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When Does Institutional Investor Activism Increase Shareholder Value?: The Carbon Disclosure Project

Author

Listed:
  • Kim Eun-Hee

    () (George Washington University)

  • Lyon Thomas

    () (University of Michigan, Ann Arbor)

Abstract

This paper presents the first empirical test of the financial impacts of institutional investor activism towards climate change. Specifically, we study the conditions under which share prices are increased for the Financial Times (FT) Global 500 companies due to participation in the Carbon Disclosure Project (CDP), a consortium of institutional investors with $57 trillion in assets. We find no systematic evidence that participation, in and of itself, increased shareholder value. However, by making use of Russia’s ratification of the Kyoto Protocol, which caused the Protocol to go into effect, we find that companies’ CDP participation increased shareholder value when the likelihood of climate change regulation rose. We estimate the total increase in shareholder value from CDP participation at $8.6 billion, about 86% of the size of the carbon market in 2005. Our findings suggest that institutional investor activism towards climate change can increase shareholder value when the external business environment becomes more climate conscious.

Suggested Citation

  • Kim Eun-Hee & Lyon Thomas, 2011. "When Does Institutional Investor Activism Increase Shareholder Value?: The Carbon Disclosure Project," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, August.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:50
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:rqfnac:v:50:y:2018:i:4:d:10.1007_s11156-017-0653-x is not listed on IDEAS
    2. Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    3. Chonnikarn Fern Jira & Michael W. Toffel, 2011. "Engaging Supply Chains in Climate Change," Harvard Business School Working Papers 12-026, Harvard Business School, revised Oct 2012.
    4. repec:eee:transe:v:105:y:2017:i:c:p:60-82 is not listed on IDEAS
    5. Lyon, Thomas & Lu, Yao & Shi, Xinzheng & Yin, Qie, 2013. "How do investors respond to Green Company Awards in China?," Ecological Economics, Elsevier, vol. 94(C), pages 1-8.
    6. Ilić, Dragan & Mollet, Janick Christian, 2015. "Voluntary Corporate Climate Initiatives and Regulatory Loom: Batten Down the Hatches," Working papers 2015/06, Faculty of Business and Economics - University of Basel.
    7. Dragan Ilic & Janick Christian Mollet, 2016. "Voluntary Corporate Climate Initiatives and Regulatory Loom: Batten Down the Hatches," CER-ETH Economics working paper series 16/261, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Denis Cormier & Michel Magnan, 2015. "The Economic Relevance of Environmental Disclosure and its Impact on Corporate Legitimacy: An Empirical Investigation," Business Strategy and the Environment, Wiley Blackwell, vol. 24(6), pages 431-450, September.
    9. Luo, Le & Tang, Qingliang, 2016. "Determinants of the Quality of Corporate Carbon Management Systems: An International Study," The International Journal of Accounting, Elsevier, vol. 51(2), pages 275-305.
    10. Yang Stephanie Liu & Xiaoyan Zhou & Jessica Yang & Andreas Hoepner, 2016. "Corporate Carbon Emission and Financial Performance: Does Carbon Disclosure Mediate the Relationship in the UK?," ICMA Centre Discussion Papers in Finance icma-dp2016-03, Henley Business School, Reading University.

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