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Investor Activism and the Green Transition

Author

Listed:
  • Sebastian Gryglewicz

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE))

  • Simon Mayer

    (Carnegie Mellon University)

  • Erwan Morellec

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

Abstract

We develop a model in which activist investors contribute to a firm's green transition by exerting effort and contracting with management. Due to moral hazard, only skilled activists can facilitate this transition. However, if the acquisition price of their equity stake accounts for the value of activism, reflecting a free-rider problem, skilled activists either avoid investing or favor firms that can transition independently. Combined, moral hazard and the free-rider problem imply that investor activism only aids the transition when the financial benefits of transitioning are small or activists have strong sustainability preferences. Carbon taxation strengthen these mechanisms, hindering impact activism.

Suggested Citation

  • Sebastian Gryglewicz & Simon Mayer & Erwan Morellec, 2024. "Investor Activism and the Green Transition ," Swiss Finance Institute Research Paper Series 24-96, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2496
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    Keywords

    Activism; agency conflicts; contracting; sustainable finance; environmental policies;
    All these keywords.

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