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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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    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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