Does a Mutual Fund’s Exposure to Pollution Influence Its Environmental Engagements?

Abstract

We study the relationship between mutual fund management’s direct experience with air pollution and the fund’s engagements with its portfolio companies on environmental issues. We find that higher air pollution in a fund’s home county increases its propensity to vote in support of shareholders’ environmental proposals. The effect is weakened by fund manager turnovers, and the managers’ affiliation with the Republican Party. Conversely, the effect is strengthened by more recent air-pollution events, and more highly contested environmental proposals. Overall, our results suggest that mutual fund management’s direct air-pollution experience plays a crucial role in motivating the fund’s environmental engagements.

Keywords: mutual fund voting, environment, air pollution

JEL Classification: G23, G30, G41