Investor Alignment in Divestment Decisions and Firm Behavior: Evidence from Publicly Disclosed Exclusion Lists

We study the consequences of portfolio exclusion announcements by Norges Bank Investment Management (NBIM), examining their relationship to shareholder wealth, investor behavior, and subsequent firm outcomes. Market participants respond negatively to the exclusion disclosures with an average abnormal return of – 0.5% over a three-day window surrounding the announcement. Using a novel dataset of exclusion decisions by 86 major institutional investors, we document substantial institutional alignment in exclusion decisions. Firms excluded by NBIM face five times more institutional investor exclusions than other excluded firms in our dataset. Exclusion timing by other investors relative to NBIM's decisions varies systematically, with shorter time gaps for larger, geographically proximate investors, and firms with higher prior ESG performance. Exclusions with broader institutional alignment, particularly among asset owners, are associated with significant improvements in firms’ environmental and social performance. However, when exclusions occur without broader institutional alignment, firms experience deteriorating ESG performance. This suggests that divestments through exclusion by a notable investor are linked to short-term market perceptions and ownership structures, while improvements in firms’ environmental and social behavior are observed primarily when there is alignment in investors’ divestment decisions.