Coordinated Engagements

Abstract

We study the nature of and outcomes from coordinated engagements by a prominent international network of long-term shareholders cooperating to influence firms on environmental and social issues. We find a two-tier engagement strategy, combining lead investors with supporting investors, is effective in successfully achieving the stated engagement goals and subsequently improving target performance. An investor is more likely to lead the collaborative dialogue when the investor’s stake in the target firm is higher and when the target is domestic. Success rates are elevated when the lead investors are domestic, supporting investors are international, and the investor coalition is influential.

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Coordinated Engagements
Elroy Dimson
a
, Oğuzhan Karakaş
b
and Xi Li
c
11 November 2020
Abstract: We study the nature of and outcomes from coordinated engagements by a prominent international
network of long-term shareholders cooperating to influence firms on environmental and social issues. A two-
tier engagement strategy, combining lead investors with supporting investors, is effective in successfully
achieving the stated engagement goals and is followed by improved target performance. An investor is more
likely to lead the collaborative dialogue when the investor’s stake in and exposure to the target firm are
higher, and when the target is domestic. Success rates are elevated when lead investors are domestic, and
when the investor coalition is capable and influential.
JEL classification: G15, G23, G32, G34, G39.
Keywords: Engagement; dialogue; collaboration; coordination; corporate social responsibility (CSR);
environmental, social, and governance (ESG); socially responsible investing (SRI).
Conflict of interest statements: Elroy Dimson: I have no conflict of interest to disclose. Oğuzhan Karakaş:
I have no conflict of interest to disclose. Xi Li: I have no conflict of interest to disclose.
a
Centre for Endowment Asset Management, Judge Business School, University of Cambridge, Trumpington Street,
Cambridge CB2 1AG, UK; telephone +44 (0)1223 339700; email e.dimson@jbs.cam.ac.uk (Submitting author).
b
Centre for Endowment Asset Management, Judge Business School, University of Cambridge, Trumpington Street,
Cambridge CB2 1AG, UK; telephone +44 (0)1223 339700; email o.karakas@jbs.cam.ac.uk.
c
London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK; telephone +44 (0)20
7405 7686; email xi.li@lse.ac.uk. Li is a Research Fellow at the Centre for Endowment Asset Management, Judge
Business School, University of Cambridge, UK.
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Acknowledgements:
First and foremost, we thank the Principles for Responsible Investment (PRI) for data
provision. We appreciate valuable comments and suggestions from Jane Ambachtsheer, Vaska Atta-Darkua, Tamas
Barko, Rob Bauer, Marco Becht, Bo Becker, Alon Brav, Sarah Carter, David Chambers, Shawn Cole, James Corah,
Amil Dasgupta, Cathrine De Coninck-Lopez, Jeroen Derwall, Alexander Dyck, Alex Edmans, Işıl Erel, Caroline
Flammer, Julian Franks, Xavier Freixas, Gianfranco Gianfrate, Mariassunta Giannetti, Alberta Di Giuli, Rajna Gibson,
Marc Goergen, Jean-Pascal Gond, Vijaya Govindan, Denis Gromb, Umit Gurun, Yariv Haim, David Harris, Andreas
Hoepner, Wei Jiang, Torsten Jochem, Jonathan Kalodimos, Andrew Karolyi, Aneel Keswani, Julian Kölbel, Annette
Krauss, Philipp Krüger, Hao Liang, Maria Lombardo, Jon Lukomnik, Kevin Lyman, Andrew MacKinlay, Kamran
Mahmood, Raphael Markellos, Emilio Marti, Ronald Masulis, Richmond Mathews, Pedro Matos, Mieszko Mazur, Hiro
Mizuno, Willem Moerkens, Matthias Narr, Katherine Ng, Tanja Ohlson, Oğuzhan Özbaş, Andrew Parry, Lin Peng,
Henry Peter, Giorgia Piacentino, Valeria Piani, David Pitt-Watson, Ellen Quigley, Anjana Rajamani, Enrichetta Ravina,
Vaishnavi Ravishankar, Nicola Robert, Pedro Saffi, Bonnie Saynay, Dirk Schoenmaker, Henri Servaes, Mark
Shackleton, Serif Aziz Simsir, Laura Starks, Onur Tosun, Nike Trost, Francisco Urzua, Marlies Van Boven, Siv
Vangen, Thalia Vounaki, Hannes Wagner, Chris Woods, Wei Xiong, Yaqiong Yao, Jiali Yan, Ayako Yasuda, Yeqin
Zeng, Lu Zheng, Luigi Zingales, and faculty members of the PRI Academic Network, Cambridge University, London
School of Economics and London Business School. We have benefited from discussions with participants at the
following meetings where we presented this paper: American Finance Association Meetings in Atlanta, Bank of
Montreal RI Seminar, Berlin PRI in Person Conference, Biscay ESG Global Summit in Bilbao, BMO Global Asset
Management Conference in London, Cambridge Judge Business School Finance Workshop, Cardiff Corporate
Governance Research Group First International Conference, Cass ESG Conference, CEAM Conference on Investing for
the Long Term, CFA UK Conference on ESG Investing – The Practical Realities, Charity Finance Responsible
Investment Conference in London, CJBS Impact and Engagement Seminar, Darden and ICI 2019 Academic &
Practitioner Symposium on Mutual Funds and ETFs in Washington DC, DNB Sustainable Finance Conference in Oslo,
Dynamics of Inclusive Prosperity Conference in Rotterdam, ECGI Conference on Strategies for Responsible Investing,
EDHEC Conference on Climate Change Finance in Paris, EFFIO Members Conference in Brussels, European
Commission Conference on Promoting Sustainable Finance in Brussels, Financial Intermediation Research Society
Conference in Savannah, First Bursars’ Responsible Investment Meeting Cambridge, Frankfurt School of Finance &
Management Seminar, FT / EMPEA Summit on Sustainable Investing in London, FTSE Russell European Investment
Forum, Geneva Centre for Philanthropy & Ethos Philanthropy Lunch, Geneva Summit on Sustainable Finance, Glass
Lewis Seminar on Engagement in London, GRASFI Inaugural Conference on Managing and Financing Responsible
Business, ICGN and ECGI Amsterdam Corporate Governance and Stewardship Academic Day, ICMA Centre Seminar
at the University of Reading, IÉSEG School of Management Corporate Governance Workshop, Inaugural Webinar on
Impact & Engagement, International Center for Pension Management Discussion Forum in Toronto, International
Symposium in Finance at Kissamos in Crete, Invesco Lecture at the Dorchester, Invesco Summit at Cambridge Judge
Business School, Invesco Workshop in Atlanta, IWFSAS Conference at Cass Business School, Jesus College
Conference on Climate Change and the Endowment, Koç University Finance Day, London Business School Asset
Management Conference, the 2019 London Private Equity Research Symposium, London Quant Group 2018 Autumn
Seminar, London Stock Exchange Forum, Luxembourg Asset Management Summit, Newton Charity Seminar in
London, Newton Responsible Investment Dinner in New York, NFF Seminar on Sustainable Finance in Oslo, Norsif
Active Ownership Seminar in Oslo, PRI-CEAM Conference on Strategy and Tactics for Effective Engagement in
Cambridge, Q Group Fall Seminar in La Jolla, Sabancı University Hakan Orbay Research Award Seminar, Sparrows
Capital Conference on ESG Integration in London, Sustainable Finance Research Seminar at the University of Zurich,
Sustainable Investing UK-India Partnership Forum 2019, Swedish House of Finance Conference on Sustainable
Finance, Universität Hamburg–PRI Academic Network Conference, Trends Investment Summit Benelux in Brussels,
Turkish Capital Markets Summit in Istanbul, University of Geneva ESG Seminar, Women in Governance Week in New
York, and the World Investment Forum in Utah. Finally, we are grateful for support from the Centre for Endowment
Asset Management at Cambridge Judge Business School, FTSE Russell, Inquire Europe, Invesco Asset Management,
Newton Investment Management, the Principles for Responsible Investment, the Cambridge Endowment for Research in
Finance, the Hakan Orbay Young Researcher Award, the JM Keynes Fellowship, London School of Economics; and for the
ICPM Research Award, Risk Institute at Ohio State University, Sandra Dawson Research Impact Award, and the Vice-
Chancellor’s Impact Award. We take full responsibility for any errors in this study.
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Coordinated Engagements
Small investors, activists and NGOs were for a long time the driving force to persuade big companies to take
environmental and social (E&S) issues seriously. They protested outside business headquarters, filed
shareholder resolutions and spoke out at annual meetings. In contrast, large investors tended to remain silent,
at least in public, and only in recent years did they begin to pay more attention and play a more significant
role. For instance, following the 2016 Paris Agreement an increasing proportion of investors began to focus
on climate change. In 2019 one of the largest business groups in the United States released a statement
urging companies to deliver value to customers, invest in employees, deal fairly and ethically with suppliers,
and support communities, while also generating long-term value for shareholders (Business Roundtable
(2019)). By 2020 the Climate Action 100+ campaign, backed by 518 global investors with $47 trillion in
assets, committed to cutting emissions from 161 companies that generate 80% of global industrial
greenhouse gas emissions. Worldwide assets managed according to responsible investment criteria will next
be quantified in 2021 by the Global Sustainable Investment Alliance, who are expected to report an asset
base substantially higher than the previous estimate of $31 trillion (GSIA (2019)). The Coalition for
Inclusive Capitalism, with 31 organizations representing over $30 trillion in assets, is promoting metrics for
assessing value creation while also focusing on business stakeholders (EPIC (2019)).
Coordinated activities like these have emerged from efforts to engage business, government and civil society
leaders in making capitalism more sustainable and inclusive, and to encourage responsible behavior in a
community that includes leading investment managers, asset owners, corporations and advisors. The
importance of E&S issues has become elevated in the investment world and the pressures are increasingly
global (Krüger, Sautner, and Starks (2020)). At the same time, thought-leaders such as Henderson (2020),
Elkington (2020) and Mazzucato (2021), have demanded a “reset” in capitalism and promoted a new agenda
for business emphasizing that the long-term health of business depends on delivering profit with purpose. In
recent research North American executives have argued that a high-quality corporate culture is both
desirable and value enhancing (Graham, Grennan, Harvey, and Rajgopal (2019)) and empirical evidence
supports this contention (Guiso, Sapienza, and Zingales (2015), Edmans, Li, and Zhang (2020)). The desire
to work for a shared goal has underpinned collaborative initiatives such as those discussed above. However,
there is still a need for rigorous evidence on the effectiveness of this process and on how best to organize it.
This paper examines coordinated engagements on corporate social responsibility (CSR). It is the first to
study the nature and benefits of coordinated, collaborative and international efforts to influence investee
companies on E&S issues. We examine the targeting and engagement strategy, success rates and financial
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outcomes of institutional investors who have coordinated their engagements through the Collaboration
Platform provided by the Principles for Responsible Investment (PRI). Founded in 2006 and supported by
the United Nations (the UN), PRI has become the leading network and the largest initiative worldwide for
investors with a commitment to responsible ownership and long-term, sustainable returns. The PRI
Collaboration Platform provides objectively collected, carefully logged, and accurately dated records on
environmental, social and governance (ESG) engagements (see Section 2.2 for additional discussion).
Collaborative engagements aim to exploit the cooperating partners’ resources, skills and expertise to gain
advantage. First and foremost, by pooling resources and influence, active investors can achieve greater
success via an amplified voice and expanded impact. In addition, engaging as a coordinated group also
improves engagement efficiency by utilizing expertise from peers who are more knowledgeable about an
issue or target company, and by sharing research costs. Furthermore, collaboration in ESG engagements
facilitates risk-sharing among active owners.
Collaborative efforts also face challenges. First, there is the free-rider problem: costs may be borne by a
small group of committed and resourceful investors, while benefits are shared by all investors in (and
outside) the group. Relatedly, competition between institutions (through reputation and superior
performance) makes collaboration difficult and requires incentives in the coalition to be set carefully.
Additionally, coordination is difficult and time-consuming: investors may have different objectives and
interests, so achieving agreement among many investors from diverse geographic and cultural backgrounds
may prolong the process. Lastly, there is a potential regulatory barrier in certain markets that can dissuade
investors from behaving as a “concert party”. We argue that, as an explicit third-party coordinator, the PRI
Collaboration Platform can help investors to exploit the advantages and overcome the challenges of jointly
pursuing shared objectives.
Our study focuses on coordinated engagements that address E&S concerns. Our dataset is granular and
comprehensive, including 31 PRI engagement projects initiated between 2007 and 2015. Each project is
originated and coordinated by PRI but is carried out by a group of investment organizations, including
investment managers, asset owners, and service providers. A project involves dialogues with numerous
targets—on average, with 53 public firms across the globe. Each target in a project may be engaged by a
different group of owners, managers and service providers. On average, a group comprises 26 organizations
(2 domestic and 24 foreign) whom we refer to collectively as ‘investors’.
We define an engagement sequence as a dialogue with a specific target firm in relation to a particular
project. Our sample includes a total of 1,654 engagement sequences targeting 960 unique publicly listed
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firms located in 63 countries. These engagements encompass a total of 224 unique investment organizations.
There are 87 asset owners and 121 investment managers from 24 countries, representing aggregate assets
under management (AUM) of $23 trillion and an average AUM of $112 billion. Additionally, there are 16
service providers. Most engagements are conducted privately. The average and median elapsed time from the
initiation to completion of these projects is around two years. Companies targeted for engagement are most
frequently in the manufacturing sector, followed by the infrastructure and utilities, wholesale or retail trade, and
mining sectors. Targeted companies are most commonly located in the United States (US), United Kingdom
(UK), France and Japan.
We compare targeted companies with their peers from the same country and industry sector in the year
before they were engaged. We find that coordinated groups of investors target large firms with a lower sales
growth rate and a higher percentage of sales from foreign countries, relative to their peers. This suggests that
(international) reputational concerns play an important role in target firms. Target firms also have higher
equity holdings from the engaging group, as compared to peer firms. This reflects the investors’ scale and
highlights the power of their aggregated “voice”. We also find that target firms have higher overall ESG
ratings, relative to peers. This reflects PRI’s proactive approach of identifying potential ESG issues in an
industry or region rather than reactively fixing ESG problems as they arise. It is also consistent with a
strategy of targeting bellwether firms who already have a reputation for being responsible and (on balance)
would wish to avoid a downgrade.
We document that, in collaborative engagements, leadership is decisive. Success rates are substantially
elevated and financial and accounting performance are improved when there are lead investors who head the
dialogue and there are supporting investors collaborating with the lead. We refer to this as a “two-tier
engagement strategy.” Similar structures are also observed in other shareholder initiatives,
1
as well as other
segments of capital markets such as venture capital (VC) and syndicated loans.
2
The two-tier engagement strategy in our sample has also some parallels with “wolf-pack activism,” the
alleged coalition of institutional blockholders (typically hedge funds) who implicitly coordinate their
1
An example is the Climate Action 100+ initiative. This initiative, aligned with the Paris Agreement, involves engaging
with firms to improve governance on climate change, curb emissions and strengthen climate-related financial
disclosures. Coordination is provided by PRI and four partner organizations: Asia Investor Group on Climate Change
(AIGCC), Ceres, Investor Group on Climate Change (IGCC), and Institutional Investors Group on Climate Change
(IIGCC).
2
The two-tier engagement strategy resembles the collaborative style of VC investors with general partners as the
leading investors and limited partners as the supporting investors (Gompers and Lerner (2004)). In syndicated loan
markets, the lead arranger establishes a lending relation with a borrower and heads the contract negotiation. The lead
arranger then looks for participant lenders to fund part of the loan (Sufi (2007)).
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interventions with target firms.
3
In the model of Brav, Dasgupta, and Mathews (2019), wolf-pack members,
as delegated portfolio managers, are incentivized to overcome the free-rider problem through their
reputational concerns about attracting investment flows. The objectives and methods of E&S engagement
differ from traditional shareholder activism by institutions and from hedge fund (or more generally,
entrepreneurial) activism. Traditional shareholder activism and hedge fund activism typically focus on issues
related to the interests of shareholders only, whereas E&S engagement addresses the interests of a broader
range of stakeholders (Dimson, Karakaş, and Li (2015)). However, reputational concerns on attracting fund
flows—the primary incentive mechanism helping reduce the free-rider problem in the wolf-pack activism
setting of Brav, Dasgupta, and Mathews—arguably play a more important and apparent role in E&S
engagement. The implicit coordination, generated endogenously through reputational concerns, potentially
explains the formation of coalitions in PRI.
4
More importantly, the PRI Collaboration Platform facilitates
explicit coordination of E&S activities.
Being part of a coalition is a mutual decision made by both PRI and the signatory. To understand the
economic incentives behind the formation of a coalition, we analyze the determinants of a signatory
becoming a collaborating organization in E&S engagements. Among 1,733 PRI signatories in our sample,
only 224 have joined a coalition at least once during our sample period. Compared with the remaining 1,509
PRI signatories, we find the collaborating signatories more likely to be pension plans and more likely to have
signed up early in the life of PRI. Such collaborating signatories tend to have a formal engagement process
involving internal staff, and to be active within non-PRI collaborations, suggesting that having internal
resources dedicated to E&S engagement is important.
We observe an inverse U-shaped relation between signatory size (measured by AUM) and the likelihood of
joining a coalition. We attribute this to two contrasting aspects of investor influence on engagements. On the
one hand, large signatories may prefer to engage alone if they have sufficient resources and their influence
over target firms is substantial. On the other hand, engagements also require commitment, resources and a
certain clout over the target firm, and when the signatory is too small it may not have the means to contribute
adequately to the coalition. These opposing forces make collaboration particularly appealing for mid-sized
3
In wolf-pack activism, one or more sizeable blockholders act as “lead” activist, with other smaller blockholders
serving as supporting “wolf-pack” members (Brav, Dasgupta, and Mathews (2019)). The implicit, rather than explicit,
coordination among the hedge fund activists in the US helps to avoid the regulatory costs of acting in concert (Wong
(2020)). Doidge, Dyck, Mahmudi, and Virani (2019) discuss how explicit coordination mechanisms for institutional
investors in engaging target firms for governance issues may help overcome the free-rider problem.
4
Consistent with this assertion, Gibson, Glossner, Krüger, Matos, and Steffen (2020) find higher investor flows to PRI
signatories, compared to non-PRI institutions, controlling for past returns, past flows and portfolio characteristics.
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investors. We also find that an investor is more likely to engage when the target is domestic. This may reflect
home bias in institutional portfolio management, reputational concerns among a local client base, shared
interests, ease of communication and information sharing between the investor and local firms.
Like the decision to be part of the coalition, the decision about leading an engagement is also mutually
agreed between PRI and the lead.
5
We therefore analyze the economic incentives for becoming a lead
investor. An average two-tier engagement has 1.4 lead and 21 supporting investors. Engagement costs are
substantially higher for lead investors relative to supporting ones, as the former bear the major responsibility
for meetings with target firms, reporting back to PRI, and coordinating with supporting organizations. To
achieve a favorable engagement outcome and overcome disincentives from free-riding concerns within the
coalition, lead investors should have the necessary resources, skill, motivation, and “skin in the game”.
Comparing characteristics across all investors, we find that lead investors tend to be from Scandinavian
countries, have a formal process to engage using internal staff, and actively collaborate in E&S initiatives
besides PRI. Pension plans are less likely to lead an engagement. At the engagement level, holding investor
characteristics constant, we find that an investor is more likely to lead the collaborative dialogue when its
stake in and exposure to the target firm is higher. A larger holding in shares of the target firm increases the
credibility and strength of the investor’s voice and the potential benefits of the engagement. An investor
often allocates more effort to monitor firms to which it has larger exposure, as measured by the weight of its
holding value in the target relative to the investor’s overall portfolio value (Fich, Harford, and Tran (2015)).
In addition, we find an investor is more likely to lead when the target firm is domestic, suggesting that it may
benefit from lower logistical costs, better local knowledge, and higher engagement gains through
reputational enhancement. This is consistent with the finding in Kim, Wan, Wang, and Yang (2019) that
institutional shareholders are especially likely to commit resources to ESG engagement with companies that
are located nearby. The evidence also suggests that leading a coordinated engagement is costly and time-
consuming: an investor is less likely to lead if the organization is already busy with leading other ongoing
PRI projects.
After the lead investors are decided for each engagement, PRI and the lead turn to other investors for
additional support.
6
To overcome free-riding by supporting investors, PRI expects supporting organizations
to contribute actively to the engagement, although in an abridged way relative to the lead. Conditional on
5
Before the initiation of projects with a two-tier structure, PRI usually forms a roundtable of core investors that discuss
and identify themes for engagements. Lead investors for engagement are likely to be drawn from roundtable
participants, while some participants may play a supporting role.
6
Supporting investors are either invited by PRI or the leader to join an engagement, or they could elect to join via PRI’s
Collaboration Platform available online.
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knowing the lead investor(s) in the coalition, we next analyze the determinants of being a supporting
investor. Interestingly, we find that having a target firm that is domestic no longer plays an important role in
determining the choice of supporting signatory. Past and ongoing engagement experience decreases the
likelihood of being a supporting investor. This is consistent with the costly nature of engagements and with
PRI’s expectation that supporting investors will be actively involved in each engagement. We also find that
having a domestic lead increases, while having a pension plan as a lead decreases, the likelihood of an
investor joining an engagement as supporting investor. These findings, along with the earlier results
discussed above, suggest that supporting investors expect their leads to be effective in the engagement.
We now turn to the determinants of successful engagements after taking into account the characteristics of
the coalition group. Relying on the success measures recorded by PRI, we find that the influence of the
group—as represented at the initiation of the engagements by signatories’ aggregate holding in the target
firm, total AUM, and incorporation of formal process of engagements by internal staff—is positively related
to engagement success. We also find that firms in countries with French legal origin are more likely to
achieve the objectives set by signatories in the E&S engagements, compared to the ones with English legal
origin. More strikingly, having a lead investor(s) increases the success rates substantially (by 26%–39%,
depending on the specification). Success rates are substantially improved when the proportion of pension
plans in the coalition is higher, though pension plans tend to lead less and when they lead the chances of
success is lower. Analyzing the engagements conditioning on a two-tier structure, we find that the success
rate is higher when the lead investor is from the same country as the targeted firm. This is consistent with
home bias, namely an actual or aspired holding in companies whose shares are traded on a market in which
the investor would typically hold an overweight position. The success rate is further improved by the
influence of the lead (particularly local leads) and supporting investors, as proxied by their aggregate
holdings and total size. These findings are consistent with the conjecture that an important incentive to join a
coalition is to enhance reputation by demonstrating voice, which may attract future fund flows from E&S
conscious investors and help retain the existing investors (Lewellen and Lewellen (2019)). Our research
indicates that leadership, local expertise, and influential impact all play important roles in achieving
successful engagement outcomes.
An important issue for investment managers is the financial performance of target firms after engagement.
To evaluate stock market performance, we examine abnormal annual buy-and-hold returns and annual
cumulative abnormal returns (CARs) over the MSCI benchmark. Analyzing performance conditioning on
leadership, we observe a significant increase in abnormal stock returns at target firms within three years after
the engagement initiation, relative to the pre-engagement level for the subsample of engagements with lead
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investors. In contrast, we observe no change in target firms’ financial performance among engagements
without a lead. These results provide further support for our finding that leadership in coalitions is associated
with a positive shareholder outcome. Similarly, analyzing performance conditioning on engagement
outcome, we find positive abnormal returns for the subsample of successful engagements, especially for the
engagements with lead investors. In contrast, we find no change in stock market performance among target
firms with unsuccessful engagements (regardless of whether the engagement was undertaken with or without
a lead). Collectively, these findings suggest that coordinated engagements are value-enhancing for
shareholders, especially when engagements are headed by a lead investor and/or are successful.
To provide further insights, we investigate return on assets (ROA), sales growth, stock return volatility, and
the investors’ post-engagement holdings in the target. We compare ROA, sales growth, and volatility in the
target firms three years after the engagement commenced, relative to the pre-engagement levels of the
respective measures for the target firms. Corroborating the results based on stock market performance, for
the subsample of engagements with lead investors we find significant improvements in ROA and sales
growth and decrease in the stock return volatility. This contrasts with engagements without lead, which are
followed by no material change in ROA or stock return volatility, and by smaller improvement in sales
growth. Conditioning on engagement outcome, we find improvements in ROA and sales growth for the
subsample of successful engagements, especially for the engagements with lead investors. Lastly, we
investigate investor shareholdings in target firms. We find a slight decrease in shareholdings by supporting
investors when the engagements are successful, but there is no evidence of change in shareholdings by lead
investors. The latter finding indicates that lead investors engaging with target firms on E&S issues are
committed for the long-term (over three years) and do not exit from their investments after favorable returns
from their successful engagements – a marked contrast to hedge fund activists.
The objectives of PRI-coordinated dialogues are achieved in a substantial proportion of cases. Since firm
performance is improved when engagements are successful, we infer that the activities coordinated by PRI
are value-enhancing.
7
Our evidence indicates that, for maximum effect, coordinated engagements should
preferably be headed by a leader that is well suited geographically, linguistically, culturally and socially to
influencing target companies. Supporting investors are also crucial, and they should ideally be major
investment managers who have influence because of their scale, ownership and (internal) resources.
7
An alternative explanation is that PRI or collaborating investors are good at picking target firms who would
outperform even in the absence of coordinated engagement. This is unlikely because not all engagements end with
success and outperformance is only present in targets where success was achieved and/or a lead was present. See
Section 4 for more discussion.
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Our paper makes new contributions in four ways. First, to our knowledge this is the first research study
examining the nature and impact of internationally coordinated engagements on E&S issues. Second, we
analyze the dynamics of coordination and highlight the economic incentives within the collaboration. Third,
by avoiding the data and methodological limitations that afflict many CSR studies, we add reliable additional
evidence of the link between responsible investing and financial performance. Finally, our paper extends the
substantial literature on shareholder activism and corporate governance.
1. Literature Review
Academic work on active ownership and investor engagement on ESG/CSR issues has extended recently in
both breadth and depth. However, there are still major gaps in the literature. More than a decade ago, Peloza
and Falkenberg (2009, p.95) reported that “The lack of a conclusive business case for corporate social
responsibility (CSR) is at the heart of the ongoing debate over the role of business in solving social and
environmental problems.” The absence of a business case reflects not only a lack of convincing examples,
but also the fact that we do not know which interventions are more likely to be effective. The authors
continued, “Although the link between CSR activities and firm financial performance is still debated,
research suggests that the relationship depends, at least in part, on how the CSR initiative is executed”
(ibid). The knowledge gap about how to intervene with a target company is almost as large today as it was a
decade ago, and this is the challenge that we address in this paper.
1.1 Shareholder action on ESG
Although there have been several thousand published studies on ESG investing (Friede, Busch, and Bassen
(2015)), the research fails even to indicate whether investors who pursue a responsible E&S approach can
anticipate an enhanced or impaired portfolio return, including over the very long term. An exception is
Dimson, Karakaş, and Li (2015), an investigation of an investment company’s 2,152 engagements with US
target companies. In that study, successful engagements were followed by positive abnormal returns,
improved performance and governance, and increased institutional ownership, while unsuccessful
engagements generated zero abnormal returns.
Many scholars, and practitioners, also perceive a conflict between shareholder activism and social activism.
Shareholder activism generally addresses conflicts between managers and shareholders and seeks to create
value for shareholders. Barber (2007, p.66) asserts that “portfolio managers… can also abuse their position
by pursuing actions that advance their own moral values or political interests at the expense of investors
(social activism)” (parentheses in original). Using CSR performance as a proxy for social capital (i.e., for
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trust between shareholders and managers), and shareholder governance proposals as a proxy for shareholder
activism, Dimitrov and Gao (2017) argue that shareholders of firms with higher CSR scores play a
constructive role in efforts on corporate governance. Homanen (2018) finds that depositors withdraw funds
from banks found to be financing firms involved with non-financial scandals and interprets this as the
disciplining and monitoring role of the depositors. In a theoretical framework, Pastor, Stambaugh, Taylor
(2021) model the investor’s tradeoff between favorable CSR attributes and financial rewards.
The private nature of certain engagements makes it more challenging for researchers to analyze them. A
detailed clinical study was undertaken by Carleton, Nelson, and Weisbach (1998). They gained access to a
collection of engagement correspondence from 1992–1996 between the Teachers Insurance Annuity
Association
–
College Retirement Equities Fund (TIAA-CREF) and various target companies. The
correspondence provided the first “large sample” (45 firms) of private negotiations; in most cases TIAA-
CREF was able to reach an agreement with their targets to implement the requested changes. The fact that
TIAA-CREF negotiated with the target almost never became public knowledge, and it seems that these solo
negotiations were successful in inducing change. While some initiatives may best be conducted privately by
a single asset owner, this raises the question of whether broader collaborative engagement may be superior.
Although other papers such as Smith’s (1996) study of engagements by the California Public Employees’
Retirement System (CalPERS) included negotiated agreements, they are less informative about the nature of
these private agreements. Becht, Franks, Mayer, and Rossi (2009) analyze the private engagements of a UK
activist fund and find that the fund outperformed its benchmarks, largely through its value-enhancing
engagements rather than stock picking.
1.2 Collaborative engagements
There appear to be significant benefits associated with collaborative engagements. Indeed, the common
rationale for inter-organizational collaboration is to exploit the collaborating partners’ resources, skills and
expertise to gain collaborative advantage (Huxham and Vangen (2005)). First and foremost, by pooling
resources and influence, investors can achieve greater success via increased voting power and an amplified
voice (Hirschman (1970)). Building upon this, Broccardo, Hart, and Zingales (2020) argue that in a
competitive world, voice (engagement) is more effective than exit (divestment) in pushing firms to act in a
socially responsible manner. Gillan and Starks (2000) find that shareholder proposals on corporate
governance issues sponsored by coordinated groups gain substantially more support than those sponsored by
individuals. Black and Coffee (1994) discuss the institutional coalition formation in the UK, by conducting a
series of interviews with senior officers in major British institutions and providing anecdotal evidence. They
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observe that communication and coalition formation among institutional investors has for a long time been
more acceptable in the UK than in the US, and coordination costs are lower in the UK. Giannetti and Laeven
(2009) also mention some anecdotal evidence that public pension funds tend to coordinate their activities on
corporate governance of target firms in episodes of activism. Dimson, Karakaş, and Li (2015) find that
collaboration with other shareholders and/or stakeholders significantly improves the success rate of
engagements, especially those on environmental and social topics.
Second, engaging as a coordinated group also improves engagement efficiency by borrowing expertise from
group members who are more knowledgeable about an issue or target company, and by sharing research
costs. This is especially efficient for smaller investors who are too resource-constrained to afford an in-house
engagement team. It is informative to make a comparison with hedge fund activists whose holdings in target
companies are typically smaller than institutional ownership in investee companies. Kedia, Starks and Wang
(2020) find that cooperation between hedge funds and like-minded institutions increases the likelihood of
success in engagements with investee companies.
Third, collaboration in ESG engagements facilitates risk-sharing among active owners. For instance, an
active owner may be reluctant to engage a target firm on a solo basis due to the risk of impairing existing
business relations; engaging as part of a larger coalition can enable active owners to mitigate this risk.
Fourth, many E&S issues, such as climate change and labor standards in supply chains, are borderless by
nature. A successful resolution of these issues thus requires cross-border collaborations from various parties.
However, collaborative engagements also face many challenges, which may lead to collaborative inertia
rather than collaborative advantage (Huxham and Vangen (2005)). The first challenge is the free-rider
problem: costs may be borne by a small group of committed and resourceful participants, while benefits are
shared with a wider group of investors inside (or even outside) the coalition. Relatedly, competition between
institutions (through reputation and superior performance) makes collaboration difficult and requires
incentives in the coalition to be set carefully. Second, coordination is difficult and time-consuming: investors
may have different objectives and interests, so achieving agreement within a group from diverse geographic
and cultural backgrounds may prolong the process. The delayed action may also reduce the effectiveness of
engagements on time-sensitive issues. Third, potential regulatory barriers in certain markets could dissuade
investors from behaving as a “concert party”. We argue in the next section that having a third-party
coordinator, such as the PRI with its Collaboration Platform team, can substantially reduce these challenges.
In a recent theoretical work, Oehmke and Opp (2020) argue that coordination is one of the necessary
conditions for socially responsible investors to have impact on firm behavior. Focusing on wolf-pack
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activism, Brav, Dasgupta, and Mathews (2019) highlight the implicit coordination among heterogeneous
block investors. In this form of activism, it is asserted that a coalition of institutional blockholders (typically
hedge funds) implicitly coordinate their interventions with the target firms where one blockholder acts as a
“lead” activist, with the other blockholders as supporting “wolf-pack” members. In their theoretical model,
wolf-pack members are delegated portfolio managers who compete for capital from clients. The wolf-pack
members are incentivized via the reputational gains from being recognized as skilled institutions, which in
turn attracts investment flows and helps overcome the free-rider problem of collective action.
8
Empirical evidence supports the formation of implicit coordination among activist investors. Brav, Jiang, and
Li (2019) analyze mutual fund voting in proxy contests and find evidence that dissident shareholders with
small block holdings (e.g., 5–10% of the target firm) “pick friends”. That is, in their decision to engage in a
proxy fight, they select a target firm with a pro-activist shareholder base. Such collaboration is crucial
particularly in contested elections during proxy fights. Defining the connected institutions as those each of
which have more than 5% of the same firm, Crane, Koch, and Michenaud (2019) find that such connected
institution act as coordinated group by voting together, particularly against low quality management
proposals. Examining the trading patterns prior to 13D filings, Wong (2020) finds evidence consistent with
coordinated effort among activist hedge funds, that is, lead activists orchestrate the “wolf packs” in hedge
fund activism.
The evidence on the effectiveness of implicit coordination is mostly positive. Studying a sample of
international hedge fund activists, Becht, Franks, Grant, Wagner (2017) report that engagements by multiple
investors perform better than those by a single organization. Wong (2020) finds that the presence of a wolf
pack is positively associated with the success of hedge fund campaigns. Crane, Koch, and Michenaud (2019)
find that coordination strengthens governance via voice. An exception is Song and Szewczyk (2003), who
study the effectiveness of implicit coordination among institutional investors via the Focus List released by
the Council of Institutional investors (CII), an organization of public and private pension funds. The Focus
List encourages institutional investors to direct activism to certain underperforming target firms without
requiring explicit consultation among investors. They find very little evidence supporting the efficacy of
shareholder activism coordinated via the Focus List.
Doidge, Dyck, Mahmudi, and Virani (2019) study explicit coordination via an investor collective action
organization (ICAO). They analyze private engagements on corporate governance issues by Canadian
8
In a recent work, Liang, Sun, and Teo (2020) find that PRI signatory hedge funds attract an economically and
statistically meaningful 20.2% more flows per annum than do non-signatories.
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Coalition for Good Governance (CCGG). They find that CCGG is more likely to target firms in which their
collective voting power is higher. Firms engaged by CCGG are more likely to adopt corporate governance
reforms on majority voting, say-on-pay, and compensation structure relative to those not engaged. Our study
differs from theirs in several ways. First and foremost, we study the coordinated engagements on E&S issues
while they study those on corporate governance topics. Second, whereas Doidge at al. examine targets and
investors from a single country, we research a global collaboration with international targets and investors,
and investigate the impact of location. Third, in contrast to Doidge et al. whose investor coalition is static,
our investor group composition changes from project to project and from target to target, allowing us to
explore the dynamics in engagement structure within the coalition and their effect on engagement outcome.
1.3 Role of institutional investors
Collaboration among investors requires effective commitment. A coordinated group of institutional
investors, potentially including both index investors and active managers, can provide the necessary
mechanism. Long-horizon investors can be motivated by their role as universal owners (Hawley and
Williams (1997)). It is in their interest to reduce negative externalities and to exploit positive externalities in
the firms that they hold. This can transform competition between investment managers and asset owners into
collaboration, and can alleviate the free-rider dilemma that might otherwise impede coordinated
engagements with investee companies.
The engagements studied in our paper are conducted by a large number of major institutional investors
whose size and breadth of shareholdings should incentivize them to behave as universal owners. They are
members of a global association (the PRI) that elevates the importance of taking a broad, social view, so
smaller asset owners are likely to be favorably inclined to a universal-owner approach to investing. Evidence
supports the claim that long-horizon investors prefer firms with better ESG practices; see, for example,
Starks, Venkat, and Zhu (2018). In a similar vein, Dyck, Lins, Roth, and Wagner (2019) report that
institutional investors demand stronger E&S performance from the firms in which they invest worldwide.
This is in line with Hart and Zingales (2017), who argue that asset managers should invest according to the
preferences of their investors.
If responsible investors are willing to pay more for the shares of companies that adhere to social values,
subsequent investment returns can be expected to be impaired, at least marginally. This is confirmed in a
comparison of PRI signatories relative to non-signatories which reports that signatories have slightly lower
returns; see Gibson, Glossner, Krüger, Matos, and Steffen (2020). Consistent with this finding, Aragon,
Jiang, Joenväärä, and Tiu (2019) report that adoption of socially responsible policies imposes a drag on the
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performance of endowment funds. Dimson, Marsh and Staunton (2020a) report that over a period of 120
years, sin sectors (alcohol and tobacco) in the largest stock markets (the US and UK) have on average sold at
a lower price-to-dividend ratio than other sectors and consequently performed better than any other sector
with a complete history. There is thus some evidence that investors seek a larger return from stocks that are
non-compliant with ESG values, and are willing to accept a modest reduction in investment returns as the
price to be paid for a higher standard of investment behavior.
Bebchuk, Brav, Jiang, and Keusch (2020) analyze the cooperation between activists and target firms and find
that a settlement is more likely when an activist has a credible chance of obtaining a board seat in a proxy
fight. These findings resonate with ours, illustrating that the chances of success in E&S engagements
increase with investor influence which, in our study, is proxied by activist holdings in the target, and the
quantum of the activist’s assets under management.
2. Institutional Background and Engagement Data
2.1 Principles for Responsible Investment (PRI)
A large proportion of asset owners and investment managers have now expressed commitment to investment
responsibility by signing up to the UN -sponsored Principles for Responsible Investment (UNPRI.org). By
signing up as signatories, institutions pledge to follow PRI’s six principles, one of which is to become active
owners and incorporate ESG issues into their ownership policies and practices. By 2020 PRI had 3,038
signatories from 71 countries, representing over $103 trillion in assets under management (AUM). Our
dataset is drawn from PRI’s initiative to support investor engagements on ESG issues with corporations. PRI
aims to be “an enabling organization that may help to overcome barriers to collective action by providing an
infrastructure for investors to work with one another, and through maintaining time-continuity of investors’
engagement, thus resulting in continued pressure on targeted firms” (Gond and Piani (2013)). Shortly after
the Principles were launched in 2006, the PRI Collaboration Platform (then known as the PRI
Clearinghouse) was initiated as a forum for shareholder engagement and as a vehicle for alliances among
institutional investors and their advisors. This facility rapidly became the world’s largest platform for
coordinated engagement activities.
PRI’s governance and incentive structures are likely to uphold the objectivity of the data it collects. PRI
states that it is “truly independent. It encourages investors to use responsible investment to enhance returns
and better manage risks, but does not operate for its own profit; it engages with global policymakers but is
not associated with any government; it is supported by, but not part of, the United Nations”
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(unpri.org/pri/about-the-pri). The board of PRI is composed of one independent chair, confirmed by a
signatory vote, and ten directors: seven elected by asset owner signatories, two elected by investment
manager signatories, and one elected by service provider signatories. The Chair and all elected Directors are
the Statutory Members of the Company. There are two Permanent UN Advisors to the Board, representing
the PRI’s founding partners, the UNGlobal Compact and the UN Environment Programme Finance Initiative
(https://www.unpri.org/pri/pri-governance).
PRI’s funding is provided primarily via the annual membership fee payable by all signatories, with
additional funding via grants from governments, foundations and international organizations. PRI does not
receive any financial support from the UN. The annual signatory fee is scaled according to each signatory’s
category, type and assets under management. For instance, the 2019/20 fee for assets owners with AUM
above $50 billion, investment managers with AUM above $50 billion, and service providers with staff
number above 200, is £8,609, £13,943, and £8,609, respectively. The PRI Board increases fees in line with
UK inflation. The fees are lower for smaller asset owners, investment managers, and service providers, and
are discounted for asset owners headquartered in emerging markets or developing economies
(https://www.unpri.org/signatory-resources/become-a-signatory/318.article).
2.2 The Collaboration Platform
The PRI Collaboration Platform exists to facilitate investor engagement with target companies, and
potentially with regulators and other actors in the business world. The companies that are targeted for
engagement are largely identified by signatories. For most of our research period, engagement begins after
one or several investors identify an issue relating to a company or sector and determine that there is a case
for change (Piani (2013, p.8)). The investor(s) may then talk with peers and with PRI to explore the scope for
engaging collaboratively. In recent times members of the Collaboration Platform team have taken an
increasing role in building such coalitions.
Posts to the Collaboration Platform vary in their intensity and resource requirements. Some are demanding,
such as proposals for in-depth research, opportunities to participate in investor-company engagements, and
requests to join in policy and regulatory dialogue. Other posts may be simpler, such as requests to co-sign
letters to companies or to support imminent shareholder resolutions. The PRI Executive actively coordinates
a number of collaborative engagements with listed companies worldwide, provides administrative support to
investor coalitions, and facilitates web-based virtual meetings and other facilities to support investor
initiatives. The Platform can also be used for direct signatory collaboration bypassing the PRI Secretariat.
For this study, we examine the engagement projects initiated and coordinated by PRI. Having the PRI
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Collaboration Platform as a third party to coordinate ESG engagements substantially reduces the costs
associated with collaborative engagements. First, PRI and its signatories work with local supervisors and
policymakers to facilitate effective action. For example, although anti-trust legislation does not primarily
target collaborative engagement on ESG issues, there is some regulatory ambiguity and uncertainty and
PRI’s team and its investors have sought clarification on such issues.
9
Second, the PRI Collaboration
Platform has a team of experts with knowledge of environmental and social issues. They proactively identify
issues and invite institutions to participate and cooperate on its platform. After several years’ experience of
working together, PRI found it helpful to identify one or more lead investors to drive forward an initiative,
with a larger number of supporting investors providing more limited (but diverse) resources. Such an
engagement structure alleviates the coordination problems. Further, the free-rider problem in engagements
through PRI Collaboration Platform is reduced as the major costs of coordination and research are borne by
PRI, which is funded through a fee paid by all signatories.
It is intriguing that these initiatives have led to a configuration that bears some resemblance to private equity
structures. Kaplan and Strömberg (2009) explain that private equity funds are organized as “partnerships in
which the general partners manage the fund and the limited partners provide most of the capital. The limited
partners typically include institutional investors, such as corporate and public pension funds, endowments,
and insurance companies, as well as wealthy individuals. The private equity firm serves as the fund’s
general partner.”
10
PRI and its signatories have similarly concluded that it is desirable to identify
participants as leading organization(s) (signatories who post the invitation and/or commit significant time
and resources) or as supporting organizations (signatories supporting the initiative by lending their names
and allocating limited resources). Piani (2013) elaborates on PRI’s engagement principles, process, and
targets, and presents case studies on carbon disclosure, ESG communication, anti-corruption, and supply-
chain issues.
The PRI Collaboration Platform has at least six desirable attributes for research. First, engagements are
logged on a platform provided by and under the control of a third party. Second, each engagement involves a
substantial number of independent organizations, which extends the potential insights from the research
9
In the UK, the Financial Conduct Authority has clarified in its code of conduct that conversations between investors
do not constitute acting in concert. Therefore, the UK has a more permissive regime for inter-shareholder dialogue
regarding investee companies. In the US, investors informally acting on an issue without disclosure may be regarded
as being in violation of Regulation Fair Disclosure (Reg FD).
10
Of course, these benefits of cooperation are not limited to E&S engagements. More broadly, Fisch and Sepe (2019)
note that “in the current information-rich economy, empowered shareholders increasingly resemble VC investors in
their ability to provide value-added knowledge on top of capital and discipline” (p.54).
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compared to a study focusing on a single investor. Third, each engagement draws on contributions from
multiple types of institutions including asset owners, investment managers, and service providers. Fourth, the
dataset is truly global, embracing investors from many countries and cultural backgrounds, which allows us
to examine the effect on location and see whether previous findings—based mostly on US and UK data—are
applicable in other environments. Fifth, the engagement projects have differing organizational structures:
half are cooperative with investors volunteering on an ad hoc basis, whereas half are headed by a small
number of leaders who initiate and proactively coordinate the activity. Finally, the dataset is granular. There
is a detailed record for each engagement, including the beginning and completion date, the identity of the
target firm, the identity and role of each investor, and engagement outcome, which does not rely on scores or
ratings from ESG advisory businesses.
11
To our knowledge, the PRI Collaboration Platform is the only
source of global data that meets these criteria.
2.3 Coordinated projects
PRI maintains the Collaboration Platform database and monitors the progress of each initiative. We have
been provided with detailed records on every initiative, together with a record of whether each engagement
was successful. The evaluation of success varies from project to project and from target firm to target firm
within each project. PRI keeps a record of objective targets for the measurement of success.
Our dataset covers 31 PRI-coordinated engagement projects in four broad areas as defined by PRI:
Environmental, Social, Governance, and (reflecting the UN origins of PRI) work related to the UN Global
Compact (UNGC) and its sustainable development goals (SDGs). However, PRI-linked engagements on
Governance and the UNGC are inherently related to Environmental and Social issues, and hence the
underlying engagement areas in our dataset are all related to E&S issues. Projects have a limited life, and if
the issues raised by a sequence of engagements persist or expand, a “Phase 1” project can be followed by a
“Phase 2” continuation addressing related matters. Table 1 summarizes these projects, which started as early
as January 2007 and only one of which was still ongoing when PRI last updated the data (May 2019). The
mean (median) project duration is 795 (798) days.
11
For a comparison and criticism of ESG ratings see Doyle (2018), who finds significant disparities in the accuracy,
value, and importance of individual ESG ratings, for reasons including: (i) disclosure limitations and lack of
standardization, (ii) company size bias, (iii) geographic bias, (iv) industry sector bias, (v) inconsistencies between
rating agencies, and (vi) failure to identify risk. In a similar spirit, Berg, Koelbel, and Rigobon (2020) quantify the
sources of rating disagreement. Yang (2019) argues that ESG ratings have limited informative signals about
important stakeholder outcomes; Diebecker, Rose, and Sommer (2019) find substantial qualitative differences
between two market-leading sustainability datasets; Dimson, Marsh, and Staunton (2020b) report a low correlation
between ESG scores and component scores (E, S, and G) from the providers; and Gibson, Krüger, Riand, and
Schmidt (2020) report a low correlation between the ESG scores from six prominent rating providers.
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The unit of analysis in this study is an engagement sequence or dialogue, defined as one target firm engaged
in a project. Engagement sequence starting and ending dates are thus defined as project dates. These 31
projects consist of 1,654 unique engagement sequences with basic information on target firms. The number
of target firms or engagement sequences in each project ranges from 7 (Sudan engagement) to 163 (COP6)
with a sample mean (median) of 53 (32). The target firms are located in a variety of geographic regions. The
average project engages targets from 18 different countries. Investors could choose to engage with different
target firms within the same project. Therefore, the number of investment institutions differs for each
engagement sequence within the same project. Table 1 also reports the average number of investors involved
in each project; on average there are 26 investors participating in each dialogue.
For each project, the PRI Collaboration Platform team evaluates success by comparing scorecards prepared
for each target firm in the pre- and post-engagement periods. The scorecards cover areas from policy and
strategy, implementation, disclosure and other material objectives. Appendix A provides examples of PRI-
coordinated projects. Success is recorded when there is an increased post-engagement score relative to the
pre-engagement score.
12
In the only ongoing project, Palm Oil Growers, success has been judged by PRI
using interim reports in mid-2016, and these evaluations are included in the dataset. Appendix B lists the
success measures used for coordinated engagements. Because of a lack of evaluation data or the nature of the
engagement, success could not be evaluated for some of the target firms (see Appendix B).
The success rate, for those engagements where success has been evaluated ranges from 0% (Forest Footprint
Disclosure 2012) to 100% (Corporate Climate Lobbying) (untabulated). A reason for the low success rates in
Forest Footprint Disclosure projects is that target firms lack the data and information to form the reporting
frame at the time of project completion. For Corporate Climate Lobbying, a reason for the high success rate
is the substantial global investor support for a measurable target of limiting the rise in global temperatures to
less than 2 degrees centigrade by 2030, called to action at the United Nations Summit in 2015 as part of the
17 Sustainable Development Goals in the 2030 Agenda for Sustainable Development
(sustainabledevelopment.un.org). In total, PRI can evaluate the success of 1,077 engagements in our sample
with an average success rate of 52.7% (untabulated). This number is comparable to the success rate of 45.2%
documented by Dimson, Karakaş and Li (2015, Table 4) for the subsample of the E&S engagements that
were undertaken in collaboration with other shareholders.
The new dataset used in this study has been assembled by us in careful and painstaking collaboration with
12
The only exception is the project on ‘Human Rights in Extractives’, in which success is only recorded when the
target’s score increased by a minimum of 5 points after the engagement.
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PRI and has not been academically analyzed previously. Our dataset does not rely on static and delimited
measures for CSR performance, such as the third-party ESG scores considered by Ferrell, Liang, and
Renneboog (2016). As advocated by Margolis, Elfenbein and Walsh (2009, p.28), our engagement dataset
avoids “ratings of admired companies and company insiders’ self-reported impressions.” We respond to
Edmans, Li and Zhang’s (2020) observation that prior work based on US data may not apply in different
settings. Our methodology recognizes that E&S-challenged sectors may cluster in particular geographic
locations (Atta-Darkua and Dimson (2018)). Our detailed data enable us to provide new insights on
engagement by asset owners with the firms they own around the world. We are also able to explore the
impact of appointing a lead investor, the value of having a local investor, and the influence of investors on
engagement success. Furthermore, many investors are involved in multiple engagements in our dataset with
differing roles. We can obtain insights on the dynamics of coordinated engagements by analyzing the
economic incentives behind investors’ decisions to participate in or lead a particular engagement, holding the
characteristics of an investor constant.
3. Analysis
3.1 Attributes of target companies
To understand the characteristics of the target companies, we merge our dataset with WorldScope/Compustat
Global and North America using the ISIN code and company name. We require market capitalization
information in the fiscal year before the start date of an engagement sequence. This reduces our sample size
from 1,729 engagements to 1,654 engagements. In Table 2 we provide summary statistics on the location of
engaged companies (Panel A) and their industrial classification (Panel B).
Panel A of Table 2 lists the 63 countries in which target firms are domiciled. This list differentiates our
global study from single-market investigations of shareholder engagement. The geographic dispersion of
collaborative engagements is highlighted by the distribution of targets across different regions of the world.
More than three-quarters of engagements involve countries other than the US and the UK. A more granular
look confirms the worldwide focus of PRI signatories. Panel A reports that there are over 100 engagement
sequences in each of the US, France, and UK. There are 50–100 engagement sequences in Japan, Germany,
Canada, India, Spain, Brazil, and Italy. There are 30–50 engagement sequences in Australia, South Korea,
Sweden, Switzerland, China, South Africa, Pakistan, and the Netherlands. A further 14 countries have a
double-digit number of engagement sequences, with an average of 15 such dialogues per country. The next
31 countries include a mix of developed and emerging markets.
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In Panel B, we see that PRI coordinated engagements are heavily concentrated in the manufacturing sector,
followed by infrastructure and wholesale/retail trade. This resembles the distribution across industries
reported in Dimson, Karakaş, and Li (2015) for a US investor’s engagements which were most frequently in
manufacturing, followed by financials and then wholesale/retail trade. Consistent with our observations,
Flammer, Hong, and Minor (2019) demonstrate that CSR contracting in executive compensation is more
prevalent in emissions-intensive industries and is becoming more prevalent over time.
To characterize the firms targeted in connection with PRI’s projects, we compare them with their country
and industry peers in the pre-engagement year. We create the pool of peer firms using
WorldScope/Compustat Global and North America universe. Following Dimson, Karakaş, and Li (2015), we
remove all the target companies from the pool and require both the target and the control firms to have data
on the country of incorporation, industry, and market capitalization. The peer firms are drawn from the same
country and industry (3-digit SIC); if there are fewer than three peer firms from the same country and 3-digit
SIC, we relax the industry classification to 2-digit SIC. If there are more than 10 peer firms for a particular
target, we keep only the 10 with the closest market capitalizations. We then calculate the difference between
the target firm and the average control firm.
In Table 3, we report the characteristics of companies targeted for engagement, and the difference between
target companies and matched peer firms averaged across the target sample. Some of the attributes that we
note in Table 3 are as follows. First, compared to the average firm in the peer group, target companies tend
to have a higher market capitalization and a higher percentage of foreign sales in their revenues, suggesting
PRI-coordinated engagements target large firms in their respective country and industry, who face greater
scrutiny on a global scale. Second, target firms have higher holdings by long-term institutions, higher total
holdings by the engagement group and by lead investors, and lower holdings by corporate insiders. Although
the average holding in target firms by the group is only 1.48%, this number is 0.9%, or 1.6 times, higher than
the group’s holdings in the peer group, in spite of the larger market capitalization of the targets relative to
their peers. The high holdings in target firms suggest that investors engage with firms where they have
enough voice and “skin in the game”. The higher holdings by long-term institutions and lower holdings by
insiders allow for less resistance to proposed advancements in responsible behavior by outside investors. The
information on institutional ownership is obtained from FactSet using target firms’ ISINs. We identify a
holding institution as long-term if its portfolio churn ratio is below the sample median (Gaspar, Massa, and
Matos (2005)). We also manually match the identity of investors with institutions in FactSet using the
organization’s name, headquarter country, and AUM.
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Third, target firms tend to have lower stock returns in the preceding year, but a higher return on assets. This
suggests target firms had mixed performance before they were targeted. This also highlights the importance
of comparing within the target firms (e.g., success vs. unsuccess) in our subsequent performance analysis.
Fourth, targets have lower stock return volatility and lower sales growth, consistent with the target being
larger and more mature. Last, target firms also have lower cash holdings, lower R&D expenses and higher
capital expenditures. This is consistent with the strategy of targeting industry leaders, who might have
already invested in ESG, and have less capacity for discretionary spending.
We also extend this analysis to ESG ratings from Refinitiv (formerly Thomson Reuters Asset4) and MSCI in
the pre-engagement year. The Refinitiv ratings are reported on a scale of 0 to 100 with a mean of 78 for
target firms in our sample; MSCI ratings run from 0 to 10 with a mean of 6 for our sample. A higher score
denotes a superior rating. Target firms have a high overall rating for ESG, measured by both Refinitiv’s
overall ESG rating and MSCI ESG rating, compared to their peers. This is consistent with PRI’s proactive
approach of identifying potential issues in an industry or region rather than to reactively fix ESG problems as
they arise. This is also consistent with a strategy of targeting industry leaders who already have a reputation
for being responsible and (on balance) would wish to avoid a downgrade.
We conduct a multivariate analysis of the choice of companies for ESG engagements by using a probit
regression model. The dependent variable is D_Target, defined as one for a target firm and zero for a firm in
the peer group. Table 4 reports the marginal effects of the probit regression coefficients for the whole
sample and for the subsample with lead investors. In these models, we control for industry and year fixed
effects, and use robust standard errors to account for heteroskedasticity.
13
Due to data availability, including
ESG ratings in the regressions reduces our sample size substantially. Therefore, we separately report the
results with and without ESG ratings. For brevity, we only tabulate the results using Refinitiv ratings, which
give us a slightly larger sample size. The results using MSCI ESG ratings are qualitatively similar and are
tabulated in our Internet Appendix. The findings are largely consistent with those in the univariate analysis
and across the subsamples with a few exceptions. The coefficients on long-term institutional holding and
insider holding are insignificant, suggesting that holdings by long-term institutions and insiders do not play a
role in the target choice after controlling for other factors.
In our targeting analysis, we also examine whether a target firm’s legal environment plays a role. We
classify legal origin based on the commercial law in a target firm’s home country (Djankov, McLiesh, and
13
We use robust standard errors instead of clustered standard errors, as the structure of variation in the dependent
variable is unknown. We get similar results by using standard errors clustered by firm.
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Shleifer (2007)). Four categories of legal system are included, namely English, French, Scandinavian, and
German. The omitted category in the regressions is countries with a legal system of English origin. We find
that target firms in countries with French, Scandinavian, and German legal origins are more likely to be
engaged, compared to firms in countries with English legal origin. This is in line with Liang and
Renneboog’s (2017) finding that firms in countries with French, Scandinavian, and German legal origins
have higher CSR ratings than firms in countries with an English legal origin. Focusing on the engagements
with lead investor, we find that firms that operate in a legal environment that has a French origin are more
likely to be engaged compared to the firms in countries whose legal origin is English.
3.2 Characteristics of engaging investors
We now turn from the location and industry of target firms to the location and category of investors. As
mentioned above, for each engagement, we are provided with data on the identities of all the investors and
their roles within the coalition. We are also provided by PRI with a separate list of 1,715 signatories with
information on their name, signature date, headquarter country, assets under management, and type (asset
owner, investment manager, or service provider). Such information is self-reported by institutions when they
pledge to become signatories on PRI’s website and is subsequently updated regularly when there are changes
(e.g., in AUM). We manually match investors in each engagement with the signatory list by name. In total,
we have 224 unique engaging investors in our sample of which 18 do not show up on the signatory list, due
to delisting or being acquired by other institutions in recent years. For these 18 firms, we manually fill in the
missing information via internet search. The information on their headquarter location, category, and AUM
has thus been collected at the time such firms were delisted or acquired. The number of signatories in our
final signatory list has consequently been expanded to 1,733.
Block A of Table 5 shows that the 224 investment institutions are headquartered in 24 different countries,
though—as with the location of target companies—their location is relatively concentrated. Half are located
in just 3–4 countries (the UK, US, and Netherlands, with Canada taking the proportion to over half). Half of
all lead investors are shown (in the column headed “Num leads”) to be located in the same 3–4 countries.
Regarding the category of investors, Blocks B and C report on who are asset owners and investment
managers respectively, while Block D looks at service providers.
For each group, we report on a country-by-country basis the number of investors in each category and their
average AUM. As Table 5 shows, the US and UK have the largest number of engaging investors in our
sample. For every country, we list the three asset owners and investment managers with the largest AUM
and all service providers (for whom AUM is unavailable). For example, for the US, the three largest asset
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owners are CalPERS, CalSTRS, and the New York State Local Retirement System;
the three largest
investment managers are T. Rowe Price, TIAA-CREF, and AllianceBernstein; and the service providers are
As You Sow, ICCF, ISS, Bloomberg, First Affirmative Financial Network. There is a broad spread of
investors across countries, although some absences are perhaps surprising. For example, at the time of our
study Japan had never had an asset owner participate in any PRI coordinated engagement,
14
and the world’s
“Big Three” asset managers (Blackrock, Vanguard, and State Street) had never participated in PRI
engagements.
15
Below, we discuss the investors who participated most in PRI coordinated engagements.
Panel A of Table 6 reports selected characteristics of the 224 investors who participated in collaborative
engagements at least once. Out of these 224, 87 are asset owners, 121 are investment managers and 16 are
service providers. An average investor in our sample participated in 194 engagements or 4 unique projects.
The average AUM of an asset owner or investment manager in our sample is $112 billion, with the median
being $23 billion. In this panel, we also report characteristics of 90 investors who led at least one
collaborative engagement. Out of these 90, 24 are asset owners, 61 are investment managers, and 5 are
service providers. We observe that the average AUM of the lead investors ($136 billion) is higher than that
of the average non-lead investors ($95 billion, not tabulated).
Among all the 1,733 signatories in the final list, 1,509 of them never participated in any coordinated
engagements in our sample. We thus label them as “inactive”. Among these inactive signatories, 264 are
asset owners, 1,033 are investment managers and 212 are service providers (not tabulated). As mentioned
before, inactive signatories include the large institutions who prefer not to engage via PRI’s Collaborative
Platform (e.g., 95 with AUM at or higher than $100 billion), the small institutions who could not afford to be
active (e.g., 384 with AUM at or below $100 million), those located in regions with distaste for shareholder
activism (e.g., 52 located in Japan), as well as those without holdings in public equity.
16
On average, these
inactive signatories have lower AUM ($45 billion, untabulated).
14
Analyzing hedge fund activism in Japan, Buchanan, Chai, and Deakin (2012) concluded that activism was not
received favorably and was generally resisted in Japanese public firms. Our conversations with PRI confirmed this
finding.
15
The lack of participation in PRI-coordinated engagements by ultra-large investment managers is apparent even on
PRI’s website. The largest asset managers prefer to engage with investee companies for themselves, and they can
anyway afford a substantial in-house engagement team. It has been suggested that their preference to forego
collaborative engagement may reflect “concert party” concerns, as well as the influence of the managers’ already
large holdings in target firms. Bebchuk and Hirst (2019) point that the Big Three dominate the index fund sector in
the US owning more than 20% of US public companies and steadily growing. They assert that index funds have
strong incentives to underinvest in stewardship and to be excessively deferential to corporate managers.
16
Based on conversations with PRI, around 860 out of more than 1,700 signatories in 2017 did not have publicly listed
equity in their portfolios. In 2017, PRI signatories had 38% of their AUM invested in listed equity
(https://tinyurl.com/PRIReportingFramework2017).
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In untabulated summary statistics, we find that an average engagement in our sample involves 26 signatories,
with a collective AUM of $2.8 trillion. The combined shareholding of the coalition in an average
engagement is 1.48% or $424 million in the target firm in the quarter before the engagement starting date
(Table 3). Classifying domestic investors as those with headquarters located in the same country as the target
firm, and foreign investors as those with headquarters located in a country that differs from the target firm,
an average engagement in our sample has 24 foreign investors and two domestic ones. Among the 1,654
engagements in our sample, 393 have lead investor(s). Focusing on the subsample of engagements with lead
investor, an engagement has an average of 1.4 lead investors, with 0.78 being foreign and 0.62 being
domestic, and with 1.02 being investment managers, 0.29 being asset owners, and 0.10 being service
providers. The median number of lead investors is one. About a quarter of the sample has two or more leads,
with the maximum number of leads being seven. The combined AUM of lead investors is $162 billion and
their combined shareholdings in the target are 0.42% or $65 million (Table 3).
Panel B of Table 6 reports the top 10 investors by number of engagements participated, and the selected
characteristics of these investors. The top 10 organizations by number of engagements are Aviva Investors
(UK), Boston Common Asset Management (US), Robeco (Netherlands), Amundi (France), Northern Ireland
Local Government Officers’ Superannuation Committee (UK), Candriam Investors Group (Luxembourg),
Canada Pension Plan Investment Boards (Canada), MN (Netherlands), The Cooperative Asset Management
(UK), and New Zealand Superannuation Fund (New Zealand). Out of the top 10 participants by number of
engagements, seven are investment managers and three are asset owners. This table also reports the date
when the organization became a PRI signatory. Among them, four joined PRI since its inception in April
2006, and four are PRI’s founding signatories, i.e., Aviva Investors, Candriam Investors Group, Canada
Pension Plan Investment Board, and New Zealand Superannuation Fund (unpri.org/pri/about-the-pri).
Panel C of Table 6 reports the top 10 lead investors by engagements and the selected characteristics of these
group members. Nine out of 10 leads are investment managers, and one is a service provider. This is
consistent with the view that an important incentive for investors to join or lead a coalition is to enhance
reputation by demonstrating proactivity and responsiveness to the concerns of E&S conscious investors.
Among them, Boston Common Asset Management, Robeco and MN are also listed as top 10 investors in
Panel B of Table 6. Hermes Investment Management, PGGM Investments and BMO Global Asset
Management (through F&C Asset Management) are among PRI’s founding signatories.
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3.3 Determinants of decision to engage
In this section, we first analyze the determinants of a PRI signatory becoming a collaborating organization,
i.e., being one of the 224 out of 1,733. Columns (1) and (2) of Table 7, Panel A report the signatory-level
probit regression results on the likelihood of becoming involved in at least one engagement. This analysis
essentially compares signatory characteristics between those involved in collaborative engagements and
those being inactive. Since signatory size information is not available for service providers, we exclude them
from this analysis. We find that signatories that are (i) founder members of PRI, (ii) early members of PRI,
(iii) with formal process to engage by internal staff, and (iv) active at collaborative initiatives besides PRI,
are more likely to be involved in collaborative engagements.
These findings suggest that being part of PRI’s network and having internal resources dedicated to
engagement is an important determinant for joining the coalition. Interestingly, we also find an inverse U-
shaped relation between signatory size measured by AUM and the likelihood of joining the coalition
(column 1).
17
This result could be due to two opposing effects of investor influence on engagements: On the
one hand, large signatories may prefer to engage alone if they have enough resources and their sole influence
over target firm is already substantial. On the other hand, since engagements require commitment, resources,
and certain clout over the target firm, if the signatory is too small, it may not have the means to engage.
However, signatory size no longer matters after we control for the presence of a formal process to engage by
internal staff and the number of collaborative initiatives besides PRI (column 2). This finding confirms the
view that signatory size captures both the signatory’s ability to engage and its willingness to collaborate.
We also analyze the determinants of a PRI signatory becoming a lead investor conditioning on participating
in the coalition, i.e., being one of the 90 out of 224. Columns (3) and (4) of Table 7, Panel A report the probit
regression results for the likelihood of being a lead at least once. Again, we exclude service providers from
this analysis. Similar to the decision to join, we find that signatories with formal process to engage by
internal staff and signatories that are active at collaborative initiatives outside PRI are more likely to lead.
This is consistent with the pattern observed in Table 6, Panel A: 96% of lead investors have formal process
of engagements by internal staff, and a lead investor participates in 9.1 other collaborative initiatives, while
these numbers are 80% and 7.5 respectively across all participating investors. This finding suggests that
having internal resources dedicated to E&S engagements is particularly important for lead investors.
Interestingly, we find that the coefficient on pension is negative and significant in Columns (3) and (4) of
17
In unreported analysis, we find very similar results by using the number of staff as an alternative measure for
signatory size.
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Table 7, Panel A, in contrast with the positive and marginally significant coefficient observed in Columns (1)
and (2) of Table 7, Panel A. This result suggests that although pension plans are likely to participate in the
coalition, they are less likely to be leaders, potentially due to lower need to establish the reputation in order
to attract outside fund flows and less capacity to handle the responsibilities of the lead investors. Kahan and
Rock (2007) argue that public pension funds, unlike hedge funds, do not have to compete intensively for
investment capital, and are subject to political constraints and conflicts of interest, which in turn shape how
they engage in shareholder activism. We no longer find signatory size plays a role in the decision to lead,
probably because the level of resources is not a constraining factor once the minimum infrastructure for an
engagement is set up, and other factors such as reputational concerns may outweigh.
Liang and Renneboog (2017) find that the legal origin of a firm’s country is a strong determinant of the
firm’s (assessed) ESG ratings. Gibson, Krüger, Riand, and Schmidt (2020) find that the legal origin of a
rating agency’s country shapes the ESG ratings the agency (assessor) assigns. We therefore examine whether
a signatory’s legal origin plays a role in its decision to be a participant and to lead. We classify a signatory’s
legal origin based on the commercial law in the country in which it is headquartered (Djankov, McLiesh, and
Shleifer (2007)). Four legal origin categories are included: English, French, Scandinavian, and German legal
origins; the omitted category in the regressions is English. We find that compared with signatories with an
English origin, those with Scandinavian origin are more likely to lead once they decide to participate in the
coalition.
18
This result, together with those in Table 4, suggests that legal origins of the countries of both the
target firms (assessed) and the investors (assessor) are material in decisions about E&S engagements.
We next analyze a signatory’s decision to engage with a particular target firm in a project, after controlling
for signatory characteristics analyzed above. The purpose of this exercise is to understand the economic
incentives behind each engagement after holding signatory-level incentive and resources constant. For this
purpose, we create a pool of candidates for each engagement. Although, in principle, all PRI signatories
could join these engagements via the Collaboration Platform, as discussed above, only 224 have used the
platform at least once during our sample period due to their arguably fundamentally different characteristics
from the remaining 1,509 inactive ones. We thus limit the pool to these 224 active signatories. Again, we
exclude service providers from this analysis due to the lack of information on their shareholdings of the
target. In sum, for each engagement, there are 208 potential candidates to become involved.
Column (1) of Table 7, Panel B reports the regression results on a signatory’s decision to become involved in
18
Among the 224 active investors, 58%, 21.4%, 8%, 12.5% have English, French, German and Scandinavian legal
origin, respectively. Among the 90 lead investors, 53.3%, 23.3%, 8.9%, and 14.4% have English, French, German
and Scandinavian legal origin, respectively.
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an engagement. In order to isolate the economic incentives behind a signatory’s decision to engage with a
particular target in a particular project, we include signatory fixed effects to control for time-invariant
signatory characteristics, such as category and location; project fixed effects to control for time-invariant
project characteristics, such as issues and success criteria; target fixed effects to control for time-invariant
target characteristics, such as location and industry; and year fixed effects to control for time-dependent
factors. We use an OLS model rather than a probit or logit model due to the incidental parameters problem
arising in non-linear models with many fixed effects (Greene (2004)). Since the dependent variable is a
decision made by individual signatories, we cluster standard errors at the signatory level to account for
potential correlations in error terms within the group.
We find that an important role in incentivizing the signatory to become involved is being in the same country
as the target firm, i.e., being domestic. Interestingly, we find that locating in the same region (i.e., continent)
but in a country that differs from the target firm does not seem to influence the decision to engage
(untabulated). These two results suggest that cultural similarity and linguistic advantages, in addition to
geographic distance, are likely to create incentives for engagement. This finding could also be driven by the
fact that signatories may have a home bias such that they are more interested in issues related to local firms
and care more about local clients and are, therefore, more willing to be involved in engagements closer to
home. A domestic focus would not be surprising: Barber, Morse, and Yasuda (2020) report considerable bias
in the holdings of limited partners in dual-objective venture/growth equity funds. Chowdhry, Davies, and
Waters (2019) analyze the decisions of socially committed investors who invest for impact; for these market
participants a degree of home bias seems natural. We also find that a signatory is more likely to engage when
the target firm is larger in size. This result is consistent with Dimson, Karakaş, and Li’s (2015) finding that
firm size is positively related to targeting and success probabilities of E&S engagements, suggesting that
economies of scale and reputational concerns faced by large-sized target companies are considered by the
engaging signatories.
We also find that an important contribution to the decision to be involved is having joined PRI as a signatory
before project initiation, which increases the likelihood of being part of the coalition.
19
This suggests that
information sharing and processing between the PRI and the signatory is an important motivation for joining
a coalition. A signatory’s past and ongoing engagements reduce the probability of being involved in a new
project. The former could be due to the pressure of being active as a PRI signatory being lower once the
19
PRI may send engagement invitations to institutions who have not yet pledged as PRI signatories. In these cases, an
institution may decide to join an engagement first and later become a signatory. However, this practice is uncommon.
Only in 5% of our sample did an institution join an engagement before becoming a signatory.
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investor is involved and has “checked the box”. The latter is likely due to the fact that staying active in an
ongoing engagement requires commitment and signatories often face limited resources.
20
We also examine whether financial incentives play a role in a signatory’s decision to engage with a
particular target by analyzing the signatory’s stake in and exposure to the target. A larger stake in the target
increases the credibility and strength of the investor’s voice and the potential benefits of the engagement. An
investor is more likely to expend more resources on a particular target to which it has a larger exposure
(Fich, Harford, and Tran (2015)). We use the percentage shareholding in a target to quantify the signatory’s
stake. We measure a signatory’s exposure to a target by calculating the weight of the signatory’s holding
value in the target relative to its overall equity portfolio value. A signatory’s overall equity portfolio value is
calculated as the sum of all holdings as recorded by FactSet. We do not find a significant impact on the
engagement decision from a signatory’s stake in or exposure to the target firm. This suggests that financial
incentives do not play a leading role in a signatory’s decision to participate in an engagement after
controlling for other economic incentives. This is likely due to the relatively low costs associated with being
part of the collaboration without playing the lead role (discussed below).
Column (2) of Table 7, Panel B reports the regression results for a signatory’s first decision to become
involved in the subsample of cases in which the engagements do not have any lead investor. Our findings for
this subsample resemble those for the full sample analyzed in Column (1), though with a (slightly) reduced
statistical significance in the coefficients of interest, likely due to the reduced sample size and to decreased
variation left in target firm size among these earlier projects, after controlling for target firm fixed effects.
Column (3) of Table 7, Panel B reports the incentives for a signatory to become a lead investor, conditional
on becoming a member of the group involved in a specific engagement. To play the lead role, the investor
needs to be the point of contact, to post the invitation, to report back to PRI periodically, and to commit
significant time and resources to the engagement. Some engagements require face-to-face meetings with
management. While the lead investor arguably incurs considerable costs, the potential benefits of the
engagement efforts such as improved firm performance and stock price are shared among all stakeholders. In
such engagements, free-rider problems may disincentivize an investor from playing a lead role. Consistent
20
Some institutions may join coordinated engagements to appear active in front of their clients. Once they participate in
a number of engagements within a certain period, they do not have the same incentive to contribute to an engagement.
In 2018 PRI strengthened its signatory accountability, and implemented minimum requirements for maintaining
membership and showcasing leadership activity on responsible investment (RI) for its existing and future signatories.
Requirements include: (i) investment policy that covers the firm’s RI approach, embracing >50% of AUM, (ii)
internal/external staff responsible for implementing RI policy, and (iii) senior-level commitment and accountability
mechanisms for RI implementation. Signatories not meeting the criteria by 2020 will first be informed privately and
then delisted following unsuccessful engagement over the two-year period (unpri.org/signatories).
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with this conjecture, our results suggest that conditional on becoming involved, a signatory is more likely to
lead if it has higher exposure to and a higher stake in the target, i.e., has more “skin in the game”. Like the
results on becoming involved in an engagement, a signatory is more likely to lead when the target is
domestic, likely due to lower engagement costs and/or higher familiarity with or interest in the matter.
Consistent with the argument that being a lead is costly and time-consuming, we find that a signatory is less
likely to be a lead when it already leads other ongoing projects.
Column (4) of Table 7, Panel B reports the incentives for a signatory to become a supporting investor,
conditional on knowing who leads the engagement. Similar to results in Columns (1) and (2) of Table 7,
Panel B, we find that a signatory is less likely to join a coalition as a supporting investor if it already has past
engagement experience or is busy with other projects. We also find that characteristics of the lead investor
also play a role in attracting supporting investors to join the coalition: Having a domestic lead increases,
while having a pension plan as lead decreases, the likelihood of being a supporting investor. This finding
suggests that supporting investors prefer their leads to be local and fit for purpose. Interestingly, target firm
being domestic is no longer a determinant for the supporting investors. This suggests that supporting
investors do not necessarily prefer local targets, probably because they rely on lead investors for local
expertise.
3.4 Determinants of engagement outcome
We now seek to identify the determinants of success in engagements. We first examine whether success can
be explained by target firm characteristics as examined in Table 4. These variables are measured in the fiscal
year immediately before the engagement starting date. After several years’ experience without identifying a
lead investor, PRI had found it helpful to recognize one or more lead investors to drive forward an initiative
while drawing in numerous supporting investors. This change of strategy enables us to examine the impact
of a structured engagement on the effectiveness of engagement, i.e., whether the presence of a lead
investor(s) can explain success.
Next, we examine whether the influence that can be mobilized by the investor group could explain the
success of engagements. Measures of potential influence are both monetary and non-monetary. The
monetary measures include the combined dollar value of investors’ positions in the target company, a proxy
to capture both existing voting power in the target (after controlling for target market capitalization) and the
economic significance of the target, and their aggregate assets under management (AUM), a proxy for
potential investment or potential voting power. The non-monetary influence is the percentage of investors in
the group with formal process of engagements by internal staff. This proxy captures human resources that
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investors could utilize to influence targets. These three measures capture distinct, albeit correlated, aspects of
investor group influence. We thus include one measure at a time in the regressions.
21
We also examine whether the composition of the investors involved in engagements, including the
percentage of pension plans and the percentage of PRI founding signatories, affects the success of an
engagement. We expect both pension plans and PRI founding signatories to have a positive impact on the
engagement outcome given their influence over local economy and engagement experience.
We conduct a multivariate analysis on the success of E&S engagements by using a probit regression model.
The dependent variable is D_Success, defined as one for engagements recorded by PRI as successful and
zero for engagements recorded as unsuccessful. We exclude engagements in which information on success is
not available (577 observations). Observations without data on target characteristics are also excluded. We
include target industry fixed effects to control for industry-specific factors. We conduct the analysis
separately for all engagements (Columns 1 to 3 of Table 8, Panel A), and for engagements with lead
investor(s) (Columns 4 to 6 of Table 8, Panel A). For the latter subsample, we additionally include year fixed
effects, which cannot be included in the former sample, as our main variable of interest, the indicator for an
engagement to have lead investor(s) is highly correlated with year indicators: All projects with lead
investor(s) started in or after year 2010 and all projects initiated after mid-2012 and with data on success
have lead investor(s). For brevity, coefficients on some firm level (control) variables are omitted in Table 8
and tabulated in the Internet Appendix. We use robust standard errors to account for heteroskedasticity.
In the first three columns of Table 8, Panel A, we find that success is more probable when there is (i) more
dividend payout, (ii) less sales growth, and (iii) larger long-term institutional holding in the target company,
which enhances receptivity to long-term value-enhancing changes. We also find that, compared to firms in
countries with English legal origin, firms that are in countries with French legal origin are more likely to
achieve the objectives set by the signatories in the E&S engagements (see Liang and Renneboog (2017)).
The most striking result is that the presence of lead investor(s) is associated with a substantial increase in the
probability of success, i.e., 26–39% increase depending on the model specification. This finding suggests a
tiered structure with a clear division of roles played by various participants is most effective in coordinated
engagements. The enhanced success rates with lead investors may reflect a learning curve and opportunities
for improvement in engagement strategies over time. This resembles the strategy of private equity investors.
Given that some active owners operate in both the private equity and ESG domains (see also Barber, Morse,
21
We also use employee ratings as an alternative non-monetary measure for investor influence and find qualitatively
similar results. The results using this measure of integrity/culture are presented in the Internet Appendix.
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and Yasuda (2020)), there may be learning opportunities that drive innovations in engagements.
Consistent with the influence of investor group playing a role in determining engagement outcome, we find
that success is more probable when the investor group has greater shareholding value in targets, larger AUM,
and higher percentage of investors with formal process of engagements by internal staff. These findings are
in line with Dimson, Karakaş, and Li (2015) who illustrate that “voice” is better exercised with a higher
share of voting power. Indeed, the result on the positive association between shareholding and success rate
suggests that having more “skin in the game” incentivizes investors to engage more effectively.
In the last three columns of Table 8, Panel A, we limit the sample to engagements with lead investor(s) to
separately examine the effect of lead investor influence and supporting investor influence on engagement
outcome. Consistent with findings for the whole sample, we find that holdings in the target and the AUM of
both the lead and supporting investors influence the success of engagements.
22
Having a higher proportion of
supporting investors with a formal engagement process increases success rate, but this does not matter for
lead investors probably due to a lack of variation: More than 75% of engagements in our sample have all
lead investors with a formal engagement process. We are also able to analyze the location and type of lead
investors. We find that having a domestic lead increases the success rate by 16–25%. Proximity of the lead
investor to the target firm provides local expertise and knowledge, and thus improves the effectiveness of
engagements. Again, this finding provides a rationale for the results reported in Table 7 that home bias
drives signatories’ decision to lead and supporting investors prefer domestic leads. The legal origin of the
target’s home country seems to play a limited role within the subsample of engagements with lead investor.
In columns 4 to 6 of Panel A, we find that having a pension plan as lead(s) decreases the success rate by 18–
25%, and having a PRI founding signatory as lead decreases the success rate by 10–20%. The former result
resonates with the findings in Table 7 that pension plans have a disincentive to become lead, and supporting
investors dislike their leads being pension plans. This is probably because pension plans face less
reputational pressure to stay active and attract fund flows, and are subject to political constraints and
conflicts of interest, as discussed in Kahan and Rock (2007). Pension plans are better equipped to support
engagements. Indeed, in all columns of Panel A, we find that success is more likely when the investor group
has a larger percentage of pension plans. The economic significance is considerable: Increasing the
percentage of pension plans from zero (minimum value) to 100% (maximum value) is associated with an
increase in the success rate of 47–57% for all engagements and of 70–75% for engagements with lead(s).
22
To include an engagement in the regression, we require at least one lead (supporting) investor to have non-missing
data on shareholding, AUM, or formal engagement process to calculate lead (supporting) investor influence.
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But why might having a PRI founding signatory as lead be associated with a relative decrease in the
likelihood of success? There are particular pressures on founding signatories who take on a leadership role.
On the one hand, they can bring broader information, accumulated skills, and greater influence to the
dialogue. On the other hand, the cohort of founders runs the risk of being more formulaic, less innovative,
and more likely to work on multiple engagements than non-founding signatories (64% vs. 49%,
untabulated). The finding that greater experience with PRI does not necessarily make the leadership more
effective supports calls for seeking additional leaders who may extend the power and influence of the group.
In Panel B of Table 8, we include target firms’ ESG rating, sourced from Refinitiv and measured by the
Asset4 overall rating, as an additional determinant for success. We analyze the ESG ratings separately, since
their inclusion decreases the sample size significantly. We find that having a high ESG rating increases
success rate for the overall sample, but not for the subsample with lead investors. The former finding is
consistent with PRI’s targeting strategy observed in Tables 3 and 4. The latter finding suggests that once a
structured engagement strategy is established, target firm characteristics play a limited role in the
determinant of success.
23
The results on engagement structure variables and investor influence variables
remain similar to those reported in Panel A. In Internet Appendix Table 2, we tabulate results using MSCI
ESG rating as an alternative to the Refinitiv rating and find very similar results. Interestingly, in contrast to
the results in the first three columns of Table 8, Panel A, the legal origins of the firms’ countries do not seem
to play a differential role in the first three columns of Table 8, Panel B. A possible reason is that a firm’s
ESG rating is correlated with its legal origin (Liang and Renneboog (2017)).
To sum up, findings in this section suggest that the most effective structure of a coordinated E&S
engagement involves appointing local non-pension investors with high influence as leads and including
influential supporting investors and pension plans in the coalition. Such a structure has a clear division of
roles and at the same time broadens the resources and influence that can be utilized by the engaging group.
3.5 Long-term stock market performance of target companies
How do target-firm shareholders view coordinated E&S engagements? To address this question, we analyze
the long-term stock market performance of target firms. In Table 9, we look at changes in abnormal buy-
and-hold returns and the cumulative abnormal returns (CARs) around the engagement initiation. For each
target, we contrast annual abnormal stock returns three years after the engagement initiation with those two
years before the engagement, as the median engagement in our sample takes two years to conclude (Table 1).
23
Consistent with this argument, we find that coefficients on many other firm-level variables, such as dividend payout,
sales growth, long-term institutional holding, insider holding, and French legal origin also lose their significance.
Electronic copy available at: https://ssrn.com/abstract=3209072

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The dependent variables in Table 9 are (i) abnormal annual buy-and hold returns, defined as target firm 12-
month buy-and-hold return minus market 12-month buy-and-hold return calculated using MSCI return index,
and (ii) annual CARs, defined as target firm monthly return minus MSCI monthly return cumulated over 12
months. We keep 24 months before and 36 months after the engagement start date. Year
+1&+2
includes month
0 to month 23. Year
+3
includes month 24 to month 35. Month 0 is the calendar month when the engagement
started. Post-engagement
Year+1&+2
is defined as one for event window Year
+1&+2
. Post-engagement
Year+3
is
defined as one for event window Year
+3
. Target firm characteristics are obtained from the corresponding
fiscal year end. All regressions incorporate target firm fixed effects and calendar year fixed effects. We
cluster standard errors at the target firm level to account for heteroskedasticity and correlation of error terms
within each firm. Panel A of Table 9 contrasts engagements with lead investors with those without; Panel B
contrasts successful engagements with unsuccessful ones; and Panel C contrasts successful engagements
with lead investors with unsuccessful engagements without lead. Bold numbers indicate the coefficients are
statistically different across the subsamples.
We document about 4.1–4.6% increase in annual abnormal stock returns at target firms within the first two
years after the engagement initiation, relative to the pre-engagement level for the subsample of engagements
with lead investors. This increase in annual abnormal stock returns widens to 8.8–9.2% in the third year.
This finding further supports the conjecture that leadership in engagement coalitions is associated with a
positive shareholder outcome. In contrast, we observe no change in target firms’ stock performance among
engagements without a lead (Table 9, Panel A). The coefficients on post-engagement indicators are
statistically different across subsamples with and without lead. These contrasting results suggest the
observed improvements in stock performance are unlikely driven by PRI’s superior stock picking, as not all
target firms experience improvements in stock performance after engagement.
Similarly, analyzing stock performance conditioning on engagement outcome, we find about 2.9–3.2%
increase in annual abnormal returns within the first two years, and 5.8–6.7% in the third year after the
engagement initiation, relative to the pre-engagement level for the subsample of successful engagements. In
contrast, there is no change in target firms’ stock performance among unsuccessful engagements, although
the difference across these two subsamples is only statistically significant in the first two years (Table 9,
Panel B). Focusing on the successful engagements with lead investors, we find about 5.0–6.1% increase in
annual abnormal returns within the first two years, and 10.2–12.6% in the third year after the engagement
initiation, relative to the pre-engagement level (Table 9, Panel C). In contrast, there is no change in stock
performance among target firms with unsuccessful engagements and without a lead. Collectively, these
findings indicate that coordinated engagements are worthwhile for shareholders, especially when
Electronic copy available at: https://ssrn.com/abstract=3209072

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engagements are headed by lead investors and/or are successful.
Overall, we find engagements concluding successfully to be rewarded by the stock market in the first three
years of the engagement initiation. Our results chime with the findings in Dimson, Karakaş, and Li (2015)
who report 7–8% abnormal returns to successful ESG engagements in their sample.
Our results also suggest
that the market, on average, can distinguish and reward the successful engagements. This finding yields
support to the objectivity of the success measures that PRI uses in evaluating projects.
3.6 Accounting performance and shareholding of target companies
Finally, we examine the post-engagement changes in accounting performance and shareholding of the target
firms. In Table 10, we analyze ROA, sales growth, and stock return volatility. In Table 11, we analyze total
investor holdings, lead investor holdings and supporting investor holdings of target firm in percentages. We
include firm fixed effects and year fixed effects in all regressions. We also include firm size (market
capitalization) and market-to-book ratio to control for firm characteristics and include within country
industry medians of the dependent variable to control for potential industry trends. We cluster standard errors
at the target firm level. To assess the change in target firm performance, we limit the sample to two years
before and three years after the engagement initiation date. Similar to before, the two post-engagement
indicator variables, i.e., Post-engagement
Year+1&+2
and
Post-engagement
Year+3
are defined as one for event
window Year
+1&+2
and Year
+3
, respectively. Panel A of Table 10 compares engagements with lead investors
with those without; Panel B contrasts successful engagements with unsuccessful ones; and Panel C contrasts
successful engagements with lead investors with unsuccessful ones without lead. Bold numbers indicate the
coefficients are statistically different across the subsamples.
We find an increase in ROA in post-engagement period for the engagements with lead investors (Panel A).
The increase in ROA is modest 0.9% in the first two years, and 2.4% in the third year after the engagement
initiation. We also observe a similar trend in ROA following the successful engagements (Panel B): a modest
0.7% increase in the first two years and 1.5% increase in the third year. Successful engagements with lead
enjoy an increase of 1.3% in ROA in the first two years and an increase of 3.2% in the third year. Such a
trend is consistent with the engagement horizon: On average it takes two years for a project to complete.
These findings are in line with those in Dimson, Karakaş, and Li (2015) who find a 1.4% increase in ROA
following successful E&S engagements. We do not observe any improvement in ROA in the subsample of
engagements without a lead or in the unsuccessful engagement subsample. The coefficients on post-
engagement indicators are statistically different across subsamples in each panel. These contrasting results
suggest the observed improvements in ROA are unlikely driven by PRI choosing well-performing firms to
Electronic copy available at: https://ssrn.com/abstract=3209072

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engage, as not all target firms experience improvements in accounting performance after engagement.
We also find significant increases in sales growth three years after engagements for the subsample of
engagements with lead investor and successful engagement subsample and these increases are higher than
those in the subsample of engagements without lead and unsuccessful engagement subsample (Panels A and
B). There is no change in sales growth among target firms in the subsample of engagements without lead and
being unsuccessful (Panel C). This suggests that successful engagements lead to improvements in firm sales.
In Table 10, Panel C, we also find that successful engagements with lead investors decrease the stock return
volatility whereas the engagements without lead or unsuccessful do not experience any change in the stock
return volatility. This is in line with Dimson, Karakaş, and Li’s (2015) finding that ESG engagements
decrease the stock volatility of the target firms, and with the finding by Hoepner, Oikonomou, Sautner,
Starks, and Zhou (2020) that ESG engagements reduce firms’ downside risk. Relatedly, the CFA Institute
(2017) finds that 73% of their survey respondents take ESG issues into consideration in their investment
analysis and decisions, and that 65% take ESG issues into consideration to help manage investment risks.
Additionally, in Table 11, we analyze the holdings in target firms by all the investors in engagements
without lead, and holdings by lead investors and the supporting investors in engagements with lead. We find
no change in shareholdings by investors in engagements without lead and no change in shareholdings by lead
investors in engagements with lead in spite of the engagement outcome. These findings suggest that (lead)
investors engaging with target firms on E&S issues are committed for the long-term and do not exit from
their investments after favorable returns from their successful engagements, in contrast to the hedge fund
activists. We find a slight decrease in shareholdings by supporting investors in the first two years after
engagements when the engagements are successful, but no change in shareholdings when engagements are
unsuccessful, although the differences are not statistically significant across two subsamples. This finding
may be caused by some supporting investors exiting target firms after projects complete.
4. Discussion and Conclusion
Two findings in our paper are subject to potential endogeneity concerns. First, the positive association
between a two-tier engagement structure and a successful outcome might be a result of reverse causality.
That is, investors select a two-tier approach when they perceive engagement success or performance
improvements to be more probable. We argue this is unlikely, because the two-tier engagement structure has
been exogenously imposed by PRI on 15 out of the 31 engagement projects, and the presence of an
engagement structure with lead(s) is neither a choice by the target firm nor by investors. There is also no
Electronic copy available at: https://ssrn.com/abstract=3209072

—35—
indication that PRI imposed the two-tier engagement structure on easy-to-succeed projects. To the contrary,
depletion of “low-hanging fruits” may bias against achieving success. In fact, based on our discussions with
PRI staff, the two-tier engagement system reflects a structural change in PRI’s engagement strategy over
time. A higher success rate with two-tier engagement is consistent with PRI moving up a learning curve and
with improved efficacy from this structure. Second, the improvements in targets’ performance could be
attributed to superior stock-picking skill by PRI or by engaging investors – a tendency to target firms that are
expected to outperform in the future. We argue this is also unlikely, because not all engagements end with
success and outperformance is only present in targets where success was achieved and/or a lead was present.
Coordinated engagements on E&S issues are surging in the institutional investment world and our study
provides the first detailed evidence of the nature and impact of such engagements in a global setting. We
show that leadership is decisive in collaborative engagements. Success rates are elevated substantially when
there is a lead investor who heads the dialogue. The increase in success rates is higher especially when the
lead investor is based in the same country as the targeted firm. We also show that investor influence is
crucial. Success rates are higher when investors have greater assets under management, own a larger stake in
the target company, and have a formal process for internal staff to engage with target businesses. These
findings suggest that, for maximum effect, coordinated engagements on E&S issues would preferably have a
lead investor who is well suited geographically, linguistically, culturally and socially to influencing target
companies. Supporting investors are also vital, and they would ideally be major investment institutions that
have influence because of their scale, ownership and resources.
Our findings suggest that coordinating activity through a third party can significantly reduce the costs
associated with active engagement. Importantly, it can alleviate the free-rider problem that is a deterrent to
active ownership. Institutions’ incentives to become leaders are shaped by their expertise and interest,
alongside their resource base and the extent to which they behave like universal owners. Having a structured
engagement strategy helps them achieve their stated objectives and contributes to improving the performance
of investee companies. Institutions with skin in the game relative to other investors are more likely to bear
the engagement costs and to play the lead role.
Electronic copy available at: https://ssrn.com/abstract=3209072

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Appendix A: Illustrative Engagement Projects
This appendix summarizes four selected coordinated engagement projects from our sample. See Piani (2013)
for more detail and further examples of engagement projects
Project
Brief
description
Carbon
Disclosure
Leader-
ship
Index:
CDLI 2011
In 2011, a group of 13 PRI signatories representing $1.8 trillion in AUM conducted a collaborative
engagement to improve the quality of disclosure through the carbon disclose project (CDP) among carbon-
intensive portfolio companies. The investor group sent a joint letter to companies whose climate disclosure
score had been in the bottom quartile among respondents to the annual CDP questionnaire in the previous
year. Investors then followed up through phone calls or meetings with target companies to discuss strengths
and weaknesses in their climate disclosure, and to encourage them to improve the quality of information
provided in the next questionnaire, reiterating the value of this information for investors. Success is
evaluated based on whether targeted firms have moved out of the lowest quartile of respondents in CDP
questionnaire on the climate disclosure score, i.e., the Leadership Index.
Anti-
corruption
(Phase 1)
During 2010 and 2013, 27 PRI signatories with assets of $2.3 trillion engaged with 20 companies in various
sectors in the belief that robust anti-corruption measures enhance corporate performance, while the absence
of such measures can exacerbate risk exposure. A broad group of investors wrote to companies requesting
details of their anti-corruption systems, and an independent research provider analyzed their performance.
They then analyzed non-responders’ performance, and letters were sent to them presenting the findings and
requesting further information. Overall, 85% of targets responded and were willing to engage with their
owners. One-third of responders demonstrated improved systems and transparency. After a further letter in
2012, over 60% of non-responding companies agreed to engage with investors. By 2013, 16 of the
companies recorded improved performance, with 10 quadrupling their score. Success is evaluated based on
comparing anti-corruption scores in pre- and post-engagement periods. Engagements involving target
companies whose anti-corruption scores improved are considered successful.
Conflict
minerals
During 2010 and 2013, 16 PRI signatories with assets of $760 billion engaged with 15 US, European and
Japanese consumer electronics companies to ensure their supply chains were not involved in the Eastern
Congo conflict. They requested public disclosure on mineral-sourcing and signed agreements regarding
independent verification of suppliers’ stated practices. 18 meetings were held with target companies, and
several investors also lobbied in favor of the SEC’s Conflict Minerals Provision rule (Section 1502) of the
2012 Dodd-Frank Act. By 2012, there were quantified improvements in public disclosure and
implementation measures, including supplier monitoring and external verification. In 2012 the SEC
Conflict Minerals Provision rule was approved, the expectation of potential regulatory requirements having
strengthened the business case for companies to respond to investor concerns. Success is evaluated based
on comparing disclosure and implementation scores in pre- and post-engagement periods. Engagements
with target companies whose scores improved are considered successful.
Fifth
annual
engage-
ment
with
UNGC
companies
In 2012, 35 PRI signatories representing $3 trillion engaged with 115 UNGC member companies regarding
their Communication on Progress. They welcomed advanced reporting by 91 companies and encouraged 24
non-communicating companies to respond and thereby reactivate their UNGC status. Phone and email
follow-up with the 24 non-communicating companies was undertaken by investors and the PRI Secretariat
and by the UNGC’s local networks. By end-2012, 18 of the 24 non-communicating companies had
responded and regained active status. Consistent and frequent follow-up appeared to encourage responses,
as did having local-level contact points. Six non-communicating companies remained inactive. Success is
recorded when the non-communicating company became active. Success cannot be evaluated for the 91
companies with advanced reporting at the beginning.
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Appendix B: Success Measures
This appendix lists the criteria PRI uses to evaluate the success of each project. CDLI denotes Carbon Disclosure
Leadership Index. CDP denotes the Carbon Disclosure Project. COP denotes Communication on Progress. UNGC
denotes the United Nations Global Compact. Success is evaluated for each target firm individually for each
project. For COP projects, some engagements were in the form of congratulatory letters sent to target companies,
for which success cannot be evaluated. For palm oil buyers, success was not evaluated by PRI.
Project name Success measure
Anti-corruption (Phase 1) Scorecards
Anti-corruption (Phase 2) Scorecards
CDLI 2011 Whether target’s leadership index improved
CDLI 2012 Whether target’s leadership index improved
CDP Carbon Action Whether target sets an objective or demonstrated progress on this
CDP Engagement on Emissions Reduction Plans Whether emission reduction program started in year after engagement
CDP Water Disclosure 2011 Whether the target disclosed to CDP Water in year after engagement
CDP Water Disclosure 2012 Whether the target disclosed to CDP Water in year after engagement
CEO Water Mandate Whether the target signed up in the initiative
COP1 - First annual UNGC engagement Whether the UNGC target company became active
COP2 - Second annual UNGC engagement N/A
COP3 - Third annual UNGC engagement Whether the UNGC target company became active
COP4 - Fourth annual UNGC engagement Whether the UNGC target company became active
COP5 - Fifth annual UNGC engagement Whether the UNGC target company became active
COP6 - Sixth annual UNGC engagement N/A
Corporate climate lobbying Scorecards
Director nominations Scorecards
Employee relations Scorecards
Forest Footprint Disclosure 2011 Whether the target disclosed forest footprint
Forest Footprint Disclosure 2012 Whether the target disclosed forest footprint
Fracking Scorecards
Human rights in extractives Scorecards
Indigenous rights Scorecards
Labor standards in agricultural supply chain: phase 1
Scorecards
Palm oil buyers N/A
Palm oil growers Scorecards (based on interim evaluation)
Conflict minerals Scorecards
Senior gender equity with global companies Scorecards
Sudan engagement Scorecards
Sustainable fisheries Whether the target provided a response addressing requested areas
Water risks in agricultural supply chains Scorecards
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Appendix C: Variable Definitions
Variable Name Definition
Target fundamental data (Source: WorldScope and Compustat, downloaded in March 2018)
Market cap Market capitalization in $b or $t. Converted to USD using fiscal year-end exchange rate.
Market-to-book Market value of equity / Book value of equity
Stock return volatility Standard deviation of monthly stock returns during the fiscal year
Sales growth (Current year sales - Previous year sales) / Previous year sales
Return on assets (ROA) Earnings before interest, tax, depreciation and amortization (EBITDA) / Total assets
Cash/Assets Cash / Total assets
Capex/Assets Capital expenditures / Total assets
R&D/Assets R&D expenditures / Total assets
Leverage (Short-term debt + Long-term Debt) / Total assets
Dividend payout Common dividends in cash / Net income before extraordinary items
Foreign sales Foreign sales/Total sales
Insider holding Number of closely held shares divided by common shares outstanding
Target shareholding data (Source: FactSet, downloaded in March 2018)
Long-term institutional holding % of shareholdings by institutions with Churn ratio below sample median
Total involved investors holding
% of shareholdings by all involved investors
Total involved investors holding $m
% of shareholdings by all involved investors multiplied by target’s market cap.
Total lead investors holding % of shareholdings by all lead investors
Total lead investors holding $m % of shareholdings by all lead investors multiplied by target’s market cap.
Total supporting investors holding
% of shareholdings by all supporting investors
Total supporting investors holding $m
% of shareholdings by all supporting investors multiplied by target’s market cap.
Signatory exposure to target
The value of a signatory's shareholdings in target divided by
the
signatory’s
total
portfolio value at the end of calendar quarter immediately before engagement start-date.
Signatory holding in target
%
of shareholdings of tar
get by a signatory at the end of calendar quarter immediately
before
engagement
start
-
date.
ESG rating data (Sources: Refinitiv and MSCI)
Refinitiv rating
Overall
equal
-
weighted
rating
based on
the four
Asset44
pillars
: environmental, social,
governan
ce, and economic
MSCI ESG rating
MSCI Intangible Value Assessment
(
IVA
)
weighted average key issue score. The score
is based
on all the key issues contributing to the final rating of the company.
Legal origin data (Source: Djankov, McLiesh, and Shleifer (2007))
Legal origin
Legal origin i
s one of
four categories
:
English, French, Scandinavian,
or
German
,
based
on the commercial law legal origin of a target firm’s home country
or a signatory’s
headquarter country
. We
reclassify Russia as having German rather than socialist origin.
Signatory/Investor data (Source: PRI)
AUM (assets under management)
Signatories’ self
-
reported AUM
as of 2017. AUM
s are
unavailable
for
service providers
and for
16 signatories due to delisting from PRI signatory list. We manually fill in their
AUM at the year before delisting by using internet search.
PRI's Founding Signatory Indicator of whether the signatory is identified on PRI website as founding signatory.
Formal Process of Engagements
by Internal Staff
Indicat
or of
whet
her the signatory
self
-
reports
a formal process for identifying and
organizing engagement activities by internal staff.
We take the maximum value in PRI’s
annual reporting survey
s
during
2014
–
2018.
Data
is missing for a
few
signatories
.
Number of Collaborative
Initiatives Participated Besides
PRI
Non
-
PRI
participations
include
U
N
Global Compact, CDP Climate Change, CDP Forest,
CFP Water, Asian Corporate Governance Association, Association for Sustainable &
Responsible Investment in Asia, Global Real Estate Sustainability Benchmark (GRESB)
,
Institutional Investors Group on Climate Change (IIGCC)
, International Corporate
Governance Network (ICGN), etc. We take the maximum number
in PRI’s annual
reporting surveys
for
2014
–
2018. Data is missing for a few signatories
.
Signatory is Pension Fund Indicator of whether the signatory is a pension plan.
Electronic copy available at: https://ssrn.com/abstract=3209072

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Electronic copy available at: https://ssrn.com/abstract=3209072

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Table 1: List of coordinated engagement projects
This table lists 31 PRI-coordinated ESG projects used in our analysis. An engagement is defined as one target firm in
one project. This table also lists the projects with lead investors and the average number of investors for each project.
CDP denotes the former Carbon Disclosure Project. COP denotes Communication on Progress. UNGC denotes the
United Nations Global Compact. All projects have concluded at the time of this draft, except Palm Oil Growers, which
is still ongoing.
Project name Project duration
Number of
Engagements
Number of
Countries
Avg. Number
of Investors
Project
has lead?
Anti-corruption (Phase 1) 01 Mar 10 - 31 Mar 13
20 14 25 Yes
Anti-corruption (Phase 2) 01 Apr 13 - 15 Jun 15 32 13 37 Yes
Carbon Disclosure Leadership Index: CDLI 2011 01 Mar 11 - 31 Dec 11
91 19 13 No
Carbon Disclosure Leadership Index: CDLI 2012 01 Mar 12 - 31 Jan 13 69 20 21 No
CDP Carbon Action 16 Nov 12 - 19 Dec 14
25 12 2 Yes
CDP Engagement on Emissions Reduction Plans 01 Sep 09 - 31 Dec 11 81 19 34 No
CDP Water Disclosure 2011 01 Feb 11 - 30 Sep 11 123 30 33 No
CDP Water Disclosure 2012 01 Mar 12 - 31 Oct 12 40 21 30 No
CEO Water Mandate 01 Aug 08 - 30 Sep 10
94 25 15 No
COP1 - First Annual UNGC Engagement 01 Jan 07 - 31 Dec 08 78 28 20 No
COP2 - Second Annual UNGC Engagement 01 Dec 08 - 31 Dec 09
102 35 35 No
COP3 - Third Annual UNGC Engagement 01 Jan 10 - 31 Dec 10 109 37 36 No
COP4 - Fourth Annual UNGC Engagement 01 Jan 11 - 31 Dec 11 103 39 39 No
COP5 - Fifth Annual UNGC Engagement 01 Feb 12 - 28 Feb 13 115 41 35 No
COP6 - Sixth Annual UNGC Engagement 10 Mar 14 - 16 Apr 14
163 41 22 No
Corporate Climate Lobbying 03 Mar 15 - 31 Dec 18
19 3 5 Yes
Director Nominations 19 Oct 12 - 30 Sep 16 23 3 18 Yes
Employee Relations 19 Oct 12 - 31 Dec 15 25 14 24 Yes
Forest Footprint Disclosure 2011 01 Aug 11 - 31 Mar 12
25 11 21 No
Forest Footprint Disclosure 2012 01 Jun 12 - 31 Oct 12 8 2 31 Yes
Fracking 19 Oct 12 - 23 Dec 16 29 8 8 Yes
Human Rights in Extractives 03 Feb 14 - 01 Nov 17
32 17 51 Yes
Indigenous Rights 01 Jun 10 - 31 Dec 12 10 5 16 Yes
Labor Standards in the Agr Supply Chain: phase 1 19 Oct 12 - 31 Dec 15 32 14 39 Yes
Palm Oil Buyers 25 Jan 13 - 31 Dec 15 45 15 25 Yes
Palm Oil Growers 26 Mar 14 - 13 4 10 Yes
Conflict Minerals 01 Nov 10 - 30 Sep 13
15 4 16 No
Senior Gender Equality with Global Companies 01 Feb 10 - 30 Sep 12 55 9 10 Yes
Sudan Engagement 01 Jan 08 - 31 Dec 12 7 6 28 No
Sustainable Fisheries 01 Jun 11 - 31 Jan 13 41 18 20 No
Water Risks in Agricultural Supply Chains 01 Jan 15 - 30 Sep 17 30 13 23 Yes
Sample Mean 795 days 53 18 26
Sample Median 798 days 32 14 25
Electronic copy available at: https://ssrn.com/abstract=3209072

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Table 2: Attributes of targets
Panel A lists the countries where targets are domiciled and the number of engagements and of unique target firms
within each country. Panel B lists the industries (one-digit SIC code) of target firms and number of engagements.
Infrastructure & Utilities industries include transportation, communications, electric, gas, and sanitary services. The
sample includes 960 unique target firms from 63 countries, involved in 1,654 engagement sequences.
Panel A: Country of targets
Target country Number of
engagements
Number of
targets
Target country Number of
engagements
Number of
targets
United States 286 161
Portugal 9 4
France 122 61
Taiwan 8 7
United Kingdom 110 67
Israel 7 5
Japan 95 62
Bermuda 7 4
Germany 83 44
Luxembourg 6 2
Canada 79 50
Turkey 5 5
India 78 57
Thailand 5 5
Spain 58 28
Colombia 5 4
Brazil 55 30
Croatia 5 4
Italy 54 27
Egypt 5 4
Australia 45 29
Sri Lanka 5 4
South Korea 44 24
Ireland 5 3
Sweden 41 23
Nigeria 4 4
Switzerland 41 21
Greece 4 3
China 34 20
Peru 4 3
South Africa 34 19
Bulgaria 4 2
Pakistan 32 17
Poland 4 2
Netherlands 32 13
Tunisia 3 3
Finland 29 13
New Zealand 3 3
Norway 23 13
Czech Republic
2 2
Singapore 23 9
Macedonia 2 2
Denmark 20 10
Bosnia-Herzegovina 2 1
Mexico 15 11
Czech Republic 2 1
Hong Kong 15 9
Hungary 2 1
Russia 15 9
Bangladesh 1 1
Chile 13 9
Cyprus 1 1
Indonesia 12 8
Kenya 1 1
Belgium 11 7
Latvia 1 1
Malaysia 10 7
Oman 1 1
Argentina 10 6
UAE 1 1
Lithuania 10 6
Zambia 1 1
Austria 10 5
Total 1,654 960
Panel B: Industry of targets
Target industry (One-digit SIC) Number of engagements
Number of targets Number of countries
Manufacturing 799 758 52
Infrastructure and Utilities 233 142 35
Wholesale or Retail Trade 204 97 32
Mining 188 96 23
Finance, Insurance and Real Estate 121 80 34
Services 73 61 21
Construction 34 24 12
Agriculture, Forestry and Fishing 2 2 2
Total 1,654 960 63
Electronic copy available at: https://ssrn.com/abstract=3209072

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Table 3: Summary statistics of targets
This table compares attributes of target firms with their peers in the fiscal year immediately before the engagement start
date, except for investor shareholdings, which are measured at the calendar quarter immediately before the engagement
start date. For each target, the peer firms are drawn from the same country and industry (3-digit SIC). When fewer than
three peer firms are found for a particular target, we relax the industry to 2-digit SIC. When more than 10 peers are
found, we keep 10 with the closest market capitalizations to that of the target. We then calculate the average of each
variable among the target’s peers and compare the average with the target. The left panel reports summary statistics for
all target firms with available data and the right panel reports the average difference between target firms and the peer
group with available information on both. All variables are defined in Appendix C. All continuous variables are
winsorized at 1
st
and 99
th
percentile levels.
Summary Statistics
Difference from
country/industry mean
Target firm attributes
Mean Median StDev Obs Avg. Diff. t-stat Obs
(1) (2) (3) (4) (5) (6) (7)
Market Cap. ($b) 39.62 11.45 94.81 1,654 35.36 15.37 1,569
Market-to-Book 2.58 1.83 2.74 1,636
0.05 0.70 1,548
Stock Return 0.16 0.10 0.47 1,637
–0.07 –6.10 1,549
Stock Return Volatility 0.09 0.08 0.05 1,622
–0.04 –21.88 1,534
Return on Assets 0.13 0.12 0.09 1,651 0.07 16.98 1,566
Leverage 0.25 0.24 0.15 1,654 0.01 3.83 1,569
Dividend Payout 0.39 0.34 0.66 1,654 0.09 5.23 1,569
Sales Growth 0.09 0.06 0.21 1,643
–0.14 –12.06 1,555
Cash/Assets 0.06 0.04 0.07 1,644
–0.03 –13.27 1,557
Capex/Assets 0.06 0.05 0.05 1,654
0.00 2.69 1,569
R&D/Assets 0.01 0.00 0.02 1,654 0.00 –5.18 1,569
Long-term Institutional Holding (%) 33.51 37.43 25.34 1,654 15.8 29.53 1,569
Total Involved Investors Holding (%) 1.48 0.54 2.17 1,654 0.90 17.50 1,569
Total Involved Investors Holding
($m)
424.32 59.62 947.26 1,654 413.66 17.20 1,569
Total Lead Investor(s) Holding (%) 0.42 0.01 1.12 393 0.37 6.51 375
Total Lead Investor(s) Holding ($m) 65.01 1.82 148.89 393 66.13 8.45 375
Insider Holding (%) 27.91 18.26 28.67 1,654 –7.72 –10.88 1,569
Foreign Sales (%) 40.67 40.62 33.43 1,654 18.53 25.43 1,569
Refinitiv Rating 77.74 87.09 22.37 1,246 22.67 24.22 831
MSCI ESG Rating 5.72 5.59 1.84 1,077 0.48 7.18 664
Electronic copy available at: https://ssrn.com/abstract=3209072

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Table 4: Determinants of targeting
This table examines the determinants of targeting by comparing target firms with their peers in the fiscal year
immediately before the engagement start date using probit regressions. For each target, the peer firms are drawn from
the same country and industry (3-digit SIC). When fewer than three peer firms are found for a particular target, we relax
the industry to 2-digit SIC. When more than 10 peers are found, we keep 10 with the closest market capitalization to
that of the target. The dependent variable D_Target is defined as one for the target and zero for the peer. Coefficients
are presented as marginal effects from a probit model. The first two columns include all engagements with data on
regression variables and the last two columns only include engagements with lead investor(s). All variables are defined
in Appendix C. All regressions incorporate industry (2-digit SIC) and year fixed effects. Robust standard errors are used
to calculate z-statistics reported in parentheses. All continuous variables are winsorized at 1
st
and 99
th
percentile levels.
∗∗∗, ∗∗, and ∗ denote significance at the 1%, 5%, and 10% level, respectively.
Prob(D_Target=1)
Engagements with all investors Engagements with lead investor
(1) (2) (3) (4)
Market Cap. (log, $m) 0.050*** 0.151*** 0.034*** 0.150***
(24.67) (17.56) (10.16) (10.64)
Market-to-Book –0.001 0.001 –0.001 –0.001
(–0.91) (0.23) (–1.04) (–0.21)
Stock Return –0.029*** –0.056*** –0.021*** –0.092**
(–5.12) (–2.68) (–2.63) (–2.30)
Stock Return Volatility 0.057 0.191 0.037 –0.664*
(1.24) (0.86) (0.57) (–1.78)
Return on Assets 0.062* 0.002 0.038 –0.112
(1.95) (0.02) (1.17) (–0.59)
Leverage 0.005 0.021 –0.008 –0.242**
(0.28) (0.33) (–0.43) (–2.23)
Dividend Payout 0.003 0.029* 0.004 0.061**
(0.81) (1.89) (1.47) (2.31)
Sales Growth –0.033*** –0.127*** –0.029*** –0.091**
(–3.18) (–3.33) (–3.09) (–1.86)
Cash/Assets –0.113** –0.113 –0.093** –0.387*
(–3.31) (–0.99) (–2.34) (–1.83)
Capex/Assets –0.003 0.058 0.094** 0.818***
(–0.06) (0.33) (2.04) (3.08)
R&D/Assets –0.839*** –2.866*** –0.291 –2.508***
Electronic copy available at: https://ssrn.com/abstract=3209072

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Prob(D_Target=1)
Engagements with all investors Engagements with lead investor
(1) (2) (3) (4)
(–6.83) (–7.93) (–1.46) (–3.39)
Long-Term Institutional Holding –0.001 –0.047 0.020 –0.024
(–0.09) (–1.07) (1.43) (–0.32)
Insider Holding –0.001 0.011 –0.018 0.022
(–0.08) (0.30) (–1.53) (0.23)
Foreign Sales 0.057*** 0.109*** 0.046*** 0.094**
(7.10) (4.02) (5.04) (2.19)
French Legal Origin (target) 0.042*** 0.180*** 0.043*** 0.182***
(4.87) (5.54) (3.03) (2.70)
Scandinavian Legal Origin (target) 0.084*** 0.347*** 0.008 0.080
(5.43) (6.47) (0.44) (0.82)
German Legal Origin (target) 0.011 0.148*** 0.011 0.084
(1.43) (5.60) (0.89) (1.37)
Total Involved Investors Holding 0.666*** 0.973***
(5.89) (2.94)
Total Lead Investors Holding 2.801*** 8.975***
(6.38) (4.89)
Total Supporting Investors Holding
–0.016 –0.697
(–0.10) (–0.84)
Refinitiv Rating 0.003*** 0.004***
(9.48) (5.99)
Observations 10,859 3,979 2,697 1,221
Pseudo R-squared 0.289 0.325 0.437 0.425
Industry Fixed Effects Y Y Y Y
Year Fixed Effects Y Y Y Y
Electronic copy available at: https://ssrn.com/abstract=3209072

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Table 5: Location of investors
Our sample includes 224 unique investors from 24 countries, 90 of whom served at least once as lead investor. An investor is self-
identified as one of three categories, asset owner, investment manager, or service provider when signing up as PRI signatory. This
table also reports for each country the average AUM (in $billion), as self-reported by asset owners and investment managers on
PRI’s website. We list the top three investors (by AUM) for asset owners and investment managers, and all service providers.
Number denotes the number of investors, Num leads denotes number of lead investors. In the names, AM denotes Asset
Management, CM Capital Management, GI Global Investors, IM Investment Management, IMs Investment Managers, PF Pension
Fund, and SF Superannuation Fund.
The following abbreviated names are used below: ATP Arbejdsmarkedets Tillægspension, CalPERS California Public Employees’
Retirement System, CalSTERS California State Teachers’ Retirement System, CDPQ Caisse de dépôt et placement du Québec,
CPPIB Canada Pension Plan Investment Board, CSC Commonwealth Superannuation Corporation, EOS Hermes Equity
Ownership Services, ERAFP French public service additional pension scheme, FAFN First Affirmative Financial Network, FRR
Fonds de réserve pour les retraites, GPFG Norwegian Government PF Global, ICCF Interfaith Center on Corporate Responsibility,
ISS Institutional Shareholder Services, LGIM Legal & General IM, PME Pensionfund Metalektro, RRSE Regroupement pour la
Responsabilité Sociale des Entreprises, SEB Skandinaviska Enskilda Banken, SHARE Shareholder Association for Research &
Educa