Activist investing is stronger than ever and capital assets in activist funds continue to grow at a rapid pace. According to a report by Argus research, these funds have more than quintupled since 2008. Activist investing can be defined as the purchase of large numbers of company shares with the intent to effect change in a company. What the desired change is can vary, but typically the goal is to improve the profitability or value of a company. Investor activists are paying more and more attention to corporate social responsibility, which not only mitigates risk, but can improve company performance.


In the past, executives have seen corporate responsibility as just another pressure they face. However, as society, customers, and investors place a higher emphasis on corporate responsibility, so does company leadership. Executives have discovered that they also find improvements to cost of capital, profitability,and supply chain risk issues.


Corporate Social Responsibility and Risk Mitigation

Positive actions with regards to social, environmental, and ethical issues can be seen as a way to manage risk. Corporate social responsibility means having a sense of responsibility for the well-being of your stakeholders, your employees, and your community. But how exactly can a company mitigate risk?


Key Risks and Risk Mitigation Related to CSR:

  1. Supply chain risk – companies need to look not only within their own organization but within their supply chain. Be sure to verify that suppliers are behaving ethically and are not participating in any human rights abuses.
  2. Product liability – this means that companies need to ensure their product poses no safety or health risks to the consumer or community.
  3. Community relationships – your business will suffer if you are not meeting the demands of modern day society expectations. Today’s consumer believes in ethical, responsible behavior. The backlash can result from poor press coverage or even word of mouth.


Final Thoughts

Today, responsible investing has become a major investment principle. Activist investors will continue to push the principles of responsible corporate governance and provide guidelines to companies to enact change. It is expected the demand for socially responsible stocks will keep increasing and it will become increasingly common for investors to request that companies in their portfolio improve their corporate citizenship status.


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