Active Ownership

Question 1

What is the main idea?

Answer 1

Analysis of a database of corporate social responsibility engagements with US public companies, where successful participation in CSR has positive returns, while no engagement or unsuccessful engagements has zero abnormal returns.

Question 2

What are “universla owners?”

Answer 2

Major institutional investors nowadays as they have very diversified holdings and have significant ownerships. Since they own most of the equities, they are exposed to risks they are interested in minimizing their costs and maximizing their benefits.

Question 3

How does ESG activism differ from traditional shareholder activism and hedge fund activism?

Answer 3

Trad and hedge typically focus on issues related to shareholder activism by institutions and mutual funds interests of shareholders only, whereas ESG activism focuses on issues related to the interests of a broader range of stakeholders.

Question 4

Which firms do active owners engage?

Answer 4

Firms that are in the late stage of business maturity and have suboptimal performance. Success is more likely if firm has reputational concerns, a capacity to implement change.

Question 5

What are hard collaborations?

Answer 5

Hard collaborations include the partnership of the asset manager with activist investors, such as SRI funds, pension funds, asset managers, financial institutions, union funds.

Question 6

What are soft collaborations?

Answer 6

Soft collaborations refer to asset managers who benefit from the ESG principles and initiatives established by investment bodies, nonprofit organizations, or the industry in which the firm operates.

Question 7

WHich has higher success rate between hard and soft collaborations?

Answer 7

Hard collaborators leads to higher success rate, as the former are activist investors, whereas the latter are passive principals.

Question 8

From what is concluded the importance of potential collaborations with other stakeholders?

Answer 8

Asset amanager’s ownership plays less important role in relation to ES than CG, and reputational concerns are a more important determinant of engagement with firms on ES themes.

Question 9

What determines if engagements will be successful?

Answer 9

1. The target firm has reputational concerns, a capacity to implement change, economies of scale, and headroom for improvement.
2. There has been successful prior engagement.
3. Collaborations among the asset manager and other active investors and/or stakeholders.

Question 10

What big factor plays a role in these engagements?

Answer 10

Many engagements are actually triggered by public events (44.6%).

Question 11

What are 4 channels to enhance firm value through ESG activism.

Answer 11

1. More socially conscious consumers have greater customer loyalty.
2. Firms with high employee satisfaction tend to outperform the market.
3. More virtuous companies attract a broader clientele than “sinful” companies.
4. Successful investor interventions signal future governance improvements

Question 12

What ESG engagements create?

Answer 12

ESG engagements create a cumulative size-adjusted abnormal return over the year following the engagement. The abnormal returns are higher for successful engagements +7.1%.

Question 13

On what the effect of ESG engagements has highest effect?

Answer 13

This effect is most pronounced for CG and climate change themes. Averages +8.6% to 10.3%

Question 14

How market reacts to unsuccessful engagements?

Answer 14

There is no market reaction to unsuccessful engagements. The abnormal return patterns and magnitudes are similar for the subsamples of CG and ES engagements.

Question 15

Why the there is existence of a treshold for success to be pursued and achieved for both types of engagements?

Answer 15

There is no market reaction to unsuccessful engagements and results are similar for CG and ES engagements.

Question 16

How does ESG activities affect firm performance?

Answer 16

1. Successful ES initiatives enhance customer and employee loyalty.
2. ES initiatives generate a clientele effect (change in share prices due to corporate decision-making).
3. Good ESG practices signal improving governance quality.

Question 17

Which companies are more likely to be targeted for engaging in ESG activities?

Answer 17

Older companies with suboptimal performance, inferior governance structure, greater reputational concerns and higher shareholding from the asset manager.

Question 18

What ESG activities attract?

Answer 18

ESG activities attract socially concsious customers and investors. After successful engagements companies experience improvements in their operating performance, profitability, efficiency, shareholding, and governance.