Does a Mutual Fund's Exposure to Pollution Influence its Environmental Engagements?

Abstract

Examining the impact of local air pollution on mutual funds’ voting behavior, we study the possible relationship between mutual fund management’s direct experience with extreme environment events 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 managers’ affiliation with the Republican Party. Conversely, the effect is stronger in more highly contested environmental proposals. Overall, our results suggest that mutual fund management’s direct experience with extreme environment events plays a crucial role in motivating the fund’s environmental engagements.

Keywords: mutual fund voting, environment, air pollution