Can behind‑the‑scenes engagement change firms’ behaviour and investors’ returns?
Tamas Barko, Martijn Cremers, and Luc Renneboog study shareholder engagement on ESG performance in their paper « Shareholder Engagement on Environmental, Social, and Governance Performance. »
They explore who gets targeted, how engagements unfold, and what changes in ESG ratings, operations, and returns follow, using a proprietary dataset of 847 completed cases between 2005 and 2014.
Their main conclusions include:
- Most contacts occur privately via letters or emails, while governance is more often raised at shareholder meetings.
- Larger market share, analyst coverage, equity liquidity and low ESG scores predict engagement: controlling for fundamentals, a one‑standard‑deviation lower ESG score raises targeting likelihood by ~3.8%.
- Success is likelier when ex‑ante ESG is higher (≈10.7% gain per standard deviation) while high cash holdings and faster sales growth reduce success odds.
- For ex‑ante low‑ESG firms (lowest quartile), overall ESG scores rise by ~10.6% on success, with environmental pillars up ~13.9%. For ex‑ante high‑ESG firms, ratings often correct downward as concerns are revealed.
- Alpha concentrates in low‑ESG targets. Lowest‑quartile ESG firms outperform matched peers by ~7.5% over the year after completion (≈7.1% at six months).
- Average accounting metrics do not systematically improve, yet sales growth jumps by roughly 7.6% after successful engagement, consistent with reputational or customer‑demand channels.
- Excess four‑factor abnormal returns average ~2.7% in the six months after completion, buy‑and‑hold returns are ~1.2% in the first post‑completion month, with gains peak around months 6-12.
- Successful low‑ESG engagements beat unsuccessful ones by ~2.4% at six months and ~6.8% at twelve months.
This research suggests investors can treat engagement as a signal to hold low‑ESG firms able to respond to engagement through the 6-12‑month window post‑closure where excess returns concentrate.
Asset managers should prioritise cases with clear additionality, track sales effects as a KPI, and reserve heavier reorganisation asks for firms with stronger ex‑ante ESG capabilities.
Issuers can anticipate commercial upside from credible E and S improvements and should prepare transparent disclosures early, reducing the friction of engagement and boosting the probability of success.
In this study, « success » means meeting pre‑stated asks, not an exogenous value test: accounting outcomes remain modest on average, so interpreting causality beyond observed sales uplift warrants care.