Sudipto Dasgupta, Thanh Huynh, Ying Xia, 08 December 2021

Whether socially responsible investors have any impact on the environmental, social, and governance policies of portfolio firms has become a much-debated issue. This column shows that firms reduce emissions at their local plants following enforcement actions by the US Environmental Protection Agency against nearby plants of firms operating in the same market, and that the emissions reduction is twice as large if a nearby ‘socially responsible’ mutual fund owns shares of the parent firm of the peer plants. The threat of exit by these funds appears to have real consequences for how the local plants respond to the enforcement action.

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