ESG Shareholder Engagement and Downside Risk
53 Pages Posted: 25 Nov 2016 Last revised: 28 Nov 2022
Date Written: November 2022
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: Suggested Citation