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ESG Shareholder Engagement and Downside Risk

33 Pages Posted: 25 Nov 2016 Last revised: 1 Jan 2018

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS)

Ioannis Oikonomou

University of Reading - ICMA Centre

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

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: December 2017

Abstract

We show that shareholder engagement on environmental, social and governance (ESG) issues creates value by reducing downside risk, measured using lower partial moments and value at risk. We document this effect by exploiting proprietary access to the complete engagement database of one of the world’s largest institutional shareholder activist. The risk effect of ESG engagement varies across engagement themes. It is effective when governance or strategy topics are addressed, and if changes in firms’ environmental policies (especially on climate risk) are coupled with governance improvements.

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 (December 2017). 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

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

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 gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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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