Gollier and Pouget (2014)
Gollier, Christian and Pouget, Sébastien. “The Washing Machine: Investment Strategies and Corporate Behavior with Socially Responsible Investors.” IDEI Working Papers 813, Institut d'Économie Industrielle (IDEI), Toulouse, France. January 2014.
From the authors' abstract: "Differences of objective among shareholders arise in our model due to the presence of socially responsible investors. These investors take externalities into account when valuing their portfolio while conventional investors do not. Shareholders may affect corporate behavior via two mechanisms. They can vote with their feet: responsible investors may shy away from firms producing negative externalities, thereby raising their cost of capital. Investors can also engage in activism. Our main contribution is to show that a large activist investor can generate positive abnormal returns by investing in non-responsible companies and turning them into responsible."
LK comment: Gollier and Pouget have done numerous theoretical studies on the role and likely impact of responsible investors. Their work is unique and worth studying in detail.