Investor voice across borders: global externalities and fragmented policy

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Speaker: Dr Magdalena Rola-Janicka, Imperial College London

About the seminar topic

We study the role of prosocial investors in a two-country setting with global emission externalities. Taxing emissions can reduce emissions at home but also encourages production leakage abroad, giving rise to strategic complementarity between regulators. If political frictions prevent the foreign regulator from introducing an emissions tax, the local regulator sets a lower tax to limit leakage. Even absent investor activism, ownership composition shapes equilibrium emissions taxes due to its effect on regulators’ cost internalisation. Prosocial investors can engage in local policy advocacy to increase emissions taxes, but its effectiveness is reduced by leakage. In contrast, firm-level stewardship that directly targets firms’ abatement can be valuable in the global context because investors can exert influence on firms’ operations across borders and thus increase foreign abatement. However, investor stewardship may backfire as it decreases the urgency for the foreign regulator to overcome the political friction that prevents introducing an emissions tax. Thus, stewardship can help when policy is fragmented but might also entrench global policy miscoordination.

Speaker bio

Magda is an Assistant Professor in Finance at Imperial College London. Prior to this, she finished her PhD at the University of Amsterdam in 2020 and worked at Tilburg University. Her research focuses on questions in corporate finance and financial intermediation with an interest in how these interact with the political economy and climate. She is a member of Finance Theory Group, a research affiliate at CEPR and one of the organizers of CEPR-Stigler Center conference series on the political economy of finance, as well as London FIT Network and the Banking Theory Brownbag series.

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