Timing Sustainable Engagement in Real Asset Investments

Abstract

This paper estimates the effect of sustainable shareholder engagement on firm's investments. We study the real estate industry where investments are sporadic and occur following depreciation cycles. SEC restrictions (rule 240.14a-8) on shareholder proposals, in combination with the asset depreciation cycles, create random variation enabling us to identify firms' sustainable investment decisions. Using unique microdata tracking investments in all public US commercial real estate properties over the past two decades, we find that sustainable engagement effectively steers firms to initiate tangible and long-lasting sustainable retrofits. However, engagement is ineffective or impairs such investments when it does not coincide with reinvestment periods, or investors vote down the proposal.

JEL Classification: G11, M14, Q56, R0