ESG Shareholder Engagement and Downside Risk
AFA 2018 paper
40 Pages Posted: 25 Nov 2016 Last revised: 1 Feb 2018
Date Written: January 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’ environmental policies (especially on climate risk) 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