Forcing the issue
High-profile activist-led campaigns are demonstrating the increasing ability of NGOs to compel global policy change. Robert Blood explains what this means for investors
This Easter's blockades of central London bridges and road junctions by climate activists are a salient reminder that there is still fire in the belly of the UK's environmental movement. While disrupting city centres gets the attention of the media, activists' rising public and private pressure on financial institutions has been less noticed. This has triggered a radical shift in investment funds' attitudes towards fossil fuels.
Only last year, Legal & General pulled its Future World index funds out of one of the world's largest investors, Japan Post Holdings (JPH), citing “persistent inaction“ to address climate risk. Many of Europe's biggest banks and insurers have announced new or strengthened anti-coal policies during the past 24 months – as have several major banks in the US, despite (or because of) their government's hostility to the issue.
Applying pressure
High-profile, often embarrassing campaigns by determined environmental activists do work. This is not a new discovery. The model for the climate divestment campaign is the US campus campaign against South Africa in the mid-1980s. Designed to undermine the apartheid regime economically, it made South Africa a pariah state for US firms for nearly a decade, and triggered several anti-South Africa investment laws in Congress.
The influence of activist groups goes well beyond climate change. That ESG-directed investing has moved from fringe to mainstream is largely down to NGOs, particularly since the 2008 financial crash. Post-crash financial institutions realised they had to show visible change to answer charges that they were out of touch with society's needs. Engaging with activists allowed banks and investors to show they were listening, and chimed with the needs of 'sensitive' clients such as pension funds, which were under pressure from employees and labour unions to consider the social and environmental impact of their investments.
But with activists expecting action on concerns as diverse as indigenous rights and sustainability, circular economies, supply chain labour standards and animal rights, how should funds prioritise their policy development?
As it happens, the activist groups' own campaigns provide a handy 'early warning system' that helps predict which issues will catch fire with the public and stakeholders.
In the spotlight
Take plastics. Three years ago, plastic pollution was a rumbling issue. Experts were aware of the problem but there was little public interest except regarding plastic carrier bag littering. This started to change with NGO pressure over plastic microbeads in toiletries, and the issue exploded in early 2018. David Attenborough's programme Blue Planet was a factor here – but so was a massive increase in NGO campaigning on single-use plastics in the months before, which had already begun to put major corporations and politicians on the spot.
As Figure 1 (below) shows, this almost overnight change in public sentiment correlates with the earlier uptick in activist campaigning, which SIGWATCH tracks through logging major campaigning actions, tagged to the key issues. With a series of well-focused and increasingly insistent campaigns, NGOs effectively forced the plastics issue into the public consciousness (as measured by the relative volume of Google searches).
We can see a similar correlation with shale gas (fracking) in the US, and currently, with 'green vegetarianism' – vegetarianism and veganism inspired by environmental concern (see Figure 2 below). We are probably only in the early stages of the issue cycle, but the same 12 to 18-month lead of rising campaigning over public response is already visible.
We know NGOs 'make the weather' on ESG. The predictive power of their campaigning reveals that their impact is no accident. Rather, it is a result of creating overwhelming public attention that almost inevitably drives a public response; through cooperative financial institutions, this influence is being translated into tangible economic choices. Armed with knowledge about where activists are going, investors have the opportunity to ride this wave, rather than be dragged down by the undertow.
Robert Blood is founder and managing director of SIGWATCH, a data gatherer and consultancy specialising in NGO campaigning.