Risk-Related Activism: The Business Case for Monitoring Nonfinancial Risk

Abstract

This Article presents the case for risk-related activism — the exercise of shareholder power to promote firm management, mitigation, and disclosure of risk, including nonfinancial environmental, social, and governance (ESG) risks. Drawing on a substantial empirical literature largely overlooked in current corporate governance debates, it presents evidence that accounting for both financial and nonfinancial risk can drive firm and portfolio performance, while advancing market transparency and stability. Risk-related activism therefore represents a realignment of investor interests with long-term firm value and core regulatory goals. This Article also counters common objections to institutional investor monitoring by showing that risk-related activists have both the tools and the incentives to engage portfolio firms. This evidence urges greater attention to ESG risks by corporate boards and stronger regulatory and policy support for risk-related activism as a path toward greater corporate accountability.