Environmental Externalities of Activism

Abstract

We study the effect of hedge fund activism on corporate environmental behaviors. Using plant-chemical level data from the EPA, we find that activism campaigns are associated with a 17 percent drop in emissions for chemicals at plants of targeted firms. Campaigns are associated with changes across a wide range of chemicals, including those emitted into the air, water, and ground and those that are harmful to humans. Evidence suggests this change in environmental behavior stems from a drop in production rather than an increase in abatement activities. The net effect on environmental efficiency is positive, with emissions falling by 8 percent per unit of output. Overall, our findings highlight the idea that the benefits of activism are not necessarily confined to shareholders, but may also extend to other stakeholders (e.g., the local community) affected by firms' emissions.

Keywords: hedge fund activism, industrial pollution, CSR