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ESG shareholder engagement and downside risk

Author

Listed:
  • Andreas G F Hoepner
  • Ioannis Oikonomou
  • Zacharias Sautner
  • Laura T Starks
  • Xiao Y Zhou

Abstract

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 [VaR] 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 VaR of engagement targets decreases by 9 percent of the standard deviation after successful engagements, relative to control firms.

Suggested Citation

  • Andreas G F Hoepner & Ioannis Oikonomou & Zacharias Sautner & Laura T Starks & Xiao Y Zhou, 2024. "ESG shareholder engagement and downside risk," Review of Finance, European Finance Association, vol. 28(2), pages 483-510.
    • Handle: RePEc:oup:revfin:v:28:y:2024:i:2:p:483-510.
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    File URL: http://hdl.handle.net/10.1093/rof/rfad034
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    Citations

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    Cited by:

    1. Armin Varmaz & Christian Fieberg & Thorsten Poddig, 2024. "Portfolio optimization for sustainable investments," Annals of Operations Research, Springer, vol. 341(2), pages 1151-1176, October.
    2. Ben Ameur, Hachmi & Ftiti, Zied & Louhichi, Waël & Yousfi, Mohamed, 2024. "Do green investments improve portfolio diversification? Evidence from mean conditional value-at-risk optimization," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. DeLisle, R. Jared & Grant, Andrew & Mao, Ruiqi, 2024. "Does environmental and social performance affect pricing efficiency? Evidence from earnings conference call tones," Journal of Corporate Finance, Elsevier, vol. 86(C).
    4. Tang, Chia-Hsien & Lee, Yen-Hsien & Hsiao, Ming-Chun & Liu, Hung-Chun, 2024. "Exploring the impact of ESG components, CEO characteristics, and organizational themes on downside risk: Insights from Chinese firms," Finance Research Letters, Elsevier, vol. 61(C).
    5. Ginglinger, Edith & Raskopf, Caroline, 2023. "Women directors and E&S performance: Evidence from board gender quotas," Journal of Corporate Finance, Elsevier, vol. 83(C).
    6. Hastreiter, Nikolaus, 2024. "Can investor coalitions drive corporate climate action?," LSE Research Online Documents on Economics 125852, London School of Economics and Political Science, LSE Library.
    7. Li, Lidan & Han, Jie & Mo, Shenwei & Yang, Yupeng, 2024. "Tackling competition by reducing emissions: Private firms’ polluting behavior under peer IPOs," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 232-249.
    8. Foroughi, Pouyan & Marcus, Alan & Nguyen, Vinh, 2024. "Mutual fund pollution experience and environmental voting," Journal of Banking & Finance, Elsevier, vol. 162(C).
    9. Tamara Teplova & Tatiana Sokolova & Sergei Gurov, 2024. "Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?," JRFM, MDPI, vol. 17(4), pages 1-18, April.

    More about this item

    Keywords

    ESG; shareholder engagement; downside risk;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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