Investor Engagement to Mitigate Climate Change: Evidence from an Experiment with Mid-Cap Companies

Abstract

We use an experimental setting to investigate the impact of investor engagement and management attitudes on the reporting and performance of climate change management. Our results show that engaged companies were more likely than the control group to improve both their climate change reporting and performance, and that management recalcitrance significantly impeded improvement but did not eliminate the effectiveness of engagement. The study contributes to the understanding of the role of shareholder activism in advancing environmental, social and governance issues by offering evidence from non-confrontational engagement by a relatively small institutional investor and by highlighting the role of management. The study offers evidence to institutional investors that relatively small investment institutions can effectively engage with firms and change management practice without necessarily embarking on costly or time consuming programmes. The results also have implications for targeting engagement for maximum effectiveness and for the design and implementation of policy and regulation to promote better carbon management.

Keywords: Corporate Governance, Shareholder Activism, Private Engagement, Climate Change, Experimental Design

JEL Classification: G30, M14