Shareholder environmental activism has been growing in popularity with institutional investors, but is it working?

The New York City pension system implemented a boardroom accountability project in 2014, with the intent of improving the sustainability characteristics of its portfolio companies.

And, according to a new paper, results show firms targeted by the boardroom accountability project’s engagement reduced their total toxic chemical releases, production-related emissions, cancer-causing pollution, environmental accidents and legal risks. Plus, these results didn’t compromise financial returns.

“These findings suggest that shareholders can delegate their pro-social preferences onto firms to maximize their total value between their financial and non-pecuniary benefits,” said the paper by Varun Sharma, a researcher with the London Business School, Kunal Sachdeva, an assistant professor at Rice University’s Jesse H. Jones Graduate School of Business and S. Lakshmi Naaraayanan, a postgraduate student at the Hong Kong University of Science and Technology.

The paper focuses in on the board accountability project, which began submitting proposals requesting inclusion for proxy access bylaws in targeted firms’ corporate charters in 2014. “The proxy access proposals requested new bylaws that permitted shareholders who collectively held three per cent of the company for at least three years to nominate up to 25 per cent of the board using the company’s proxy material,” the paper said.

The project used these proxy access proposals over a number of years in its pursuit of certain mandates, including environmental considerations, transparency in corporate political contributions, diversity of boards, as well as chief executive officer compensation.

“It is important that we emphasize that the [boardroom accountability project] did not target firms randomly, but in contrast, were likely targeted because they exhibited poor sustainability characteristics and higher capacity to implement changes,” the paper said. “Thus, our empirical results are interpreted as the treatment effect on the treated: would the same changes have occurred if the pension system selected the identical target firms, but remained passive in their demand for proxy access?”

Overall, the paper suggests that investors may be able to maximize their total value by “voting with their voice” to bring about change rather than “voting with their feet.”