Shareholder Activism on Sustainability Issues

Abstract

Shareholder activism on sustainability issues has become increasingly prevalent over the years, with the number of proposals filed doubling from 1999 to 2013. We use recent innovations in accounting standard setting to classify 2,665 shareholder proposals that address environmental and social issues as financially material or immaterial, and we analyze how proposals on material versus immaterial issues are related to firms’ subsequent environmental or social performance and market valuation. We find that 42 percent of the shareholder proposals in our sample are filed on financially material issues. We document that filing shareholder proposals are related to subsequent improvements in the performance of the company on the focal environmental or social issue, even though such proposals nearly never received majority support. Improvements occur across both material and immaterial issues. Proposals on immaterial issues are associated with subsequent declines in firm valuation while proposals on material issues are associated with subsequent increases in firm value. We show that managers increase performance on immaterial issues in companies with agency problems, low awareness of the materiality of sustainability issues, and poor performance on material issues.

Keywords: sustainability, shareholder activism, corporate performance, corporate social responsibility

JEL Classification: G3, M1, M2, M4