Davos investor pressure

03 December 2019 11:18

PM calls on investors to “use their influence” to encourage ethical business

Britain’s Prime Minister has said that investors can “make a big difference” by encouraging companies to act in a trustworthy way. Her call is just the latest sign that shareholders are applying more pressure on companies to behave ethically.

In a speech at the World Economic Forum in Davos on Thursday (24 January), Theresa May called on shareholders to “use their influence” to put pressure on the companies they invest in to improve their “social impact”. Followers of the LexisNexis Business Insight Solutions blog will have read many examples of investors holding companies to account for unethical behaviour in the last year. The fact that a world leader has called for shareholder activism at one of the biggest global forums shows that investor expectations have become another important reason why companies must act ethically and transparently.

Mrs May directed her comments at technology companies, particularly Facebook and Twitter, warning that online platforms can be used to “facilitate child abuse, modern slavery or the spreading of terrorist and extremist content”. Rather than announce new legislation aimed at clamping down on these companies, she has put her faith in investors to drive change. “Investors can make a big difference here by ensuring trust and safety issues are being properly considered,” she said. “I urge them to do so.”

Investors expect ethical behaviour

Around the world there has been a clear trend towards shareholders using their influence to encourage ethical behaviour by companies. Earlier this month, major investors Arjuna Capital and the New York State Common Retirement Fund joined forces to file a shareholder resolution against Facebook and Twitter. They are demanding that the tech giants improve the way they tackle online sexual harassment, fake news, election interference, violence and hate speech.  

Many shareholders are going even further by taking legal action against firms for unethical behaviour which damages their holdings. Brazil’s state oil company, Petrobras, recently paid $2.95 billion to settle a class action suit brought by investors in the United States. This large sum is in addition to payments to settle bribery allegations with government regulators and a drop in the company’s share price.  

As well as investors, consumers are demanding more of companies by only buying from brands which take seriously the issues of corruption, modern slavery and environmental sustainability. Companies are also using their own role as consumers to drive ethic improvements in their global supply chains, according to Suzanne Fallender, director of corporate responsibility at Intel. She said companies are “setting increased expectations around transparency, holding suppliers accountable for environmental performance and human rights issues, and collaborating on industry-wide initiatives to address system-level challenges from human trafficking to water conservation.”

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