Companies targeted by sustainability-related proposals from investors significantly improve their ESG scores in the years that follow, according to a new academic paper.
Researchers at German universities analysed more than 7,000 shareholder resolutions filed at around 1,000 firms between 2006 and 2020.
They identified that 44% of those proposals made requests related to ESG or carbon.
“In the first step, we focus on the first shareholder proposal a firm receives,” explained the authors, professor Timo Busch, Lisa Scheitza and professor Christian Klein, who all specialise in sustainable finance.
“That is, we exclude any subsequent proposals, as they may affect firms differently. In the next step, we consider the number of proposals filed in subsequent years to analyse the effect of multiple proposals.”
The study uses data from Refinitiv to assess how companies subject to shareholder resolutions improved their ESG scores and carbon performance compared with equivalent companies not targeted by proposals.
“While the ESG and carbon performance is similar for target firms and matched non-target firms in the year before the annual shareholders’ meeting takes place, after receiving a proposal, target firms improve their ESG performance on average by 8% and decrease their carbon intensity on average by 11% compared with non-target firms in subsequent years,” found the researchers.
The improvements centre on environmental and governance performance, with no evidence of material changes to social performance.
The paper also found that companies on the receiving end of carbon-related proposals only saw improvements in emissions intensity – their absolute emissions were unaffected.
The impact was found to be present even in instances when the proposal was withdrawn, omitted from the ballot, or voted down.
“This result suggests that the procedural outcome of a proposal may be less important than its submission in driving change,” stated the research.
“While surprising, this finding can be explained by the non-binding nature of most shareholder proposals, which limits their direct influence, but underscores their role in shaping managerial priorities.”
The level of change was dictated in part by the number of proposals a company had already received, according to the findings.
The more resolutions filed, the more responsive the firm appears to be.
“Furthermore, we find that the effects are more pronounced for proposals that are filed by investors that have no explicit sustainability agenda,” said the paper, suggesting “firms are more responsive to ESG- and carbon-related proposals that are sponsored by non-SRI investors than they are to ESG- and carbon-related proposals sponsored by SRI investors”.
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