Corporate Governance

Shearman & Sterling LLP 17 | Recent Shareholder Activism Trends ESG ACTIVISM CONTINUES TO RISE ESG-themed or ESG-related campaigns are trending Activists launched multiple ESG-themed campaigns in 2020 and early 2021, with environmental issues standing front and center. In 2020, London-based hedge fund BlueBell Capital Partners announced its "One Share ESG Campaign" whereby it buys one share of a company that it believes has questionable ESG practices, and later that year it targeted Belgian chemicals company Solvay to demand it cease discharging waste from its Tuscany plant into the sea. In early 2020, another London-based hedge fund, The Children's Investment Fund (TCI), launched its "Say on Climate" campaign (modeled after the "Say on Pay" executive compensation initiative), which has resulted in more than 20 companies, including Unilever, Moody's, Canadian National Railway, Rio Tinto, S&P Global and the Spanish airports operator Aena, committing to hold Say on Climate votes. 1 Perhaps the most notable ESG activist victory thus far was the recently formed ESG-focused activist fund Engine No. 1's successful campaign to elect three directors to the board of ExxonMobil in a bid to push the company toward transitioning to a low-carbon economy. The campaign received significant institutional investor support, including from Vanguard, BlackRock, State Street, T. Rowe Price and CalPERS, as well as support from Institutional Shareholder Services (ISS) and Glass Lewis. Even shareholder activists that have historically not focused on ESG matters are now integrating ESG issues into their campaigns. After pushing for what was an unsuccessful sale of the utility company Evergy, activist firm Elliott settled its campaign when Evergy agreed to a five-year business plan that included the adoption of a sustainability transformation plan and a shift toward renewable energy. In its successful campaign to force the multinational insurer Prudential to separate its U.S. business and its Asia business, hedge fund Third Point argued that the divestment would save costs and reduce the company's carbon footprint. While the activists pivoting to ESG is likely opportunistic rather than a shift away from maximizing shareholder returns, it does show that they believe that ESG may help draw support from large institutional investors, which have been more vocal about their willingness to support ESG-driven activist campaigns, and other stakeholders such as ISS and Glass Lewis. Environmental and social (E&S) proposals gain more support 2 While the number of social and political proposals in 2021 remains comparable with prior years, they are garnering more support among shareholders. Nearly 20% of the social and political proposals voted on received majority shareholder support, up from approximately 10% in 2020 and 7% in 2019. All social and political proposals voted on received an average support of 34.4%, up from 27.7% in 2020 and 28.1% in 2019. Among the social proposals, those relating to racial equity reporting received a record number of submissions (eight submissions), and those related to workforce diversity increased dramatically (more than doubled the 2020 submissions and quadrupled the 2019 submissions). 3 1 See Say On Climate, https://sayonclimate.org/supporters. 2 Note that some socially or environmentally focused campaigns occurred primarily outside of the proxy ballot. The campaign spearheaded by the New York City Comptroller's Office seeking public disclosure of the S&P 100 companies' Employment Information Report (EEO-1, which provides a demographic breakdown of an employer's work force by race and gender) data and the non-profit shareholder advocacy group, As You Sow's engagement with companies asking for net zero transition plans with shareholder voting both fall under this category. 3 Source: Deal Point Data. Proposals are limited to Rule 14a-8 proposals for meetings during the relevant period and for 2021, with a proposal proxy filing date on or before August 31, 2021. 2 7 9 2019 2020 2021* 2 20. 15 6 8 19.0 13 35 13.0 43.9% 53.8% 41.8% Total Proposals Voted On Received Majority Vote % of For * All workforce diversity proposals for meetings between January 1, 2021, and December 31, 2021, with a proposal proxy filing date on or before August 31, 2021. Workforce Diversity Proposals

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