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We study investor activism promoting environmental, social and governance (ESG) improvements using a proprietary dataset. Targets have a higher market share, analyst coverage, stock returns, and liquidity. The engagements lead to ESG rating adjustments. Activism is more likely to succeed when targets have a good ex ante ESG track record, lower ownership concentration and growth.
Successful engagements positively affect sales growth, without changing profitability. A portfolio of targeted firms earns superior returns to that of matched firms. E.g., targets in the ex ante lowest ESG quartile outperform non-engaged peers by 4.7%. Similarly, successful engagements generate higher returns than unsuccessful ones.
We document a new channel through which a firm’s sustainability policies can contribute positively to its bottom line, by reducing labor costs and by...