

Read the full report here.