Higher levels of collective investor ownership do not significantly moderate the effect of investor coalitions on corporate climate action, recent research has found.
While Climate Action 100+ (CA100+) engagement is more likely to push companies to set more ambitious medium-and long-term climate targets, the collective size of the coalition’s ownership stakes does not appear to increase its effectiveness.
In other words, owning 10% or 20% of a firm’s equity as part of a coalition seems to make little difference to the outcomes observed.
That is according to research paper Can investor coalitions drive corporate climate action? by academic Nikolaus Hastreiter from the London School of Economics, which suggests that some of the conventional wisdom about investor coalitions may need rethinking.
New analysis
Last year, Hastreiter set out to understand whether climate improvements made by listed companies were the result of collaborative stewardship efforts or simply a reflection of a broader global trend.
Originally, Hastreiter said he measured the causal impact of CA 100+ by comparing “focus” companies with non-participating firms, or control firms, to estimate the average treatment effect. In the updated version, he added an analysis of the collective ownership share by summing the equity stakes of all CA 100+ signatory investors in both focus and control companies. It would track how this ownership changes over time, and test whether higher collective ownership makes engagement more effective.
Contrary to expectations, he found no evidence that the initiative’s scale, measured via collective ownership and assets under management, amplified impact or created significant spillover effects to non-target firms.
This runs counter to the assumption that “the bigger the stake, the greater the influence”, which highlights that this assumption might not hold for collective ownership size.
“The main takeaway is that potentially, we need to reflect on how alliances like Climate Action 100+ work, and how they can be made even more effective […] For example, how important are the headline figures indicating the collective size? Who are committed members, who are potentially less committed members and how can we engage everyone?” said Hastreiter.
His analysis drew on novel data on climate-related disclosure, sector-specific carbon intensities and carbon emission reduction targets.
While he did detect an effect on carbon emission reduction targets, he found no evidence that the coalition significantly improved companies’ Taskforce on climate-related Financial Disclosures (TCFD) reporting or reduced carbon emissions.
Hastreiter stressed that the research does not suggest that collective engagement is ineffective. Rather, the paper calls for a more nuanced investigation of investor coalition dynamics, investor commitment and engagement strategies, he said.
Additionally, while Hastreiter found that CA100+ engagement has not yet triggered actual emission reductions, the paper noted that CA100+ updated its goals only in 2023 to demand actual decarbonisation in addition to pledges. Therefore, it is possible that an effect on carbon emissions will emerge in the future.
The paper, part of the LSE’s Grantham Research Institute working paper series, has not yet undergone peer review.
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