KCFR Funded Research 2021

Real Effects of Environmental Activist Investing

(S. Lakshmi Naaraayanan, London Business School; Kunal Sachdeva, Rice U.; and Varun Sharma, London Business School)

There is increasing pressure on pension fund managers to consider more socially activist investing. This work studies the real effects of environmental activist investing. Using plant-level data, the authors find preliminary results that targeted firms reduce their toxic releases, greenhouse gas emissions, and cancer-causing pollution. Improvements in air quality within a one-mile radius of targeted plants suggest potentially important externalities to local economies. These improvements may come through increased capital expenditures on new abatement initiatives. The study accounts for alternative explanations of decline in production, reporting biases, and forms of selection, while also providing evidence supporting the external validity of environmental activism. Overall, the study will examine if engagements are an effective tool for long-term shareholders to address climate change risks. 

A copy of this paper at SSRN

The Case for Actively Managed Funds

(Allan Timmermann, UC San Diego and Russell Wermers, U. of Maryland)

Should pension funds invest in more actively managed funds? The purpose of this study is investigating the efficacy of different management structures of pension funds, in the dimensions of

1. active vs. passive management,
2. internal vs. external management,
3. public vs. private investments,
4. the structure of liabilities (e.g., public vs. private pension funds), and
5. interactions between these dimensions. The authors intend to use both public and proprietary datasets in our analysis. The goal is to provide timely research that informs major pension funds.

Environmental Externalities of Hedge Fund Activism

 (Pat Akey, U. of Toronto and Ian Appel, Boston College)

Pressure on investors to practice environmentally sensitive investing makes sense only if it has a desirable impact. The authors propose to study how improving economic efficiency interacts with corporate environmental behavior and sustainability through the lens of hedge fund activism. Using plant-chemical level data from the EPA, they find evidence that activism campaigns are associated with a 17 percent drop in emissions for chemicals at plants of targeted firms. This decline in emissions is present in both chemicals that are known to cause harm to humans and those known to have adverse effects on the environment. These findings suggest that the benefits of activism are not necessarily confined to shareholders, but may also extend to other stakeholders (e.g., the local community) affected by firms’ emissions. In future work, the authors plan to highlight the extent to which “socially responsible” activism funds or climate-risk management strategies could explain these findings, as well as to further explore how activist hedge funds are able to improve productivity and reduce emissions. 

A copy of this paper at SSRN