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RESEARCH BRIEF: Shareholder actions and regulation focused on industry peers can motivate firm environmental disclosure

Takeaway: This study found that shareholder resolutions and the threat of state regulation prompted firms to publicly disclose important environmental information. Moreover, firms were more likely to disclose this information if other firms in their industry were targeted by shareholders, and also if firms headquartered in their state—but operating in an unrelated sector—were threatened by state regulation.

Suggested audience: Top management, institutional shareholders, activist shareholders, regulators, sustainability report preparers

Exploring the factors that motivate firms to join the fight against climate change, researchers examined whether shareholder actions and state regulatory threats would motivate firms to become more green, even if these tactics did not directly target the firm. They looked at 524 firms from the S&P 500 between 2006 and 2007. The CEOs of each S&P 500 firm received a letter from the Carbon Disclosure Project (CDP) in both of these years asking them to publicly disclose important climate change information.

44% of the time, firms publicly disclosed the environmental information the CDP requested. 56% of the time they either failed to respond or they disclosed privately. Using regression analysis, the researchers calculated the effect environmental shareholder resolutions and threatened environmental state regulation likely had on this final outcome.

Key Findings:

  • Being targeted with a shareholder resolution more than doubled the odds that a firm would publicly report. 
  • Shareholder resolutions have spillover effects on other firms in a targeted industry. A firm in an industry with the most resolutions in the dataset had a 63% chance of disclosing, compared to a 38% chance for a firm in an industry with no resolutions.
  • All firms headquartered in states posing a regulatory threat to the industry the firm operated in publicly disclosed. These firms were 24% more likely than firms in the same industry, but headquartered in a different state, to publicly disclose.
  • Firms headquartered in states with threatened regulations, but in an industry unlikely to be targeted, were nevertheless 7.6% more likely to publicly disclose than firms in their industries but in other states.
  • Shareholder resolutions targeting firms in environmentally sensitive industries (like auto and transport or integrated oils) were significantly more effective at motivating public disclosure than resolutions targeting firms in environmentally insensitive industries (like healthcare or financial services).

Keywords: research, research briefs, Carbon Disclosure Project, CDP, activist shareholder resolution, state regulation, spillover effect, S&P 500, climate change, disclosure

If citing, please refer to original article: “Responding to Public and Private Politics: Corporate Disclosure of Climate Change Strategies”, Strategic Management Journal, 2009, Erin M. Reid and Michael W. Toffel, Harvard Business School, Boston, Massachusetts, USA


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