Abstract

Firms shift undesirable environmental, social, and governance (ESG) activities abroad rather than avoid them altogether. We show that this is consistent with shareholder preferences: we find ESG incident returns to be less negative when they take place outside offenders’ headquarter countries. Our analysis is based on 7,209 ESG incidents involving 63 incident countries and more than 6,000 firms. We exploit events that involve firms from multiple countries to show that geographic heterogeneity in investor preferences explains variation in foreign incident returns. Foreign incident returns are (i) more negative for firms with a larger shareholder base from the incident country, (ii) less negative for firms headquartered in more patriotic countries, and (iii) more negative for firms headquartered in more environmentally friendly countries.