Academics Discover Positive Effects of Investor Environmental Campaigns | New

Can shareholder engagement really benefit the environment? According to a university study, the answer is yes.

In “The Real Effects of Environmentalist Investing,” an award-winning paper, a trio of scholars examine how shareholder campaigns affect pollution and the environment by influencing corporate behavior.

Focusing on the Boardroom Accountability Project (BAP), a campaign launched by New York City Pension Systems in 2014, academics found that targeted companies reduced their total releases of toxic chemicals, related air emissions production and their greenhouse gas emissions.

They also found that the results were not driven by displacement of pollution offsite, but by reduction onsite. The reductions have resulted in less pollution in communities adjacent to the plants and less pollution intensity. Offshoring, plant closures, declining production and reporting bias were dismissed as factors that could explain emission reductions.

Now that three phases have been completed, the BAP was originally intended to give shareholders the right to appoint directors in US corporations using corporate voting. The campaign submitted 75 so-called “proxy access” shareholder proposals at a time in November 2014, continuing through 2018 to target 181 companies in total.

The academics’ study concerned the 60 companies targeted for inadequate compensation for climate change risks.

In addition to New York funds, other major institutional investors have backed the campaign. It is now common among S&P 500 companies to give long-term shareholders such as pension funds the right to appoint directors to the board.

Empirical evidence

Speaking to IPE, Lakshmi Naaraayanan, an assistant professor at London Business School and one of the paper’s co-authors, said the academics’ starting point for the study was that, at least in In the US context, divestment was generally not an option for most pensions. funds and that the commitment to improving the environmental performance of companies was increasingly widespread among these investors.

However, there was not much, if any, academic evidence on the effectiveness of climate-focused pension fund engagement aimed at improving companies’ environmental impact, he said.

With his article and that of his co-authors, the situation is now different.

“This research provides empirical evidence on the positive effects of shareholder campaigns and how they contribute to responsible business practices,” Naaraayanan said in a statement on the research.

“Importantly,” he added, “our results demonstrate that coordinated action by large institutional shareholders, adopting a company-specific mandate on sustainability, can bring about positive change by influencing decisions at corporate level. of the board of directors so that companies mitigate their environmental impact”.

He continued, “To be successful, campaigns require investors to monitor each target company’s environmental behavior and combine that with the threat of discipline.”

In their paper, the scholars note that their research falls within the gap between “mature literature” examining how shareholder activists can affect a company’s governance, financial and operational performance in an effort to increase their wealth, and “a growing literature investigating investor preferences for socially responsible investing, often reflected in active divestment campaigns.”

They also state that their article contributes to the literature on shareholder activism “by revealing the direct effects sustainability campaigns” – as opposed to the indirect effects on environmental behaviors of hedge fund activism whose objectives are unrelated to sustainability.


To isolate the effect of the BAP campaign, the academics compared the companies it targeted to a control group of companies comprising companies in the same industries and with similar financial characteristics and sustainability histories, but who were not not targeted by shareholder activism.

Disclosures in the targeted companies’ sustainability reports confirmed that the companies were making pollution-related investments. The academics also found that the factories of the targeted companies improved their operational performance by adopting good operating practices and reducing high-impact waste produced on site.

A diverse set of databases was used to get a comprehensive view of the real effects of environmental activism and overcome the measurement challenges that come with using a single data source.

The data was used by the Environmental Protection Agency and the US Energy Information Administration, supplemented by other databases.

The paper won the 2020 Moskowitz Prize, which is described as “the most prestigious research prize in sustainable finance”. It has not yet been peer reviewed, with Naaraayanan explaining that the intention was to start submitting the paper for peer review later this year, after a few more presentations at conferences.

“We’re always looking for more comments,” he said. “We want to address all the concerns, all the spurious correlations.”

He explained that most peer-reviewed research “doesn’t date back to that time – my last paper that was peer-reviewed took me six years.”

The article can be found here.

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