Abstract: This paper provides novel evidence on how the pressure of climate-conscious shareholders can propagate emissions to asset owners who are subject to less oversight. Using shareholder proposals, engagement, and activism campaigns, I find firms respond to shareholders’ climate scrutiny by divesting greenhouse gas emitting plants. More importantly, such transactions can lead to an increase in emissions at the sold plants if the acquirers are less scrutinized by the climate-conscious shareholders. 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 climate-conscious shareholder oversight plays an important role in the allocation of carbon-intensive assets and the internalization of environmental externalities.
