A real effect of climate-related shareholder proposals: Diversification

Abstract

To date, the literature has not discovered diversification to be a firm policy that shareholders can influence through their proposals at annual meetings but has explained contexts in which diversification can defend. I contemplate and test diversifying responses to shareholder proposals made in the context of climate change. By following 440 shareholder-initiated proposals in the United States that contain “climate change” – from the first instance in the 1994 proxy season until 2020 – I find that firms in receipt of such proposals diversify more, mostly into related industries. Further, diversification prompted by climate proposals generally leads to wealth enhancements. Beyond correlations and the main results of ordinary least squares regressions, I address the endogenous nature of corporate policies in a variety of ways: a matching estimator, fixed effects, and an instrumental variable, along with a placebo and a GMM estimator. Robustness tests confirm prior results and expose a subtle difference between sales and asset diversification. Climate-related proposals appear to influence sales diversification slightly more than asset diversification, suggesting that agents may be less responsive to owner concerns than customers. Overall, shareholder proposals related to climate change can have the real effect of prompting firms to diversify.