Climate Risk Engagements

Abstract

We study climate risk engagements by one of the world’s largest institutional investors. These engagements account for a substantial share of ESG engagements and predominantly target firms with large carbon footprints and high exposure to transition risk. The recent ESG backlash has led to a reduction in climate risk engagements, particularly in industries where climate issues are less financially material. Climate risk engagements are associated with greater voting support for management. Following engagement, targeted firms are more likely to adopt science-based climate targets and to disclose climate-related information. They also experience a modest reduction in emissions intensity. Placebo tests using social engagements suggest that these outcomes are specifically due to climate risk engagements. Finally, when targeted firms fail to subsequently take climate actions, engagement is repeated and complemented by votes against directors.

Keywords: Shareholder Engagement, Climate Change, Carbon Emissions, ESG, Activism

JEL Classification: D62, G23, G32, G34, M14, Q54