Review of Finance Vol. 28 No. 2 2024

ESG shareholder engagement and downside risk

Andreas G F Hoepner¹; Ioannis Oikonomou²; Zacharias Sautner³; Laura T. Starks⁴; Xiao Y Zhou⁵

¹ Smurfit Graduate Business School and Quinn School of Business, University College Dublin, Dublin, A94 XF34, Republic of Ireland · ² ICMA Centre, Henley Business School, Reading, RG6 6DL, UK · ³ University of Zurich, Swiss Finance Institute, and ECGI, Zurich, 8032, Switzerland · ⁴ McCombs School of Business, University of Texas at Austin, Austin, TX78712, Texas, USA · ⁵ Smith School of Enterprise and the Environment, University of Oxford, Oxford, OX1 3QY, UK

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.

DOI

10.1093/rof/rfad034

Volume

28

Issue

2

Pages

483-510

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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