Overview
This project studies coordinated engagements by a prominent international network of long-term shareholders seeking to influence firms on environmental and social issues. It shows that leadership is decisive in collaborative engagements: a two-tier strategy combining lead investors with supporting investors is effective in achieving engagement goals and is associated with improved target performance and increased investor fund flows. The research further identifies the characteristics that make an investor more likely to lead such collaborations—including higher stakes and exposure to the target, formal engagement processes, and broader participation in collaborative initiatives—and shows that success rates are higher when lead investors possess superior information and a credible reputation.
Project researchers
Elroy Dimson
Cambridge Judge Business School
Oğuzhan Karakaş
Cambridge Judge Business School – Finance Subject Group; European Corporate Governance Institute (ECGI)
Xi Li
LSE
Research summary: Leadership in Collaborative Environmental & Social (E&S) Engagements
This paper studies how large institutional investors work together to influence companies on environmental and social (E&S) issues, and whether having a clear leader in these collaborations makes a difference.
Using data from 31 engagement projects coordinated by the UN-supported Principles for Responsible Investment (PRI) between 2007 and 2015, the authors analyse 1,077 engagements involving 224 investors and 960 listed firms worldwide. On average, each engagement lasts about two years and involves 26 investors.
The key comparison is between:
- Single-tier coalitions: investors act as a flat group, with no formal leader.
- Two-tier coalitions: one or more investors act as leaders.
Building on economic theory of leadership, the paper argues that leaders can improve outcomes by:
- Information: leaders often know more about the company or local context.
- Reputation: credible leaders can motivate others to follow and act.
The evidence shows that having a leader increases engagement success rates by about 23–31 %, relative to an average success rate of 52.7 %. Leadership is more effective when leaders are from the same country as the target firm, or from countries with strong social norms around E&S issues.
Two-tier engagements are also associated with better firm performance: higher abnormal stock returns and improved return on assets after engagement, while single-tier engagements show no such gains. Successful leaders additionally benefit from higher subsequent fund flows, suggesting that visible E&S leadership is rewarded by investors.
Overall, the study suggests that coordinated, leader-driven E&S engagements can both improve corporate impact and enhance financial performance.
Related paper
Elroy Dimson, Oğuzhan Karakaş and Xi Li, Coordinated Engagements, forthcoming in Journal of Finance: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209072
News and insights
Research centre news
Honour for research on investor engagement
Paper by academics at the Centre for Endowment Asset Management at Cambridge Judge Business School is awarded Honourable Mention in the prestigious Moskowitz Prize for outstanding research on sustainable and responsible investing.
ESG and sustainability
Can business reset for climate goals, 10 years on?
A decade on from the Paris Agreement, the deepening climate crisis makes business action more critical than ever. Drawing on insights from Cambridge Judge Business School academics, this article highlights practical solutions and systemic changes needed to align business practices with sustainability and drive meaningful progress.
Research paper co-authored at Cambridge Judge Business School on how investors can influence companies on environmental and social issues is named best paper in the annual Brandes Institute Prize.
Business School announcements
Engaging award
Dr Oğuzhan Karakaş of Cambridge Judge wins Young Researcher award from Sabancı University School of Management in Istanbul for research on 'Coordinated Engagements'.
Insight
Effective engagement
Investor engagement on environmental, social and governance issues were examined at a conference organised by the Centre for Endowment Asset Management at Cambridge Judge and Principles for Responsible Investing.