According to new data from Insightia, a Diligent brand, Australia was home to the third-busiest market for shareholder activism in 2022, trailing only the U.S. and Japan.
In their Corporate Governance in Australia 2023 report, Insightia credits much of this activity to the Australian government's heightened focus on environmental accountability and reporting.
“With Australian issuers looking set to face a swathe of new ESG-related reporting requirements and investor engagement requests in the coming years, it’s increasingly important for leaders to be proactive in addressing ESG-related risks and opportunities,” writes Josh Black, editor-in-chief at Insightia.
Regulators and Investors Demand ESG Progress
Among the report's top findings is a growing interest in ESG among regulators and investors.
Corporate ESG reporting may soon become mandatory in Australia, with its government currently reviewing comments on a proposal aligning disclosures to the Task Force for Climate-related Financial Disclosure framework.
Such requirements are already in place in the European Union, while the U.S. Securities and Exchange Commission (SEC) is expected to finalize its own proposed rules in the next month.
Last year, 24 shareholder proposals related to climate change received an average of 71.1% support in Australia, nearly double the 36.4% average in 2021, and almost triple the number of proposals filed in 2020.
Financial factors have also contributed to this rise in activism.
“The weakening of the Australian dollar has made companies all the more attractive to activists, while the drop in equity markets and underperformance help to distinguish the leaders from the laggards that have been riding the coattails of the bull market,” Jeremy Leibler, partner at Arnold Bloch Leibler’s corporate and M&A practice, told Insightia in an interview. “Companies that are feeling vulnerable are, therefore, more likely to succumb to the demands of activists."
Meanwhile, the country continues to see progress in terms of diversity, equity and inclusion (DEI) efforts, with female directors holding approximately 35% of all ASX 300 board seats in 2022, compared to 23% in 2019.
ESG Shortcomings Mean More Pay Scrutiny
Last year, 34 ASX 100 companies were identified as having outsized CEO total realized pay when compared to total shareholder returns. However, only eight of those companies faced more than 10% opposition to their remuneration plans.
Insightia explains that investors are directing most of their pay plan opposition at companies perceived as making "insufficient steps toward decarbonization."
In 2022, support for director remuneration proposals among Australia-based companies reached its lowest point since 2015.
Occasional Activists Target Board Seats
According to Insightia, the majority of Australian shareholder engagements are being carried out by occasional activists or concerned shareholders, rather than dedicated activists. In fact, just five campaigns involved dedicated or partially focused activists in 2022.
More than half of the demands made last year involved board seats, with the aim of either removing or adding board personnel. Demands to remove personnel reached their highest level since 2020.
Insightia also notes that in 2022, more campaigns were resolved by settlements than by proxy votes — a trend only seen in two other years since 2014.
How Can Australian Directors Prepare for More ESG Activism?
"The rise of ESG activism in Australia underscores the need for leaders to have a 360-view of data across their organization, strengthening their ability to identify which red flags to escalate to the board, [to] monitor and mitigate evolving risks, and [to] document compliance and risk management efforts in defensible, auditable detail," writes Black.
With that deeper visibility and access to critical insights, directors can fulfill their duties more effectively and reduce their organization's vulnerability to shareholder activism threats.
For a closer look at activism trends in Australia and what companies can do to prepare for the year ahead, download Insightia's full Corporate Governance in Australia report.