Presenter: Sebastian Gryglewicz, Erasmus School of Economics

Title: Investor Activism and the Green Transition

Abstract: We develop a model of impact activism in which activist investors contribute to a firm's green transition by exerting effort and contracting with management. Due to a free-rider problem at entry, activists either do not invest or tilt their investments towards greener firms that can transition at low cost. In addition, while activism boosts the green transition rate in first best with observable efforts, management and activist efforts become substitutes under moral hazard, which can lead to ineffective or even counterproductive activism. Carbon taxation and green investment subsidies strengthen these mechanisms, further reducing the effectiveness of impact activism.

Host: Stefan Hirth