ESG Shareholder Engagement and Downside Risk
49 Pages Posted: 25 Nov 2016 Last revised: 30 Apr 2021
Date Written: April 30, 2021
We demonstrate that engagement on environmental, social and governance (ESG) issues can benefit shareholders by reducing firms’ downside risks, measured using the lower partial moment and value at risk. We further find that the measured risk reduction effects vary across engagement success and engagement themes. There are no significant risk reduction effects for targets where the ESG engagements are unsuccessful. Engagement appears most effective in lowering downside risk when addressing environmental topics (primarily climate change). We find corroborating evidence in that successful ESG engagements reduce the firm’s exposure to a downside risk factor.
Keywords: ESG, Shareholder Activism, Downside Risk, Corporate Governance, Climate Change
JEL Classification: G32, M14
Suggested Citation: Suggested Citation