Divestment and Engagement: The Effect of Green Investors on Corporate Carbon Emissions

Matthew Kahn, John G. Matsusaka and Chong Shu
Additional contact information
John G. Matsusaka: University of Southern California

No 16518, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies whether green investors can influence corporate greenhouse gas emissions through capital markets, either by divesting their stock and limiting polluters' access to capital, or holding polluters' stock and engaging with management. We focus on public pension funds, classifying them as green or non-green based on which political party controlled the fund. To isolate the causal effects of green ownership, we use exogenous variation caused by state-level politics that shifted control of the funds and portfolio rebalancing in response to returns on non-equity investment. Our main finding is that companies reduced their greenhouse gas emissions when stock ownership by green funds increased and did not alter their emissions when ownership by non-green funds changed. We find evidence that ownership and constructive engagement was more effective than confrontational tactics such as voting or shareholder proposals. We do not find that companies with green investors were more likely to sell off their polluting facilities (greenwashing). Overall, our findings suggest that (a) corporate managers respond to the environmental preferences of their investors; (b) divestment in polluting companies may be counterproductive, leading to greater emissions; and (c) private markets may be able to address environmental challenges without explicit government regulation.

Keywords: corporate decarbonization; divestment; engagement; investors (search for similar items in EconPapers)
JEL-codes: G11 Q54 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2023-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://docs.iza.org/dp16518.pdf (application/pdf)

Related works:
Working Paper: Divestment and Engagement: The Effect of Green Investors on Corporate Carbon Emissions (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp16518

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().