All that 'green' activism from shareholders hasn't actually lowered global carbon emissions at all.
March 26, 2026
Original Paper
Systematic Stewardship on the Waterbed
SSRN · 6468158
The Takeaway
Under current emissions trading systems, a 'waterbed effect' occurs: when one company successfully lowers its emissions due to shareholder pressure, it simply leaves more carbon permits available for other companies to buy and use. This means individual corporate virtue doesn't actually lower the total atmospheric carbon cap, making corporate governance a poor substitute for actual regulation.
From the abstract
This paper examines the limits of corporate governance as a tool for advancing climate transition. While capital market mechanisms, shareholder stewardship, say-on-climate votes, and ESG-linked executive compensation are often presented as effective levers for greening corporate behavior, their transformative capacity is systematically constrained. Building on insights from financial economics and agency theory, the paper highlights incentive distortions within the complex investment ecosystem a