The Value of Shareholder Environmental Activism: Case Engine No. 1

Abstract

We observe short-term market reactions to S&P100 index constituents around two subsequent events involving Engine No. 1 – an environment activist investment firm: first, they won board seats at ExxonMobil (the top non-renewable energy producer) on May 26, 2021; and second, on June 2, 2021, they announced their plan to float Transform-500-ETF (an ETF targeting to ensure green corporate policies) in the market. We find that the market reacts significantly positively towards the stocks of the firms with more serious environmental (and emission) concerns around each of these two events. Overall, our findings suggest that a positive move by the environment activist shareholders results in an incremental favorable equity market reaction benefitting the polluting firms. Drawing upon stakeholder, efficient market, and prospect theory, we posit that this reaction may be a product of market anticipation of a future reduction in environmental (and emission) concerns following the involvement of green investors.

Keywords: environmental concern, Shareholder activism, cumulative abnormal return, market reaction