The value of shareholder environmental activism: Case of Engine No. 1

We examine the short- and long-term market reactions toward S&P 500 index constituents surrounding a pivotal event on May 26, 2021, when Engine No. 1, an environmental activist investment firm, successfully secured board seats at ExxonMobil, a leading non-renewable energy producer. Our analysis reveals a significant positive market response, particularly for firms with higher environmental and emission-related concerns immediately following the event and over an extended horizon. These findings indicate that actions by environmental activist shareholders can drive favorable equity market outcomes, especially for firms facing substantial environmental challenges. By drawing on and empirically testing stakeholder theory , efficient market theory , and prospect theory , we propose that the observed positive reactions stem from market anticipation of reduced environmental and emission risks due to the influence of environmentally conscious investors. This study highlights the transformative role of activist-driven governance in altering market perceptions of environmentally sensitive firms and their prospects. • Our analysis reveals a significant positive market response, particularly for firms with higher environmental and emission-related concerns immediately following the event and over an extended horizon. • These findings indicate that actions by environmental activist shareholders can drive favorable equity market outcomes, especially for firms facing substantial environmental challenges. • By drawing on and empirically testing stakeholder theory , efficient market theory , and prospect theory , we propose that the observed positive reactions stem from market anticipation of reduced environmental and emission risks due to the influence of environmentally conscious investors. • This study highlights the transformative role of activist-driven governance in altering market perceptions of environmentally sensitive firms and their prospects.