- Several high-profile activists – including Cliff Robbins of Blue Harbour Group and Barry Rosenstein of Jana Partners – see environmental and social factors as profit plays.
- “This is hugely important – I think this is a new paradigm for smart investing,” Robbins told a crowd at the 13D Monitor Active-Passive Summit last week.
- “I actually have wanted to run a proxy contest with an all-female, diverse, ethnic slate … I think we’d win, hands-down,” Bill Ackman said.
Wall Street’s activist investors, once known for pushing for extreme cost-cutting or just about anything that would boost the bottom line, are starting to use their money to promote a different kind of corporate action: social and environmental change. They are doing this, they say, not only as a matter of moral responsibility, but for their original mission of generating better returns for their clients.
Socially responsible investing, long the bastion of faith-based activists and civic do-gooders, can now count several high-profile activists — including Clifton Robbins of Blue Harbour Group and Barry Rosenstein of Jana Partners – among its acolytes. This kind of investing is known as “ESG” for environmental, social and governance factors.
While research remains limited, early academic analysis from Harvard Business School finds firms with an emphasis on environmental and social issues have a significantly higher annualized return.
‘A new paradigm’
In an annual speech to hedge fund leaders last Tuesday, Robbins, Blue Harbour’s chief executive, said that social and environmental considerations have become integral to how the fund’s partners decide where to invest its $3 billion in assets. “This is hugely important – I think this is a new paradigm for smart investing,” he told the crowd at the 13D Monitor Active-Passive Summit last week. “Now when I’m calling up a CEO three months after we make an investment, in addition to saying: ‘Where are we on the spin-out? Where are we on the balance sheet? Where are we on the margins?’ I’m saying, ‘Where are we on that commitment you made to me to make the board more diverse?'”
Known as “the friendly activist,” the Greenwich, Connecticut-based hedge fund prides itself on having never sued or run a proxy contest against a company since Robbins first founded the firm in 2004. Instead, Blue Harbour has made a name for itself through meticulous work with company management, a process Robbins considers “one of the most important” in determining whether to invest.
That simultaneous focus on both management and ESG was recently put to the test when the fund accrued a 4 percent stake in software company Open Text, according to David Silverman, managing director at Blue Harbour who quarterbacks the fund’s ESG efforts.
For an industry infamous for its lack of gender diversity, Open Text’s decision to appoint Madhu Ranganathan as chief financial officer this month came as welcome news to the Blue Harbour team. “Open Text just added a new CFO who happens to be a woman of diverse background … we think she’s going to be a great CFO,” Silverman told CNBC. “That’s important at a tech company, as more broadly in the industry there have been issues of diversity and inclusion.”
While taking steps to diversify a company’s management or board may have its own ethical benefits, Silverman reiterated that Blue Harbour’s focus on ESG stems from financial interest. It’s those types of company-specific ESG concerns, he said, which can help concentrated activists unlock previously hidden value.