ESG Shareholder Engagement and Downside Risk

ESG Shareholder Engagement and Downside Risk

Andreas G.F. Hoepner, Ioannis Oikonomou, Zacharias Sautner, Laura Starks, Xiao Y. Zhou

Series number :

Serial Number: 
671/2020

Date posted :

April 16 2020

Last revised :

October 30 2023
SSRN Share

Keywords

  • ESG • 
  • shareholder activism • 
  • Downside Risk • 
  • Corporate governance • 
  • climate change

We show that engagement on environmental, social, and governance issues can benefit shareholders by reducing firms’ downside risks. We find that the risk reductions (measured using value at risk and lower partial moments) vary across engagement types and success rates. Engagement is most effective in lowering downside risk when addressing environmental topics (primarily climate change).

Further, targets with large downside risk reductions exhibit a decrease in environmental incidents after the engagement. We estimate that the value at risk of engagement targets decreases by 9% of the standard deviation after successful engagements, relative to control firms.

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Published in

Published in: 
Description: 
Review of Finance, forthcoming

Authors

Real name:
Andreas G.F. Hoepner
Real name:
Ioannis Oikonomou
Professor
Real name:
Laura Starks
Research Member
McCombs School of Business, University of Texas at Austin
Real name:
Xiao Y. Zhou