ESG Shareholder Engagement and Downside Risk
AFA 2018 paper
50 Pages Posted: 25 Nov 2016 Last revised: 31 Jul 2019
Date Written: August 10, 2018
We examine whether engagement on environmental, social and governance (ESG) issues can benefit shareholders by reducing firms’ downside risk, measured using lower partial moments and value at risk. Using a proprietary database, we provide evidence supporting this hypothesis. We further find that the measured risk effects vary across engagement success and engagement themes. Engagement appears most effective in lowering downside risk when addressing governance or strategy topics and when changes in firms’ social policies are coupled with governance improvements. We find corroborating evidence in that successful engagement reduces the firm’s exposure to a downside-risk factor.
Keywords: ESG, Shareholder Activism, Downside Risk, Corporate Governance, Climate Change
JEL Classification: G32, M14
Suggested Citation: Suggested Citation