“Green Multistakeholderism”

Abstract: We develop a theory of how multiple groups of stakeholders, such as investors, creditors, and workers, that have preferences for reduced emissions impact their firms' abatement. Firms and stakeholders in competitive multi-sided markets sort into teams. We characterize the optimal formations, which reflect both sorting on productivity due to output complementarities and sorting on green preferences due to sharing of abatement costs and the non-pecuniary benefits of reduced emissions. Our model matches empirical findings. Either exit or engagement can be optimal, depending on firm size. Exit results in more green firms but leads the remaining brown firms to pollute more. The impact of green preferences on abatement varies across stakeholder groups, as do greeniums---the earnings of brown versus green stakeholders---which reflect both compensating differentials or abatement costs and sorting effects.