Corporate Directors Learn From Environmental Shareholder Engagements

We examine whether corporate directors learn from environmental engagements by studying the success and implementation of environmental shareholder proposals. We deem a proposal successful when the proposal sponsor withdrew it after negotiating with the target firm. Our results indicate that environmental proposals targeting firms at which directors have a stronger environmental knowledge base are more likely to be withdrawn. Next, using a difference-in-difference estimation with a matched control group, we show that the withdrawal of an environmental shareholder proposal leads to an improvement in the environmental performance of targeted firms. Most importantly, we find that a proposal withdrawal leads to an 8.6% increase in the environmental performance of non-targeted firms that are connected to the target firm through overlapping directorships. Since the engagement at the target firm is exogenous to the connected firm, we causally show that directors learn from engagements. Our results imply that environmental shareholder engagements improve corporate directors’ attention to and knowledge of environmental issues and that this improvement has effects on the firms they serve