We need to break down our ESG commentary into two distinct sections as the terminology is now being applied not only to how the investment community is investing but also to how corporates are changing behavior. There is a link, in that one of the motivations for behavioral change at the corporate level is to meet investable ESG criteria, but there are other reasons why corporate behavior is changing and it is not just to do with equity value. With ESG factors now impacting debt costs and perhaps more important, activist behavior and all stakeholders, including customers, the issue is being increasingly becoming a core Board responsibility, whether encompassed within a sustainability mandate or addressed more specifically.
But from a corporate perspective, it will be increasingly important to distinguish between “window dressing” and real action. Appointing the right people in the right roles will go a long way to improve stakeholder confidence that a company is taking every aspect of ESG seriously, but the smarter activists will look through headlines, advertising campaigns, and eye-catching initiatives that sell well, but are almost irrelevant on a corporate and global ESG scale. The changes at ExxonMobil at the board level are a sign that companies with either little defense concerning past and current behavior, and/or no tangible plan beyond well-worded PR, need to be looking over their shoulders. As ExxonMobil's stock has shown, there is money to be made from calling out the bad actors. See our ESG and Climate report for more on this.
