ESG Shareholder Engagement and Downside Risk

Hoepner, Andreas G. F.; Oikonomou, Ioannis; Sautner, Zacharias; Starks, Laura T.; Zhou, Xiaoyan

doi:10.2139/ssrn.2874252

Cited by 164 publications

(152 citation statements)

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“…The large-scale empirical research has primarily focused on engagement effects on financial performance of target companies (Barko et al, 2018;Dimson et al, 2015;Hoepner et al, 2018). In this tradition, companies with high market performance are likely to be exposed to engagement as investors have more at stake for given levels of ownership, and targets have financial capacity to respond to activism (Brav, Jiang, Partnoy, & Thomas, 2008;Poulsen et al, 2010).…”

Section: Social Movements and Determinants Of Private Engagementmentioning

confidence: 99%

“…database studies have examined investor activism on ESG issues from different perspectives. These include filing of shareholder resolutions (Grewal, Serafeim, & Yoon, 2016;Lee & Lounsbury, 2011;Proffitt & Spicer, 2006;Rehbein, Logsdon, & Van Buren, 2013;Reid & Toffel, 2009;Vasi & King, 2012), exercising voting rights at annual general meetings (AGMs; Campbell, Gillan, & Niden, 1999;Monks, Miller, & Cook, 2004), and private engagement dialogues (Barko, Cremers, & Renneboog, 2018;Bauer, Clark, & Viehs, 2014;Bauer, Moers, & Viehs, 2015;Dimson, Karakas, & Li, 2015;Goodman, Louche, Van Cranenburgh, & Arenas, 2014;Hoepner, Oikonomou, Sautner, Starks, & Zhou, 2018;Logsdon & Buren, 2009;Rehbein, Logsdon, & Van Buren, 2013). Studies in the literature claim that private engagements are a powerful option of investor activism because of their direct impact on where the "real action typically occurs" (Logsdon & Buren, 2009, p. 353; see also Goodman & Arenas, 2015;Goranova & Ryan, 2014).…”

mentioning

confidence: 99%

“…The mainstream of studies has examined the visible part of activism, such as the shareholder resolution process, the responses of companies to shareholder resolutions, the determinants of shareholder resolution withdrawals, and the impact of withdrawn resolutions on target companies. This paper will focus on the hidden and direct mechanism of investor activism, namely, private engagements by institutional investors on ESG issues prior to or independent of a shareholder resolution (Barko et al, 2018;Bauer et al, 2014;Dimson et al, 2015;Goodman et al, 2014;Hoepner et al, 2018;Rehbein et al, 2013). Private engagements or dialogues with the target companies are probably widely used, but data restricted to proprietary databases on behindthe-scenes interactions that take place without public knowledge have constrained more broad-scale empirical research (Gifford, 2010;Gillan & Starks, 2003;Goranova, Abouk, Nystrom, & Ehsan, 2017;Logsdon & Buren, 2009;Rehbein et al, 2013;Yamahaki & Frynas, 2016).…”

mentioning

confidence: 99%

“…Private engagements or dialogues with the target companies are probably widely used, but data restricted to proprietary databases on behindthe-scenes interactions that take place without public knowledge have constrained more broad-scale empirical research (Gifford, 2010;Gillan & Starks, 2003;Goranova, Abouk, Nystrom, & Ehsan, 2017;Logsdon & Buren, 2009;Rehbein et al, 2013;Yamahaki & Frynas, 2016). The broad-scale empirical work at hand that investigates private engagement with respect to ESG issues has been presented by Dimson et al (2015), Bauer et al (2014), Hoepner et al (2018), and Barko et al (2018). The studies normally employ data of a particular institutional investor who has extended activism from traditional governance concerns into environmental and social issues (Barko et al, 2018;Bauer et al, 2015;Dimson et al, 2015;Hoepner et al, 2018).…”

mentioning

confidence: 99%

“…The broad-scale empirical work at hand that investigates private engagement with respect to ESG issues has been presented by Dimson et al (2015), Bauer et al (2014), Hoepner et al (2018), and Barko et al (2018). The studies normally employ data of a particular institutional investor who has extended activism from traditional governance concerns into environmental and social issues (Barko et al, 2018;Bauer et al, 2015;Dimson et al, 2015;Hoepner et al, 2018). Evidence is provided on thematic private engagements (Barko et al, 2018;Dimson et al, 2015;Hoepner et al, 2018) primarily targeting domestic, blacklisted companies with an objective to enhance financial performance by making improvements in ESG practices (Bauer et al, 2014;Dimson et al, 2015).…”

mentioning

confidence: 99%

See 4 more Smart Citations

Private engagement by Nordic institutional investors on environmental, social, and governance risks in global companies

Semenova

Hassel

2019

Corporate Governance

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Research question/issue: The paper examines private engagements related to environmental, social, and governance (ESG) incidents as a corporate governance mechanism used by Nordic institutional investors to influence MSCI World companies. The questions addressed are how an agent-led collaborative engagement is carried out, what are the characteristics of the target companies selected, and if the successful engagements can improve ESG performance compared with pre-engagement and incomplete cases. Research findings/insights: A unique data set of 355 private engagements of a professional agent on behalf of its Nordic clients is studied on environment, human and labor rights, and corruption risks between 2005 and 2013. An engagement process of the agent is described with focus on sequence and duration of actions of private engagement dialogues before filing a resolution. Successful private engagements, when target companies adopt the proposed ESG changes, are 27.6%. The incidentdriven private engagements target companies rated with high market values and ESG performance. ESG performance and transparency increase for succeeded engagements in the postengagement period and relative to incomplete engagements.Theoretical/academic implications: The paper provides empirical support for a social movement-based influence of private engagements on target companies and adds to the broad-scale empirical literature on investor activism. In the Nordic governance setting, an agent-coordinated private engagement is seen as a social movement that supports targeting companies with a potential for change.Practical/policy implications: Insights are offered to actors in the value chain in financial markets by demonstrating that successful ESG engagements have the potential to change portfolio company ESG practices.

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Section: Social Movements and Determinants Of Private Engagementmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Private engagement by Nordic institutional investors on environmental, social, and governance risks in global companies

Semenova

Hassel

2019

Corporate Governance

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Do corporate environmental protection efforts reduce firm‐level operating risk? Evidence from a developing country

Jamil,

Khan

2024

Bus Strat Env

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This study investigates the impact of corporate environmental protection efforts on firm‐level operating risk. The importance of environmental protection has gained attention in recent years, as proliferation in ESG rating agencies has significantly increased. As suggested by stakeholder theory, the corporations for their survival are required to take care of the environment in which they operate. We used a sample of 245 non‐financial publicly listed firms of developing economy, Pakistan, from 2007 to 2019, to examine whether firms that engage in environmental protection activities have lower operating risk than firms that do not. We identified four important dimensions based on previous literature, to develop a unique index for measuring the firms' environmental performance. These dimensions included voluntary standardization, product environmental compliance, process environmental compliance, and environmental social drives. Focused on downside operating risk in terms of firm operating income, we used binary codes to distinguish firms that are negatively deviating from their industrial average. Using logistic regression on our hand‐collected environmental performance index data, this study finds that firms maintaining effective environmental protection activities are less likely to experience operational failure compared to peers who do not. This relationship holds true even after controlling for various firm‐specific factors such as firm size, leverage, growth opportunity, and profitability. Our findings have implications for policymakers and corporate managers who seek to improve their firms' environmental and financial performance simultaneously. By highlighting the potential benefits of corporate environmental protection efforts, our study provides valuable insights for firms operating in emerging economies.

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Do sustainable institutional investors influence senior executive compensation structures according to their preferences? Empirical evidence from Europe

Focke

2022

Corp Soc Responsibility Env

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This paper examines whether sustainable institutional investors promote corporate social responsibility (CSR)‐contingent components (e.g., environmental or social aspects) in senior executive compensation in order to align top management interests in the promotion of sustainability with their own. Empirical analyses of a sample of 5979 firm‐year observations from European firms over the 2010–2017 period showed that the presence of sustainable institutional investors positively predicts the likelihood of firms offering CSR‐contingent compensation contracts. This paper significantly contributes to prior empirical research, which predominantly focuses on the effectiveness of CSR‐contingent components within compensation structures. Sustainable institutional investors as a potential driver of CSR‐contingent components have not yet been examined. We specifically investigate institutional investors that have either a substantial or a time‐dependent belief in CSR. Our results indicate that sustainable institutional investors represent a central external corporate governance mechanism and tend to align top management preferences with their own via compensation structures.

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ESG Shareholder Engagement and Downside Risk

Cited by 164 publications

References 58 publications

Private engagement by Nordic institutional investors on environmental, social, and governance risks in global companies

Private engagement by Nordic institutional investors on environmental, social, and governance risks in global companies

Do corporate environmental protection efforts reduce firm‐level operating risk? Evidence from a developing country

Do sustainable institutional investors influence senior executive compensation structures according to their preferences? Empirical evidence from Europe

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