We develop a measure of firms' exposure to systematic environmental reputation risk and provide evidence that this exposure is priced in capital markets. Firms with greater exposure earn higher average returns, with the premium increasing after the Paris Agreement. We then examine whether shareholder engagement can reduce exposure to this source of systematic risk. Using proprietary data on shareholder engagement, we find that successful engagements targeting verifiable operational improvements reduce firms' exposure to environmental reputation risk and are associated with lower downside systematic risk. These findings suggest that shareholder engagement can influence firms' exposure to a priced source of risk.