We are the first to study the environmental impact of coordinated investor engagement along the supply chains of portfolio firms. For most firms, supply chains are where most environmental externalities occur. To do so, we leverage data from a large engagement consortium of eight investors from the Netherlands and the UK, who jointly invest EUR 2.34 trillion. We focus on the impact of their deforestation engagement activities with multinationals sourcing palm oil. This setting is a key engagement theme for institutional investors as palm oil-related deforestation affects climate change and biodiversity loss. A benefit of the setting is that engagement outcomes are measurable and possible, as engagement targets have significant market power over their suppliers. Our tests study deforestation activities by farmers that supply multinationals targeted by engagement activities. This allows us to precisely measure real-world environmental outcomes and alleviates concerns around endogenously selected engagement targets.

Our research objectives are the following:

  1. Quantify the impact of investor engagement along portfolio firms’ supply chains.
  2. Generate implications that help design future engagement strategies.