The Curse of Green Shareholder Oversight: Evidence from Emission Spillover of Divested Plants

Abstract: This paper provides novel evidence on how the pressure of green shareholders can propagate emissions to asset owners who are subject to less oversight. Using shareholder proposals, engagement, and activism campaigns, I find publicly listed energy firms respond to the green shareholders’ scrutiny by divesting pollutive assets. More importantly, such transactions can lead to an increase in emissions at the sold plants if the acquirers are private firms. The increase in emissions is driven by cutting down costly emission abatement activities and is concentrated in plants bought by private independent buyers, sold by firms that have environmental reporting in place, or located in areas with low environmental regulation risks. Overall, the evidence highlights that green shareholder oversight plays an important role in the allocation of pollutive real assets and the internalization of environmental externalities.