Environmental, Social, and Governance Proposals and Shareholder Activism

Abstract

In this article, the author studies shareholder activism through environmental, social and governance proposals filed by socially responsible investing funds between 1996 and 2015. Larger, more mature firms with lower capital expenditures and research and development expenses are more easily targeted by these proposals. An equal-weighted portfolio of target firms earns a four-factor alpha of 0.22% on the date of proposal filing. Target firms with subsequent successful proposals earn higher buy-and-hold abnormal returns over the event period and have better long-term stock returns than firms whose proposals subsequently fail. Moreover, social performance of the target firms also improves.

TOPICS: ESG investing, portfolio theory, portfolio construction

Key Findings

• • An equal-weighted portfolio of target firms earns a four-factor alpha of 0.22% on the date of proposal filing.

• • Target firms with subsequent successful proposals earn higher buy-and-hold abnormal returns over the event period and have better long-term stock returns than firms whose proposals subsequently fail.

• • Social performance of the target firms also improves.