ESG Shareholder Engagement and Downside Risk

53 Pages Posted: 25 Nov 2016 Last revised: 28 Nov 2022

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission's Platform on Sustainable Finance

Ioannis Oikonomou

University of Reading - ICMA Centre

Zacharias Sautner

Frankfurt School of Finance & Management; European Corporate Governance Institute (ECGI)

Laura T. Starks

University of Texas at Austin - Department of Finance

Xiaoyan Zhou

University of Oxford-Smith School of Enterprise and the Environment

Date Written: November 2022

Abstract

We show that engagement on environmental, social, and governance issues can benefit shareholders by reducing firms’ downside risks. We find that the risk reductions (measured using value at risk and lower partial moments) vary across engagement types and success rates. Engagement is most effective in lowering downside risk when addressing environmental topics (primarily climate change). Further, targets with large downside risk reductions exhibit a decrease in environmental incidents after the engagement. We estimate that the value at risk of engagement targets decreases by 9% of the standard deviation after successful engagements, relative to control firms.

Keywords: ESG, Shareholder Activism, Downside Risk, Corporate Governance, Climate Change

JEL Classification: G32, M14

Suggested Citation

Hoepner, Andreas G. F. and Oikonomou, Ioannis and Sautner, Zacharias and Starks, Laura T. and Zhou, Xiaoyan, ESG Shareholder Engagement and Downside Risk (November 2022). AFA 2018 paper, European Corporate Governance Institute – Finance Working Paper No. 671/2020, Available at SSRN: https://ssrn.com/abstract=2874252 or http://dx.doi.org/10.2139/ssrn.2874252

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission's Platform on Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Ioannis Oikonomou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Zacharias Sautner

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Xiaoyan Zhou

University of Oxford-Smith School of Enterprise and the Environment

South Parks Road
P.O. Box 242
Oxford, Oxfirdshire OX1 3QY
United Kingdom
7921513972 (Phone)
7921513972 (Fax)

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