ESG Shareholder Engagement and Downside Risk

By Andreas G. F. Hoepner, Ioannis Oikonomou, Zacharias Sautner, Laura T. Starks, Xiaoyan Zhou. 2018

446 citations recorded by the source corpus.

Direct institutional shareholder engagement on environmental, social and governance (ESG) issues has become increasingly important. We show that ESG shareholder engagement reduces downside risk, measured using lower partial moments and value at risk. We document this effect by exploiting proprietary access to the complete engagement database of one of the world’s largest institutional shareholder activist. We document a risk-reduction effect only for engagements where portfolio firms respond with real actions to the investor’s demands. The risk effect of ESG engagement varies across engagement themes. It is effective when governance or strategy & risk topics are addressed, and if changes in firms’ environmental policies are coupled with governance improvements.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/3d0993e91ee31583921c55679301d8ff3bbc12da

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Citations in the corpus

Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact (2020, background): “There are five empirical studies that analyze the extent to which companies comply with shareholder engagement requests (Barko et al., 2017; Dimson et al., 2015, 2018; Dyck et al., 2019; Hoepner et al., 2016).”
Corporate green bonds (2019, unknown): “…2015 ; Flammer, Hong, and Minor, 2019 ; Guenster et al., 2011 ) and a negative relation between ESG and risk (e.g., Godfrey, Merrill, and Hansen, 2009 ; Hoepner et al., 2019 ). commitment toward the environment, one would expect significant improvements in environmental performance going forward.”
Firms and social responsibility: A review of ESG and CSR research in corporate finance (2021, background): “Related, Hong and Kacperczyk (2009) find evidence consistent with the view that high ESG/CSR firms have a wider investor base and face lower litigation risk, ultimately leading to a lower cost of capital. Oikonomou, Brooks, and Pavelin (2012) argue that high ESG/CSR firms should have lower risks for”
Mandatory CSR and sustainability reporting: economic analysis and literature review (2019, background): “This insurance effect of a firm’s CSR reputation has been shown for CSR activities that create goodwill with outside stakeholders or society at large (Godfrey et al. 2009; Hoepner et al. 2019); around corporate scandals and high-profile misconduct (Janney and Gove 2011; Christensen 2016); after inad”
ESG Rating Disagreement and Stock Returns (2019, unknown): “For details, see Hoepner et al. (2019).”
The Importance of Climate Risks for Institutional Investors (2020, background): “19 The 25% matches the success rate that Dimson, Karakaş, and Li (2015) report for governance engagements and is close to the 28% that Hoepner et al. (2018) report for ESG engagements.”
Corporate Sustainability and Stock Returns: Evidence from Employee Satisfaction (2020, unknown): “Third, our paper adds to the literature that examines why firms engage in ESG activities (Cochran and Wood, 1984; Moskowitz, 1972; Hoepner et al., 2018; Fombrun and Shanley, 1990).”
The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China (2020, unknown): “Hoepner et al. (2019) find empirical evidence that engagement with ESG issues reduces downside risk.”