Exit vs. Voice: How Do Shareholders Influence Decarbonization?
In recent years, investors have been called upon to support the global transition to a low-carbon economy. Among these are institutional shareholders, who collectively hold large stakes in listed companies and are often portrayed as key players in encouraging firms to adopt more sustainable practices. But how shareholders can most effectively influence corporate decarbonization remains an open question.
The academic literature has studied two main channels through which shareholders influence firms’ decarbonization decisions, commonly referred to as “voice” and “exit.” In the voice approach, shareholders use tools such as engagement, voting, and shareholder proposals to steer corporate behavior. The exit channel, by contrast, is based on capital reallocation. Investors may choose to divest from polluting firms or systematically underweight them in their portfolios, with the expectation that such decisions will raise the firms’ cost of capital and prompt them to improve their environmental performance.
The distinction between voice and exit is the object of an important academic and policy debate. Some recent theoretical work suggests that voice may be more effective than exit in many situations. When shareholders vote or engage with firms, even a modest level of concern for social impact across a majority can lead to the adoption of cleaner practices. In contrast, exit only works if a large number of investors act together, which is difficult to coordinate. And because exit puts pressure on firms through market signals, it can sometimes lead to the wrong outcome: either too little or too much pressure to change, regardless of whether the change is socially desirable. Ultimately, however, the relative merits of voice and exit depend on factors — such as the prevalence of non-monetary preferences or the challenges of coordinating investor action —that are not directly observable.
Empirically, the evidence supporting voice is more conclusive than that for exit. Shareholder engagement has been shown to lead to some tangible improvements in firms’ environmental practices. In contrast, while some recent studies document that exit — in the form of divestment or screening — can affect asset prices, there is no clear consensus on how strongly these price effects translate into higher costs of capital or real changes in corporate behavior.
To advance the debate, however, it may be time to move beyond the traditional voice-versus-exit dichotomy. Recent academic work highlights a third category of investor influence: “indirect” effects. These include reputational consequences of investor decisions, as well as broader social and market dynamics such as stigmatization, endorsement, and the influence that comes from leading by example. Unlike voice and exit, these mechanisms operate through external audiences — such as the media, other investors, and stakeholders — rather than through direct interaction with firms or capital reallocation.
A recent paper by Becht, Pajuste, and Toniolo (2025), presented and discussed at the 2025 IESE –ECGI Corporate Governance Conference, is one of the first systematic attempts to provide evidence on such indirect impacts. The authors examine public announcements of divestment by institutional investors and study both the stock price reactions of the targeted firms and the longer-term reputational consequences. Their results suggest that, while short-term price effects are limited, divestment can lead to increased media scrutiny and a shift in how firms are perceived by other market participants. As such, the study is consistent with the notion that public divestment may act as a reputational signal that influences behavior through indirect channels, even when financial markets do not respond strongly.
While the study by Becht et al. represents an important step toward a more nuanced understanding of the role of shareholders in decarbonization, much remains to be explored. Key open questions include: How do indirect effects compare to direct mechanisms in terms of effectiveness? Are they more or less sensitive to shifts in political sentiment or public opinion? And what are the broader implications of these dynamics for corporate strategy, investor behavior, and policy design? Understanding how different forms of shareholder influence operate — and under what conditions they are most effective — remains a priority not only for researchers and policymakers, but also for corporate directors seeking to foster productive and informed interactions with their shareholders.
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The 2025 IESE-ECGI Corporate Governance Conference gathered distinguished academics and board members from leading global companies to discuss how different types of shareholders influence governance and strategy during periods of significant disruption, such as those caused by technological advancements or sustainability challenges.
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