Striking fear in the hearts of management teams, activist hedge funds have a reputation for secretly amassing shares and then hitting a company with demands. They sometimes want a seat on the board, management changes or a strategic shift at the firm.

But demanding environmental stewardship? That wasn’t a requirement five or 10 years ago. Now, even hedge funds are starting to join other asset managers such as pension funds in judging companies based on their environmental, social or governance practices, or ESG. It’s still rare but it’s happening. Corporate boards and management teams need to make sure they are prepared for this shift in strategy—especially since big, institutional shareholders are taking an interest in ESG, too.

As an example, Jana Partners teamed up with the California State Teachers’ Retirement System (CalSTRS) in 2018 and successfully lobbied Apple to adopt parental screen time controls on its devices. ValueAct Capital Management started incorporating ESG into investment analysis, and wrote a paper in May with professors from Stanford University professors, “The Business Case for ESG.”

Have activist hedge funds gone soft? No, not necessarily. But they are beginning to join institutional investors in campaigns meant to change corporate business practices and improve long-term sustainability. “There’s growing interest in it and people see a lot of money in it,’’ says Josh Black, editor-in-chief of the trade publisher and research firm Activist Insight.

ValueAct Capital and Stanford University professors David Larcker and Bryan Tayan wrote that the increased debate over ESG issues is based on the premise that “both companies and investors have become too short-term oriented in their investment horizon, leading to decisions that increase near-term reported profits at the expense of the long-term sustainability of those profits.” ValueAct describes itself as a long-term investor.

But the challenges of meeting these concerns at the board level are significant. In the United States, the Financial Accounting Standards Board helps public companies report common financial metrics so investors can see apples-to-apples comparisons. There are no mandated apples-to-apples comparisons when it comes to ESG.

There have been some efforts to create voluntary standards. The Sustainability Accounting Standards Board, for example, issued voluntary guidelines in 2018 to help 77 different industries report sustainability issues that would be financially material to investors. Oil and gas exploration companies have different standards than commercial banks, for example.

Formalizing global standards, to be fair, comes far later than the efforts of many companies to improve sustainability. Large public companies have been reporting for years their impacts on the environment and the communities they serve. For example, Princeton, New Jersey-based electricity generator NRG Energy reported that it had reduced its carbon emissions 37 percent last year and plans to cut its emissions in half by 2030.

John F. Cannon, a corporate governance and securities defense attorney with Stradling in Newport Beach, California, says smaller, emerging companies will be hard pressed to have the large-scale ESG reporting that big corporations do. But there are ways for all public boards to get ahead of the game.

“If businesses embrace the concept of controlling risk by adopting programs and solutions and polices that embrace ESG, what they are really doing is having a longer-term goal toward value and diminishing risk,’’ he says.

Cannon suggests that putting parental screen controls on electronic devices is good business. Risk management is about preventative medicine, in other words. “I do think that’s a positive trend,’’ he says.

Investors, including hedge funds, are focusing on ESG as a risk management issue. ValueAct Capital proposes that companies build an ecosystem map that includes shareholders, customers, suppliers, employees and regulators. Then, the company can jot down the ESG factors most relevant to each category and analyze their interests.

Robert Eccles, a visiting professor of management practice at Saïd Business School at the University of Oxford, suggests a statement of purpose at the board level can be a place for the board to give its “view of what the role of the corporation is in society.”

If anything, that could attract the right sort of investor. Still, a level of active engagement is needed. Management should be monitoring the company’s shareholders and their goals. Some boards get regular reports from the investor relations department, either at every board meeting or once per year, said Deloitte in a recent report on the topic.

Whether planning for ESG or some other issue, it’s important for the board to have a strategy in place in case of a potential challenge. It’s far more prevalent to have a game plan to deal with activist investors than it was five years ago, said Strategic Governance Advisors Managing Director Steve Balet in a recent video interview for DirectorCorps.

Whatever the difficulties are in preparing for the evolution of shareholder activism, beginning to plan for a challenge is a first step.