Sustainability and Finance
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Malcolm Baker, Harvard University
Are All ESG Funds Created Equal? Only Some Funds Are Committed
AbstractAlthough flows into ESG funds have risen dramatically, it remains unclear whether these funds perceive ESG to be a value driver, and relatedly, whether they strive to influence portfolio firms’ ESG policies. We shed light on this debate by examining the incentives of fund managers. We find that conditional on similarly large ESG investments, ESG funds with higher incentives to engage with portfolio firms– committed ESG funds – adopt longer-term investment strategies, pay more attention to portfolio firms’ ESG risk exposure, and implement less negative screening. Committed funds also demonstrate more discretionary voting on portfolio firms’ ESG proposals and devote more attention to ES issues during the Q&A section of earnings conference calls. Strikingly, only investments by committed ESG funds contribute to real ESG-improvements, and these funds have outperformed other ESG funds on their ESG holdings. Our paper highlights the importance of incentives when assessing the real impacts of sustainable investments.
Green Stakeholders in Two-Sided Markets
AbstractGreen stakeholders boycott firms with carbon emissions. We analyze their effects on competitive two-sided markets, such as bank lending, employee talent and suppliers. Matching with green stakeholders requires firms to address their carbon-emissions externality by spending on costly abatement. Green stakeholders match with less productive firms. They receive lower earnings than brown stakeholders --- a greenium reflecting both sorting and abatement costs. Compared to the first-best carbon tax, there are distortions --- aggregate output is lower and productive firms’ profits are higher. Calibrating a green-stakeholders equilibrium for the US labor market, we find small output distortions but large distributional ones.
- G3 - Corporate Finance and Governance