Institutional Investors, Shareholder Activism, and ESG in the Energy Sector

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shareholder activism
corporate social responsibility
power utilities
climate change
institutional investors
Business and Corporate Communications
Business Law, Public Responsibility, and Ethics
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The search for relationships between shareholder activism and environmental, social, and governance (ESG) performance has been a research area that has garnered increased interest in recent years. Specifically, climate change and environmental concerns have been evaluated by private and public sectors around the world, and progress has been made with actions such as the Paris Agreement. Scholars conducted various studies to analyze the relationship between shareholder activism and corporate financial performance (CFP). In addition, scholars have also conducted various studies to analyze the relationship between ESG performance and CFP as well as ESG performance and risk. Given the emergence of ESG in recent years, the adoption of standardized ESG criteria and performance measures across industries and markets is still relatively undeveloped compared to criteria such as SEC reporting criteria for US publicly-traded companies. Therefore, the insights on shareholder activism and ESG adoption and performance remain inconclusive. This study aims to raise awareness and increase studies focusing on how investors can utilize resources such as activism to affect ESG adoption and performance. This paper also continues to raise awareness regarding current discrepancies in ESG ratings by company, industry, as well the discrepancies that are observed between different ESG rating agencies. This study specifically tracks the changes resulting from the formation of the Climate Action 100+ at the One Planet Summit in 2017 by evaluating the Sustainalytics Environmental Score of select energy and power utility companies from the initiative. Given the data, a paired t-test was implemented to gain more knowledge on how Sustainalytics Environmental Scores moved after major ESG-related announcements. In addition, this paper reviews current news and market developments in ESG and shareholder activism as well as academic and scholarly literature researching shareholder activism, ESG, and CFP. The results from this study show minuscule to no benefit to a company’s Sustainalytics Environmental Score given the current Sustainalytics dataset and publicly-available ESG information for students. This paper further reviews how discrepancies between ESG rating data and actual firm ESG performance presents potential challenges for institutional investors, retail investors, and firms. This paper also discusses future research areas and topics that could increase clarity regarding the relationship between shareholder activism and ESG adoption and performance.

Christopher C. Geczy
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