Shareholder Activism on Sustainability Issues

Abstract

Shareholder activism on sustainability issues has become increasingly prevalent over the years, with the number of proposals filed doubling from 1999 to 2013. We use recent innovations in accounting standard setting to classify 2,665 shareholder proposals that address environmental, social and governance (ESG) issues as financially material or immaterial, and we analyze how proposals on material versus immaterial issues affect firms' subsequent ESG performance and market valuation. We find that 58 percent of the shareholder proposals in our sample are filed on immaterial issues. We document that filing shareholder proposals is effective at improving the performance of the company on the focal ESG issue, even though such proposals nearly never received majority support. Improvements occur across both material and immaterial issues. Proposals on immaterial issues are associated with subsequent declines in firm valuation while proposals on material issues are associated with subsequent increases in firm value. We show that companies increase performance on immaterial issues because of agency problems, low awareness of the materiality of ESG issues, and attempts to divert attention from poor performance on material issues.

“Think sustainable, act local” – a stakeholder-filter-model for translating SDGs into sustainability initiatives with local impact

“…Rather than exercising influence merely via the purchase or sale of shares, shareholders have the possibility of submitting shareholder proposals, also known as shareholder resolutions, to encourage management action on particular issues. Even though these are non-binding and often do not even receive a majority vote from shareholders, a sizable level of support does often prompt managerial action (Grewal et al, 2016). Over the past decade, environmental and social shareholder resolutions have become the single most important category of proposals (Guardian, 2013), reaching almost 50% of all proposals.…”

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

“…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).…”

“…Social movement theory has found support in research on the antecedents and outcomes of formal and visible forms of investor activism on shareholder resolutions that challenge companies to address various ESG concerns by improving existing and developing new practices (Ferraro & Beunza, 2014;Goodman et al, 2014;Grewal et al, 2016;Lee & Lounsbury, 2011;McDonnell, King, & Soule, 2015;Reid & Toffel, 2009;Sikavica et al, 2018;Vasi & King, 2012). Rehbein, Waddock, and Graves (2004) document that company characteristics can explain targeting decisions of social activists in terms of the number and nature of shareholder resolutions appearing on the proxy statement.…”

Company’s strategic success as the basis of its potential sustainability

“…Research in the field of investor attraction to the company, taking into consideration the stability of its development as a leading factor in investment attractiveness, is conducted by a group of scientists of Harvard Business School as Grewal, Serafeim and Yoon. "Managers may not act in the best interests of shareholders but rather respond to engagement on immaterial proposals in order to satisfy the sponsoring shareholders and protect their reputations" [13]. In terms of analyzing the impact of social responsibility on the investment attractiveness of the company, Ioannou I and Serafeim offer a model of assessing the level of the company's attractiveness for investors [14].…”