ESG Shareholder Engagement and Downside Risk

AFA 2018 paper

56 Pages Posted: 25 Nov 2016 Last revised: 3 Jun 2020

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS); European Commission's Technical Expert Group for 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: September 19, 2019

Abstract

We examine whether engagement on environmental, social and governance (ESG) issues can benefit shareholders by reducing firms’ downside risk, measured using the lower partial moment 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 environmental topics (primarily climate change). 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

Hoepner, Andreas G. F. and Oikonomou, Ioannis and Sautner, Zacharias and Starks, Laura T. and Zhou, Xiaoyan, ESG Shareholder Engagement and Downside Risk (September 19, 2019). AFA 2018 paper, 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

European Commission's Technical Expert Group for 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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