The impact of climate engagement: A field experiment
This report summarises a field experiment testing whether index provider engagement influences corporate climate policy. Among 1,227 firms, 300 received letters urging adoption of science-based targets to remain in climate indices. Treated firms were 33% more likely to commit, showing that credible engagement can shape corporate climate action.
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OVERVIEW
Introduction
This report examines whether engagement by financial institutions influences corporate climate policy. It uses a pre-registered field experiment to test the causal effect of index provider engagement, addressing bias present in earlier observational studies. The experiment explores a mechanism that combines investor “voice” with a credible “threat of exit” from climate indices.
Experimental Setup
The study partnered with an index provider managing climate indices aligned with EU Paris-Aligned and Climate Transition Benchmark regulations. From 1,227 index constituents without science-based targets (SBTs), 300 firms were randomly selected to receive a letter from the index provider’s Chief Executive Officer. The letter encouraged the firms to commit to setting an SBT through the Science-Based Targets initiative (SBTi) to remain in the indices. The remaining 927 firms served as a control group.
The outcome measured was whether companies made an SBT commitment within one year. The SBTi’s independent public register was used to verify outcomes, ensuring objectivity.
Results
After one year, 21% of firms that received the engagement letter had committed to SBTs, compared with 15.7% in the control group. This represents a statistically significant 33% increase in likelihood (p = 0.036). The treatment effect remained robust after controlling for firm size, emissions, and sector.
Subsample analysis indicated stronger effects among larger and higher-emitting firms, suggesting engagement was effective where climate impacts are greatest. Verified SBTs were similar across groups (4.0% vs 4.5%), implying that engagement primarily encouraged new commitments rather than immediate target verification.
Conclusion
The study provides experimental evidence that index provider engagement can causally influence corporate climate action. Engagement that combines a credible exit threat with clear communication prompts more firms to commit to climate targets. The findings show that “voice” and “exit” act as complementary tools in sustainable investing.
From a governance perspective, the study demonstrates that “index exclusion” can drive policy change, with implications for regulators and legal scholars. For practitioners, it shows that passive investors can influence firms through engagement and index rules, and that investment funds can increase impact by clearly communicating ESG screening criteria.
The authors note that these effects depend on feasible requests, senior-level communication, and credible consequences. Further research is encouraged to assess whether such engagement leads to long-term emission reductions or applies to non-climate areas.
