The findings underscore the importance of considering the interaction between carbon markets and private climate initiatives.

The study finds that a tightening of carbon policies—interpreted as a step toward an orderly environmental transition—leads to a significant and persistent increase in r*. Based on the projected carbon price trajectory required to achieve Net Zero by 2050 (€550/tCO₂), the authors estimate that r* would rise by 1.7 percentage points. This suggests that the green transition could counteract the long-term decline in r* observed in recent decades. The research also demonstrates that climate change, in the absence of an effective transition, continues to exert downward pressure on r*. Importantly, the study finds no evidence that carbon pricing shocks lead to expectations of tighter monetary policy, suggesting that the increase in r* is driven by structural factors rather than anticipated central bank actions.

The paper identifies a significant climate investment gap in the EU, estimating annual funding needs between €550 billion and €912 billion, with current EU climate budgets covering less than half of the requirement. It proposes a new mechanism for climate financing by extending the ETS to all sectors and using its revenues to service EU climate bonds. The estimated present discounted value (PDV) of revenues from an expanded carbon pricing system ranges from €2.2 trillion to €11.5 trillion, depending on the policy scenario. The issuance of EU climate bonds would enhance the efficiency of climate investments, stabilize investor expectations on carbon pricing, and provide a new liquid and safe asset for financial markets. The paper also highlights the role of these bonds in strengthening the European Capital Market Union and supporting the ECB’s monetary policy.

The study finds that 70% of the global coal power capacity needs to be decommissioned immediately to align with the 1.5°C target, leading to stranded assets worth $842 billion. The total cost of replacing these plants with low-carbon alternatives is estimated at $8.4 trillion, including $3.1 trillion in debt financing costs. However, operational savings from shifting to clean energy would amount to $3.8 trillion, significantly offsetting costs. Under a scenario with increased carbon pricing and lower financing costs for developing economies, the transition could yield net economic benefits instead of losses.

The study finds that optimal climate policy requires high initial carbon pricing and proactive stranding of carbon-intensive assets to accelerate the transition. Capital inertia and adjustment costs lead to short-term temperature increases before emissions decline. Clean technological progress reduces long-term emissions, while uncertainty about climate and economic factors justifies a risk premium on carbon pricing. The study estimates that the optimal carbon price should be 33% higher than in models without capital constraints and uncertainty. Delayed implementation of climate policies results in significantly greater stranded assets, increasing economic costs.

The study finds that machine learning techniques, particularly LASSO regression, can predict environmental fines with reasonable accuracy and outperform traditional financial benchmarks. The most significant predictors of environmental fines are internal environmental policy variables, such as biodiversity impact reduction reports, corporate lobbying expenses, supply chain environmental policies, and board independence. Notably, ESG ratings and financial statement-based variables do not significantly improve predictions. The findings suggest that firms with extensive ESG processes are not necessarily environmentally responsible and that ESG scores may fail to capture true environmental risk.

The study develops a hybrid taxonomy to identify climate hazard-related mentions in corporate earnings calls, categorizing them into four main risks: storms and floods, heatwaves and droughts, cold waves, and wildfires. Using a refined machine learning approach, the research differentiates between risk and opportunity in climate risk exposure, identifying three main channels through which hazards affect firms: direct asset damage, supply chain disruptions, and changes in demand. The results indicate that exposure to physical climate risks varies significantly across sectors, with some industries (e.g., agriculture, construction, and utilities) more affected than others. The study also finds that climate risks are mostly experienced indirectly rather than through direct damages.

The study identifies inconsistencies in reported greenhouse gas emissions and proposes a machine learning-based model that improves estimation accuracy. The methodology introduces advanced preprocessing techniques, including outlier filtering, missing value imputation, and predictor selection. Two frameworks are developed: one using all available data and another designed for small and private firms with limited data availability. The model outperforms existing approaches, especially in estimating scope 3 emissions, which have historically been difficult to quantify accurately.

Under a conservative carbon pricing scenario (EUR 100/tCO₂ increase with no pass-through), 88% of firms experience no downgrade, and the increase in aggregate probability of default (PD) is moderate (0.41% to 0.60%)., Under a more realistic scenario allowing for cost pass-through and accounting for current EU ETS costs, the impact is even smaller (PD rises from 0.41% to 0.48%)., Utilities and fossil fuel sectors are most affected, while carbon-efficient firms may benefit from price increases via market dynamics., Bank capitalization (CET1 ratio) declines by 72 basis points in the conservative scenario and by only 19 bps in the realistic scenario—indicating no systemic financial risk., Firm-level heterogeneity is key: banks with more granular emissions data capture 21% more CET1r impact than those using sector averages., Emission intensity is not a sufficient proxy for short-term transition risk, particularly under enhanced modeling.

Ambitious climate policy (via steep or front-loaded carbon taxes) can increase short-run financial crisis probabilities by tightening financial sector leverage constraints due to declining asset values., In the long run, however, higher carbon taxes reduce capital accumulation and lower systemic leverage, leading to enhanced financial stability., The net financial stability impact is positive if policymakers assign sufficient weight to future outcomes., “Excess crisis probability” is introduced as a measure comparing ambitious and business-as-usual carbon tax paths., Front-loading climate action raises short-term fragility but improves financial resilience faster; back-loading delays instability but prolongs risk exposure., Carbon tax revenues used for subsidies smooth early impacts but amplify risks later as revenue diminishes., Transition risk is highly sensitive to the financial cycle; high leverage at the time of policy shift increases the risk of crises.

The greenium (yield difference between green and non-green bonds) varies across maturities, years, coupon levels, and bond characteristics., On average, green bonds with higher coupons show more frequent negative greenium (i.e., lower yield than non-green equivalents), indicating greater investor appetite., The greenium ranges from –65 to +106 basis points depending on bond features and time., Tax-exempt green bonds show lower yields, supporting investor preference for tax efficiency., Callable green bonds tend to offer higher yields due to perceived risk, while non-callable bonds are generally preferred., Industry matters: bonds financing higher education and power projects show lower yields (higher demand), while those in housing or utilities may offer higher yields., Self-reporting of green credentials is not statistically significant in explaining yield differences., Across different estimation methods (Nelson-Siegel, matching, duration-based), results are mostly consistent, but the Nelson-Siegel model provides smoother curves and better handles missing data.

ESG-linked debt can be structured with sustainability targets that affect coupon payments (step-ups or suspensions), affecting investor and issuer incentives., The cost of issuing ESG-linked debt depends on the bank’s capital ratio, the bond’s seniority, and the design of ESG performance triggers., For lower-capitalized banks, ESG-linked debt implies a higher marginal cost of capital (e.g. +110 bps for subordinated debt vs vanilla bonds), whereas the premium is smaller for well-capitalized banks (e.g. +20–30 bps)., Penalty structures (e.g. coupon step-ups or redirection of missed payments to a public fund) influence equity value, particularly under mispriced ESG targets or short timelines., Banks with high capitalization can issue ESG-linked debt at relatively low cost, supporting sustainable finance without large financial penalties., Different trigger designs (maintaining ESG ratings vs improving them) significantly affect pricing, risk transfer, and potential moral hazard., Case simulations show that ESG-linked debt can flatten spreads between senior and subordinated debt under certain capital levels.

Around one-third of green bond issuers increase their GHG emission intensity post-issuance, suggesting a significant incidence of greenwashing., Greenwashing firms are less likely to reissue green bonds and, if they do, face higher issuance costs compared to “green” firms., The market penalizes greenwashing by reducing investor demand, thereby increasing cost of capital., Well-defined green bond taxonomies and stricter environmental disclosure requirements are effective in reducing the probability of greenwashing., Firms in financial sectors are more prone to greenwashing due to difficulties in tracing the use of proceeds to tangible green projects., Firms issuing green bonds in jurisdictions with green taxonomies or stronger disclosure rules are significantly less likely to be greenwashing.

The study finds that the persistent positive C-spread observed in the European carbon market is driven by the credit spread of firms participating in the EU-ETS. Using cointegration analysis, the authors establish a long-run relationship between the C-spread, the credit spread of compliance entities (proxied by a newly constructed “Z-index”), and the risk-free rate. The results indicate that the cost-of-carry in EUA futures reflects not just risk-free borrowing costs but also the credit risk of market participants. The authors propose that including EUAs in the ECB’s list of eligible collateral for refinancing operations would improve market efficiency, reduce borrowing costs, and enhance the credibility of the EU-ETS as a tool for decarbonization.

The portfolio-weighted approach is easier to steer and optimize: to minimize emission intensity, it suffices to increase exposure to the counterparty with the lowest emission intensity., The activity-weighted approach incorporates more variables (activity levels, asset value) and is more complex, requiring an optimization algorithm for emission intensity management., Simulations show that the portfolio-weighted method consistently leads to expected emission reductions when increasing exposure to low emitters (100% of cases), while the activity-weighted approach does so in only 36–40% of simulations., The volatility of “activity” and “value” parameters introduces uncertainty into the activity-weighted method, even without changes in portfolio composition., Despite its limitations, the activity-weighted method is closer to actual financed emissions accounting, particularly relevant for real estate portfolios.

The ITR of a portfolio can vary by more than 1°C depending on key methodological choices., The most influential parameters are the denominator used to normalize emissions, the emissions intensity projection method, and the choice of time horizon., Other impactful factors include the growth treatment of company size, the allocation approach (reduction, convergence, fair share), and the TCRE value used to convert overshoot into temperature rise., The paper shows that it is more informative to analyze “overshoot” (emissions beyond budget) than ITR, given the linear but low-slope TCRE relationship and the artificial ceiling of 1.8°C with 100% overshoot by 2050., Scope and reference year choices are relatively less impactful in the tested steel sector., Aggregation approaches and weighting metrics at the portfolio level are flagged as critical areas for further research.

The 2011 policy change intended to refocus the tax credit on superior cleaner production (CP) technologies rather than end-of-pipe (EP) technologies., Firms significantly reduced investment in EP technologies post-reform, especially for air pollution control., No overall increase in CP investment was observed, though small firms significantly increased investment in CP technologies., The reform unintentionally decreased the number of green employees and associated salaries, especially in later years., There was no significant impact on firms’ private environmental R&D spending., Heterogeneous effects show the policy was most effective for small firms, which face greater capital market constraints.

Climate-related disasters in the EU are increasingly frequent and severe, but current national disaster risk financing practices are fragmented and largely reactive., The paper proposes a structured DRF strategy based on four pillars: Identifying the fiscal impact of disasters (past and future), Clarifying private sector disaster risk ownership (insurance coverage), Improving public sector fiscal risk management (budgeting and contingent instruments), Enhancing institutional arrangements (coordination, transparency, monitoring)., Many Member States rely on ad-hoc post-disaster funding, with limited use of pre-arranged financial instruments such as contingency funds or catastrophe bonds., Insurance penetration, especially for households and public assets, remains low in many countries, increasing the fiscal burden., The study proposes development stages (essential, intermediate, advanced) for DRF systems, with benchmarks for each pillar., The EU should foster harmonization of risk data collection, risk assessment methodologies, and integration into public finance documents.

The probability of firm default (PD) increases with carbon prices, particularly for firms in high-emitting sectors., Collateral helps reduce expected and unexpected losses (EL and UL), but its effectiveness depends on its exposure to transition risk., Financial assets from polluting sectors and energy-inefficient buildings see depreciation in value, limiting their risk-mitigation potential., The model distinguishes between three types of loans: unsecured, secured by financial assets, and secured by buildings., Building collateral value is affected by energy efficiency, renovation costs, and timing decisions based on carbon and energy price trajectories., Simulations show that both LGD and overall portfolio losses rise under more stringent transition scenarios (e.g., Net Zero 2050)., LGD varies significantly depending on the sectoral affiliation of the borrower and the characteristics of the collateral.

The study finds that carbon pricing significantly affects credit risk through multiple channels, impacting both financial institutions and the broader economy. – Firm Valuation Distortions: Introducing a carbon price alters firms’ financial stability by increasing operational costs and reducing cash flows, leading to higher default probabilities for carbon-intensive firms. – Banking Sector Impacts: Credit risk exposure grows as banks face higher provisions and increased expected losses from loans to firms struggling under carbon pricing. This dynamic reduces bank profitability and necessitates higher economic capital buffers. – Macroeconomic Sensitivity: The financial system’s exposure to carbon price changes varies across sectors, with energy-intensive industries facing the highest risk. Sectors with stronger adaptation mechanisms (e.g., green technology firms) remain more resilient. – Policy Implications: The findings underscore the need for financial institutions to integrate carbon price risk into credit risk models and stress testing frameworks. (arxiv.org)

The study finds that corporate bonds issued by firms with higher greenhouse gas emissions tend to carry a carbon premium, meaning that investors demand additional compensation for holding debt from more carbon-intensive issuers. However, this premium is not uniform across maturities—it is more pronounced in long-term bonds, indicating that climate transition risks become more material over extended investment horizons. Short-term bonds, in contrast, exhibit a weaker or even negligible carbon premium, likely due to lower exposure to regulatory shifts and transition uncertainties within shorter time frames. This suggests that as climate policies tighten and investor awareness of environmental risks grows, carbon-intensive firms will face higher financing costs, particularly in long-term debt markets. The findings underscore the importance of integrating climate risk into bond pricing models and highlight the growing role of sustainable finance in shaping corporate funding conditions.

The study introduces a computationally efficient approach to quantifying climate-related credit risks, linking macroeconomic SSP scenarios to firm-level credit exposure. It finds that both physical and transition risks have substantial but distinct impacts on portfolio losses. Physical risk shocks, driven by extreme climate events, tend to cause short-term, localized losses, whereas transition risks—arising from policy shifts and decarbonization pressures—exhibit longer-term and more systematic financial effects. The findings suggest that credit risk assessments must account for non-linear interactions between climate scenarios, economic trajectories, and firm behavior. The model also highlights that some industries are more exposed to climate transition risks due to their reliance on carbon-intensive production, making their creditworthiness highly sensitive to climate policies. By implementing dimension reduction methods, the study enhances computational efficiency, making it feasible to apply highly granular climate stress tests to large credit portfolios in real time. These insights reinforce the importance of integrating SSP-based climate risk assessments into financial stability monitoring and regulatory frameworks.

The study finds that banks systematically adjust their lending practices in response to flood risks, leading to higher borrowing costs and constrained credit availability for SMEs in high-risk areas. On average, loans issued to businesses in flood-prone regions carry a risk premium of around 6 basis points, with even larger markups for smaller firms and loans with longer maturities. Despite these pricing adjustments, post-flooding data reveal a significant increase in loan defaults, with delinquency rates rising up to 1.6 times within two years after a flood event. This suggests that current risk premia may not fully compensate for actual climate-related credit risk. Moreover, the study finds that flood events lead to a contraction in securitized credit supply, implying that banks absorb some of the financial burden of climate shocks, which could affect financial stability. Interestingly, banks appear to engage in riskier lending practices during post-flood recovery, as loans issued after disasters exhibit a higher probability of default. These findings highlight the increasing materiality of physical climate risks for financial institutions, reinforcing the need for improved climate risk pricing and adaptation strategies in the banking sector.

The study finds that the CRMI is a reliable tool for tracking the price movements of critical raw materials that are essential for the energy transition. It highlights how raw material price fluctuations are driven by factors such as geopolitical tensions, technological advancements, and shifts in supply chains. The index offers policymakers and investors a quantifiable measure of volatility and long-term pricing trends, helping them anticipate potential bottlenecks in material supply. The analysis confirms that certain materials, such as lithium and rare earth elements, exhibit high price sensitivity to global demand surges, making them particularly crucial for market monitoring. Additionally, the study demonstrates that the index can be integrated into broader macroeconomic and financial stability assessments, providing insights into how critical materials influence inflation and industrial policy.

The study finds that corporate transparency regarding green bond investors plays a crucial role in shaping shareholder composition. Firms that publicly disclose their green bond investor base tend to attract a broader and more diverse set of shareholders, as transparency enhances investor confidence and signals a commitment to sustainable finance. However, in the wake of rising anti-ESG sentiment, this disclosure strategy can have unintended consequences. The study highlights that political actions targeting major ESG-focused investors, such as the 2022 initiative by the Governor of Florida to ban BlackRock from managing state funds, have triggered behavioral shifts among smaller institutional and retail investors. These investors, wary of political risks and potential financial repercussions, have adjusted their holdings, in some cases reducing their exposure to firms associated with politically targeted asset managers. As a result, while transparency can foster investor trust and expand shareholder diversity, it also exposes firms to greater volatility in shareholder composition, especially when political opposition to ESG principles intensifies. This underscores the complex interplay between financial markets and political movements, where corporate decisions on ESG disclosure can lead to both opportunities and vulnerabilities depending on the prevailing political climate

The study demonstrates that investors can construct sovereign bond portfolios that enhance both biodiversity and climate outcomes without sacrificing absolute risk-adjusted returns. However, when evaluating performance relative to traditional benchmarks, a trade-off emerges between biodiversity and climate objectives, suggesting that these goals may conflict under certain conditions. This trade-off diminishes in more ambitious, sustainability-focused portfolios, indicating that biodiversity and climate objectives can align as portfolios become more sustainability-oriented.

For brown firms, higher ESG ratings significantly reduce credit spreads (especially for high-spread bonds), indicating a risk mitigation effect., For green firms, improved ESG scores are associated with higher spreads, potentially interpreted by investors as unnecessary costs., Among the ESG pillars, the Environmental pillar is most relevant in reducing spreads for brown firms at high quantiles, while the Social pillar becomes significant at higher spreads in green firms., There is heterogeneity across the credit risk distribution and between firm types, showing that ESG effects on credit risk are not uniform., Results are consistent across two classification methods (emission intensity and ESG pillar weight) and robust to the use of alternative ESG datasets (Refinitiv).

Regulatory standards (penalties and emissions caps) significantly affect allowance prices and abatement behavior., Stricter mitigation policies increase prices and emissions reductions, but also volatility in allowance prices., Firms with higher abatement costs drive up allowance prices and are more sensitive to cost variations., Business-as-usual (BAU) emissions levels and their uncertainty influence market outcomes, but variability and correlations across firms play a minor role., The paper provides explicit formulas for allowance prices and elasticities, offering operational tools for assessing ETS policy effectiveness.

Banks’ carbon pledges are highly heterogeneous and fragmented across providers, making them hard to compare and assess., Larger banks with greater exposure to high-emitting sectors are more likely to adopt climate commitments, especially under public pressure or higher transition risk., Banks with pledges, especially under SBTi, tend to reallocate credit and adjust pricing to high-emitting sectors, but only with a delay of 2–3 years post-commitment., Commitments under initiatives like GFANZ or CDP have weaker or no measurable effects., Implied Temperature Rise (ITR) estimates differ significantly across data providers and are poorly correlated with actual pledges, challenging their use in policy or investment decisions., Most European banks are not aligned with Paris targets (average ITR between 2.4°C and 2.7°C)., There is increasing attention to biodiversity pledges, often in parallel with climate pledges, but data remains non-standardized.

The study finds that carbon taxes, while essential for reducing emissions, introduce financial instability by increasing volatility in energy prices and affecting firms’ profitability, particularly in carbon-intensive sectors. As firms adjust their investment strategies, banks face higher credit risk, which can lead to reduced lending and potential disruptions in credit markets. The research suggests that adjusting bank capital requirements can serve as a complementary tool to mitigate these financial risks. In particular, imposing targeted capital requirements on banks’ fossil fuel exposures is more effective in balancing financial stability with economic growth, compared to uniform capital requirements. While such targeted adjustments can temporarily reduce credit supply, they help prevent systemic risks and ensure a smoother transition to a low-carbon economy. The findings emphasize that a well-calibrated regulatory response can align financial stability objectives with climate policy goals, making the transition more resilient.

The study reveals that droughts pose significant financial risks to banks exposed to agricultural lending, leading to a notable reduction in loan growth. Banks operating in regions affected by severe droughts experience declining deposits, which exacerbates liquidity constraints and limits their ability to extend credit. This effect is particularly pronounced among smaller banks with limited geographic diversification, as they struggle to offset local deposit losses. The findings suggest that the financial sector is increasingly vulnerable to climate-induced shocks, with droughts acting as a major disruptor of credit supply and regional banking stability. These results highlight the need for banks to adopt climate resilience strategies, such as portfolio diversification and improved risk management frameworks, to mitigate the economic consequences of extreme weather events.

The study reveals that, on average, typhoons lead to a 2.8% decrease in lending relative to total bank assets, primarily driven by commercial banks reducing their loan portfolios post-disaster. In contrast, rural banks tend to maintain or even increase their lending, acting as shock absorbers during such natural disasters. This resilience is attributed to their long-term relationships with local borrowers and a better understanding of local economic and physical risks. Moreover, regions lacking rural bank presence experience slower post-typhoon economic growth, highlighting the crucial role of rural banks in supporting recovery efforts.

The study introduces the DTE metric, reflecting the number of years until a company is projected to be excluded from net-zero portfolios due to its carbon emissions profile. Firms with higher DTE values, indicating a longer time before potential exclusion, exhibit higher valuation ratios and lower expected returns. This suggests that investors perceive these firms as less risky concerning carbon-transition, leading to lower required returns. The findings highlight that net-zero portfolios can achieve substantial reductions in carbon intensity, up to 95%, without significant loss of sector diversification.

The study proposes “Climate Linkers,” long-dated financial instruments (e.g., bonds, swaps, options) with payoffs indexed to climate-related variables like global temperature or carbon concentrations. These instruments facilitate the sharing of long-term climate risks and provide real-time market expectations regarding future climate conditions. The pricing framework reveals that climate risk premiums embedded in these instruments are significant, reflecting investors’ aversion to climate risks.

The study finds that aligning sovereign bond portfolios with net-zero trajectories presents substantial challenges due to the divergence between sovereign issuers’ current climate commitments and the targets required for net-zero alignment. Investors aiming for alignment must make significant adjustments to their bond allocations, often leading to portfolio concentration risks, liquidity concerns, and higher volatility. The research also reveals that developed economies have clearer decarbonization pathways, making alignment more feasible, while emerging markets face greater uncertainty due to weaker climate commitments and limited data availability. Furthermore, the study highlights that traditional sovereign bond benchmarks do not adequately integrate climate considerations, forcing investors to develop bespoke strategies to balance climate objectives with financial stability. It concludes that without stronger climate policies from sovereign issuers, investors may struggle to fully align with net-zero commitments while maintaining diversified, risk-adjusted portfolios.

The study highlights the importance of robust climate mitigation scenarios in shaping financial sector strategies. It finds that many financial institutions struggle with scenario variability and inconsistent methodologies, making it difficult to assess alignment with net-zero objectives. The authors stress that clear, science-based transition pathways are essential for accurate target setting, helping financial firms manage transition risks and identify investment opportunities. The study also notes that current methodologies lack standardization, which hinders comparability across financial institutions. Finally, it underscores the need for greater transparency in climate scenario assumptions to improve decision-making and foster investor confidence.

The study identifies an average greenium of approximately minus 3 basis points, indicating that green bonds yield slightly less than their conventional counterparts. The decomposition reveals that investment funds, banks, and insurance companies predominantly bear this greenium. Specifically:, – Investment Funds: The greenium paid is largely attributed to an average level effect, suggesting that these funds, or their clients, possess non-pecuniary sustainability preferences, leading them to accept lower yields for green bonds. , – Banks: The greenium borne by banks is primarily due to a residual component, indicating that banks overweight specific green bonds with higher greeniums. This behavior may be influenced by factors beyond general green preferences, such as financial intermediary frictions or the provision of intermediary services. Similar to investment funds, insurance companies exhibit a tendency to accept lower yields for green bonds, reflecting a possible alignment with sustainability objectives.

The study reveals that global warming significantly reduces firms’ debt capacity, leading to adjustments in optimal capital structures. Specifically:, – Leverage Reduction: Firms with higher exposure to asset stranding due to climate risks tend to adopt lower leverage ratios, indicating a proactive adjustment to mitigate potential credit risks., – Credit Spreads: Despite lower leverage, these firms may not experience reduced credit spreads, as the heightened climate-related risks counterbalance the benefits of deleveraging. , – Disciplinary Effect: The anticipation of asset stranding exerts a disciplinary effect on firms, prompting more conservative financing decisions to maintain financial stability under climate uncertainties.

The study finds that ENSO events significantly influence sovereign spreads, with their impact varying in magnitude and timing depending on the nature of the event., – El Niño Events: These trigger an immediate and significant rise in sovereign spreads, suggesting that investors quickly price in economic and financial vulnerabilities linked to the extreme weather conditions El Niño causes, such as droughts and agricultural losses. The effect is short-lived but intense, highlighting the high sensitivity of sovereign risk pricing to El Niño shocks., – La Niña Events: In contrast, La Niña initially leads to a short-term decrease in sovereign spreads, potentially reflecting expectations of improved economic conditions in some sectors. However, this is followed by a delayed but persistent rise in sovereign spreads, likely as the long-term economic damage from La Niña-related floods and disruptions becomes more apparent. This lagged response suggests that markets may initially underestimate La Niña’s financial risks, only adjusting their assessments as economic damages materialize. The research underscores asymmetries in the way financial markets price climate shocks, indicating that while El Niño risk is incorporated rapidly, La Niña risks tend to be reassessed over time. These results highlight the need for sovereign debt issuers and investors to integrate climate risk assessments more effectively into pricing models and risk management frameworks.

Preliminary analyses clearly demonstrate the macro-criticality of nature-related risks for society, economies, and the global financial system. Water-related risks are dominant and could constitute 7–9% of global GDP (5% Value at Risk), with significant impacts on the manufacturing sector. Risks to agriculture are also significant, with an estimated 14–18% of output at risk from water-related risks and potentially 12% of output at risk from pollination-related risks.

The study found that substantial natural capital losses prompt banks to withdraw deposits from environmentally distressed regions, redirecting them to regions with abundant natural capital. This reallocation leads to further environmental degradation in the long term, suggesting a self-reinforcing cycle where financial institutions’ responses to environmental shocks exacerbate natural capital depletion.

The study found that the risk premium associated with biodiversity over the past decade is close to zero. However, it also revealed that not all dimensions of biodiversity are equal; those closely related to climate change attract more market attention. This suggests that investors may be more responsive to biodiversity risks that have direct implications for climate change.

The study identified that physical and transition risks significantly impact sectors essential for domestic and international supply chains, employment, and fiscal revenues. Spatial analysis highlighted key sectors, especially in Mpumalanga, that are socioeconomically exposed to environmental risks. The findings emphasize the need for a holistic approach, integrating economic and ecological knowledge to balance economic prosperity, social stability, and environmental sustainability.

The study found that firms in countries with higher biodiversity resilience exhibit higher profitability. A one-standard-deviation increase in the biodiversity index leads to a 0.613% increase in annual profitability. Additionally, markets tend to underprice biodiversity risk, leading to potential mispricing in stock returns.

The study found that following the sector’s average carbon intensity reduction rate inflates a company’s costs by up to 15.7% compared to the optimal strategy. Additionally, investing an amount equivalent to the total carbon cost at a given date lacks a forward-looking feature, making it ineffective in buffering future carbon shocks in disorderly transition scenarios.

The study reveals that using a probabilistic approach to generate thousands of simulated pathways allows for a more nuanced examination of the impact of transition risk at the economic level. This methodology enables the analysis of inflation, growth, and earnings risks at both sector and country levels, and facilitates the modeling of earnings-at-risk and asset-return shocks at the issuer level.

The study found that immediate and decisive action towards a net-zero transition provides significant benefits by limiting financial risk and maintaining the optimal emissions pathway, thereby reducing future climate change impacts. An accelerated transition does not pose financial stability concerns, provided the financial system supports green investments. However, results vary across economic sectors and banks, indicating the need for careful monitoring of specific entities and exposures.

The study found that climate change significantly increases downside risks to economic growth. Higher temperatures and more frequent extreme weather events are associated with a leftward shift in the distribution of future GDP growth rates, indicating an elevated risk of economic downturns. The findings suggest that climate-related shocks could amplify macroeconomic volatility and threaten long-term financial stability.

The study finds that when carbon taxes are set at their socially optimal levels, monetary policy faces no trade-offs, allowing for full stabilization of inflation and the welfare-relevant output gap. However, with suboptimal carbon taxes, trade-offs emerge between maintaining price stability and addressing climate goals. Despite these trade-offs, the research suggests that monetary policy should prioritize price stability, even during prolonged transitions to optimal carbon taxation.

The study reveals that greenwashing is present in global green bond markets, with some corporations showing no reduction in greenhouse gas emission intensities after issuing green bonds. However, market participants tend to identify and penalize greenwashing firms by making subsequent green bond issuances more challenging or costly for them. The research also highlights that the establishment of green bond taxonomies and enhanced disclosure requirements can mitigate greenwashing behavior, promoting healthier development of green bond markets.

The study found that households reduced their electricity and gas consumption in response to price hikes, mitigating the potential negative impact on their disposable income available for other expenses. Consequently, the financial vulnerability of households increased only moderately, much less than it would have if energy consumption had remained unchanged despite rising prices.

The study identifies that increases in high-temperature occurrences and severe droughts, along with reductions in mild temperature days, negatively affect GDP. These climate variables significantly enhance the explanatory power of models predicting macro-fiscal outcomes, suggesting that traditional models may underestimate the economic impacts of climate shocks.

Green firms have outperformed brown firms in recent years due to carbon pricing. The EU ETS contributes to the existence of a “green equity premium.” Carbon pricing acts as an insurance mechanism by stabilizing dividends of brown firms. The preference for green financial assets does not fully explain the green premium. Procyclical fluctuations in carbon pricing impact the cost structure and returns of brown firms.

The study finds that clean energy and technology sectors experienced positive abnormal returns following the IRA’s announcement and passage, reflecting investor confidence in the policy’s support for renewable energy. Conversely, traditional energy sectors, particularly fossil fuel companies, showed muted or negative reactions, indicating market concerns over increased regulatory pressures and competition from renewables. The findings suggest that the IRA significantly influenced capital allocation, reinforcing the financial market’s growing emphasis on climate policy.

The study demonstrates that rising carbon prices can significantly affect corporate credit ratings, with the extent of impact varying across sectors based on their position within the value chain and carbon intensity. Sectors with high direct emissions or those heavily reliant on carbon-intensive inputs are more susceptible to downgrades.

The study found that donors’ political and strategic trade interests, particularly related to access to critical minerals and energy resources, significantly influence the allocation of renewable energy official development assistance (RE ODA) to low-and-middle-income countries. In contrast, the specific needs of recipient countries were generally not significant factors driving the reception of RE ODA.

The study reveals that democratic climate policies are interconnected with other democratic policies. Time-inconsistent social objectives combined with commitment issues lead to an inefficient tax on capital accumulation and a climate policy below the efficient level. Suppressing the tax on capital accumulation results in a climate policy even further below the efficient level. The research also derives a novel politico-economic Keynes–Ramsey rule for the market interest rate, highlighting that individual pure time preference, individual altruism toward descendants, and young generation political power are key determinants of democratic climate policy ambition.

The study found that stringent climate policies significantly lower the cost of debt for firms with good environmental performance, as indicated by low emission intensity or active patenting in mitigation technologies. Conversely, firms with poor environmental performance face higher borrowing costs under stringent climate policies. Additionally, ESG scores and their environmental pillar were found to be insufficiently informative for assessing and pricing domestic climate policy risks.

The study found that firms disclosing Scope 3 emissions experience a lower cost of debt, with an estimated disclosure premium of approximately 20 basis points. This suggests that transparency in reporting indirect emissions is valued by creditors, potentially due to perceived proactive environmental risk management.

The study highlights the complexity of constructing net zero portfolios, emphasizing the need to balance decarbonization efforts with financing the transition to a low-carbon economy. It finds that incorporating self-decarbonization and green intensity metrics enhances the credibility of net zero portfolios, ensuring that investments contribute meaningfully to climate objectives. However, these portfolios may face financial trade-offs, such as increased tracking error, reduced diversification, and liquidity constraints when compared to traditional benchmarks. While net zero strategies can align financial markets with sustainability goals, they require careful implementation to maintain risk-adjusted returns and avoid unintended consequences, such as excessive portfolio concentration or exposure to greenwashing risks.

The study reveals that machine learning has become an essential tool in climate finance, enhancing risk assessment, investment decision-making, and environmental policy modeling. It finds that ML methods are widely used for analyzing climate-related financial risks, optimizing carbon markets, predicting the economic impact of extreme weather events, and integrating ESG factors into portfolio management. However, the research also highlights the fragmented nature of the literature, which poses challenges for interdisciplinary collaboration. The effectiveness of ML applications depends on the availability and quality of climate and financial data, and while these techniques offer significant potential, their adoption is still limited by methodological inconsistencies and regulatory uncertainty. The study underscores the need for further integration between climate science, financial modeling, and machine learning to improve predictive capabilities and policy alignment.

The study reveals that firms’ default probabilities and valuations are significantly influenced by climate transition risks, which vary depending on the severity of climate policy scenarios and the firms’ energy technology mix. This underscores the importance for investors and policymakers to consider climate-related factors in credit risk assessments and corporate valuation.

The study reveals that the transition to a low-carbon economy poses significant risks to financial stability, primarily through the stranding of carbon-intensive assets. These stranded assets can lead to substantial losses for financial institutions, potentially triggering broader financial instability. The research emphasizes the need for comprehensive risk assessment frameworks that account for the interconnectedness of financial networks and the cascading effects of asset devaluation. It also highlights the role of central banks and regulators in mitigating these risks through proactive policies and stress testing.

The study reveals that firms aligning their emission strategies with Shared Economic Pathways (SSP) benchmarks can effectively manage transition risks, thereby mitigating potential increases in credit risk. It highlights the importance for firms to proactively adjust their production processes to meet emission reduction targets, as failure to do so may elevate their default probabilities.

The study highlights that climate stress testing has become a crucial tool for central banks and financial institutions to evaluate the exposure and vulnerability of the financial system to climate-related risks. It emphasizes the importance of developing standardized methodologies and scenarios to enhance the comparability and reliability of stress test results. The research also points out that integrating both physical and transition risks into stress testing frameworks is essential for a comprehensive assessment of climate-related financial risks.

The study indicates that climate transition policies can have significant short-term macroeconomic effects, varying based on the nature of the shock. For instance, abrupt increases in carbon prices may lead to higher inflation and reduced output, while substantial investments in low-carbon technologies could stimulate economic activity. The findings underscore the importance of carefully designing transition policies to balance environmental objectives with economic stability.

The study proposes that managers issue green bonds to signal the profitability of climate-friendly projects to investors. Empirical evidence shows that green bond announcements lead to positive abnormal stock returns, indicating that investors perceive these projects as value-enhancing. The study also finds that the positive stock price reaction is more pronounced in countries with higher effective carbon prices and in industries where managerial compensation is more sensitive to stock prices. This suggests that green bonds serve as credible signals of a firm’s commitment to profitable, environmentally friendly initiatives.

The study finds that 42% of the value of securities held by French financial institutions comes from issuers highly dependent on at least one ecosystem service. This dependency poses physical risks due to potential disruptions in services like pollination, water purification, and soil fertility. The report emphasizes the need for financial institutions to identify and manage these biodiversity-related risks proactively. Central banks and financial supervisors play a critical role in integrating biodiversity risks into financial stability assessments, as traditional risk models fail to capture the systemic nature of biodiversity loss. The study suggests that these institutions should expand their macroprudential frameworks to account for physical and transition risks related to biodiversity. It also stresses the urgent need for improved data and methodologies to assess how financial institutions’ portfolios impact and depend on nature. Without appropriate interventions, financial supervisors risk underestimating the long-term threats biodiversity degradation poses to the financial system.

The study finds that central banks play a pivotal role in promoting sustainable investment through their collateral frameworks. A reduction in the haircut applied to green bonds (from 26% to 4.5%) could increase sustainable investment by 0.5%, demonstrating that monetary policy tools can influence environmental outcomes. However, this preferential treatment also raises concerns: lower collateral haircuts encourage financial institutions to increase leverage, potentially leading to higher financial stability risks. The model suggests that a welfare-optimal haircut of 10% balances the benefits of green investment with the risks of excessive leverage. The findings indicate that central banks’ interventions in green finance should be carefully designed to avoid unintended financial fragilities.

The study demonstrates that the NZ portfolio could reduce carbon intensity by 41% between 2014 and 2019 without compromising financial performance. This reduction is achieved by increasing the portfolio weights of low-carbon-emitting countries and decreasing the weights of high-carbon emitters. Advanced economies such as France, Italy, and Spain gain weight, while the United States’ weight decreases. In emerging markets, Chile, the Philippines, and Romania see increased weights at the expense of China. The NZ portfolio maintains similar creditworthiness and foreign exchange risk compared to a traditional (BAU) benchmark.

The study identifies a distinct latent “green” factor that significantly affects stock returns in the Energy and Utilities sectors, but has limited pricing power in other industries. This suggests that climate risks are not uniformly priced across the market. Firms with higher carbon intensity tend to exhibit greater exposure to this green factor, meaning that investors appear to demand a premium for holding carbon-intensive assets in sectors most affected by environmental policies and transition risks. However, the study finds that traditional asset pricing models fail to capture this green factor, highlighting a potential gap in current financial models when it comes to incorporating environmental risks. These findings suggest that portfolio managers should adjust their risk models to account for time-varying environmental betas, particularly in sectors where climate-related risks have a measurable impact on returns.

The study outlines that sustainable finance can: (1) Reduce the cost of capital for sustainable activities and increase it for unsustainable ones, thereby incentivizing firms to adopt more sustainable practices; (2) Enhance access to liquidity for sustainable projects, facilitating their implementation; (3) Encourage or enforce sustainable corporate practices through engagement and stewardship by investors. The effectiveness of these mechanisms varies across asset classes and is influenced by factors such as market structure and regulatory environment.

The study found that: (1) Storms increase financial stress: In countries with lax macroprudential regulation, storms lead to a significant rise in the External Finance Premium (EFP), indicating heightened financial stress. (2) Stringent regulation mitigates impact: Countries with stringent macroprudential frameworks experience a decrease in the EFP following storms, suggesting that robust regulations can buffer financial systems against such shocks. (3) Floods have a neutral effect: The impact of floods on the EFP is less pronounced, potentially due to their predictability, which allows for better preparation and self-discipline among financial institutions.

Firms with high CSR activities experienced stock returns that were four to seven percentage points higher than those with low CSR during the crisis. High-CSR firms also showed higher profitability, growth, and sales per employee, and were able to raise more debt. This suggests that social capital, built through CSR, fosters stakeholder trust, providing resilience during economic downturns.

The study reveals that boards are more likely to be established in firms with large, heterogeneous shareholder bases, particularly where numerous small shareholders collectively hold a majority stake. In such contexts, boards serve multiple roles: monitoring management, advising on strategic decisions, and mediating among shareholders with divergent interests. The allocation of decision-making authority varies, with boards often granted control over significant strategic matters to balance the protection of small shareholders and the need to limit managerial discretion. Additionally, the presence of large shareholders and boards appears to be substitutive, indicating that boards are instituted primarily to address collective action problems among dispersed owners.

The study reveals that mutual funds are more likely to support dissident nominees at firms with weak operating and financial performance. Support is higher when leading proxy advisory firms recommend dissident candidates. However, passive funds are significantly less likely to support dissidents compared to active funds, suggesting that passive management is associated with lower engagement in shareholder activism. The study also finds that dissidents tend to strategically target firms with shareholder bases predisposed to supporting activist efforts, indicating that voting behavior influences the selection of proxy fight targets.

The study finds that increases in intra-industry common ownership are associated with higher product prices, suggesting potential anticompetitive effects. Conversely, increases in inter-industry common ownership correlate with lower prices, indicating procompetitive outcomes. Additionally, common ownership by major asset managers (“Big Three”: BlackRock, Vanguard, and State Street) is linked to lower airline prices, while ownership by other shareholders correlates with higher prices. These findings highlight the limitations of partial equilibrium models and underscore the importance of a general equilibrium perspective in evaluating common ownership’s effects.

The study finds that moderate ESG policies can reduce market power by encouraging firms to engage in more competitive practices, benefiting both the firms and their stakeholders. However, overly aggressive ESG policies may have adverse effects, potentially harming both the adopting firms and the stakeholders they aim to help. Under the stakeholder capitalism paradigm, competition in ESG policies can lead to optimal market outcomes, effectively serving as a remedy for market power issues. In contrast, under the shareholder primacy paradigm, competition in ESG policies may diminish shareholder value, and coordinated ESG efforts could raise antitrust concerns.

The study finds that ESG mutual funds: , – Provide increased ESG exposure: ESG funds have portfolios with higher ESG scores on average than non-ESG funds. , – Exhibit distinct voting behavior: ESG funds vote their shares differently from non-ESG funds and are more supportive of ESG principles. , – Maintain competitive performance: ESG funds do not increase costs or reduce returns compared to non-ESG funds. , These findings suggest that ESG funds generally offer investors a differentiated and competitive investment product consistent with their labeling.

The study reveals that proxy advisors may intentionally bias their voting recommendations against the more likely alternative, creating controversy and increasing the likelihood of close votes. This strategy enhances the perceived value of their advice, prompting more shareholders to purchase detailed research reports. In contrast, the research reports provided to paying subscribers are precise and unbiased, ensuring valuable insights for informed decision-making. These findings suggest that proxy advisors’ recommendations may not serve as suitable benchmarks for evaluating shareholder votes and provide a rationale for the prevalent one-size-fits-all approach in proxy voting advice.

The study finds that a carbon tax significantly reduces the asset values of carbon-intensive industries, affecting both equity and debt markets. Banks with high loan exposure to these industries face increased credit risk, which can propagate into the broader financial system, raising financial stability concerns. Moreover, the research highlights that current macro-financial stress tests may underestimate climate risks, as they often fail to account for sector-specific policy impacts. The findings suggest that incorporating a carbon tax shock into stress testing models provides a more accurate measure of financial sector vulnerability to climate policies.

The report identifies significant variations among existing alignment assessment methodologies, particularly concerning data sources, scenario selection, and calculation approaches. This lack of standardization leads to inconsistent results, making it challenging for investors to accurately gauge their portfolios’ alignment with climate goals. The study emphasizes the need for harmonization and transparency in these methodologies to enhance comparability and reliability.

The study finds that Dutch financial institutions have approximately €510 billion in exposure to companies with high or very high dependence on ecosystem services, representing 36% of the examined portfolios. This dependency poses physical risks due to potential disruptions in services like pollination, water purification, and soil fertility. Additionally, financing companies involved in environmental controversies exposes these institutions to reputational and transition risks. The report emphasizes the need for financial institutions to identify and manage these biodiversity-related risks proactively.

Firms engaging in voluntary climate disclosures often exhibit more “cheap talk” (superficial commitments) rather than tangible climate action. Only engagement-driven climate initiatives effectively reduce cheap talk. Firms with high levels of cheap talk tend to have higher emissions growth and greater negative news coverage related to environmental issues.

Only a small subset of institutional investors, termed “Leaders,” drive the positive association between institutional ownership and firms’ environmental and social performance. These investors engage firms through coordinated PRI collaborative engagements and significantly improve ESG outcomes when they hold a substantial ownership stake. Other institutional investors, even PRI signatories, do not have the same effect.

Wetland loss significantly increases municipal bond credit spreads due to heightened flood risk and financial uncertainty. The wetland loss premium becomes statistically significant after extreme weather events, suggesting that investors only price in wetland loss risk when flood damage becomes salient. Municipalities more reliant on local tax revenue, with fewer climate adaptation plans, and with longer-maturity bonds are more vulnerable to this risk.

The priced portion of hurricane risk commands a positive premium, while the priced portion of heat stress commands a negative premium. Exposure to sea-level rise and extreme rainfall does not exhibit a significant risk premium. Most innovations in physical climate risks appear mispriced, suggesting that investors struggle to incorporate these risks into asset pricing models.

Divestment by ESG ETFs has a significant and prolonged negative impact on stock returns of divested firms. Coordination among ETFs in divestment amplifies this effect, leading to increased cost of capital, particularly in the cost of debt over time. The study provides empirical evidence that divestment is an effective tool in driving corporate sustainability transitions.

Sustainable investments are associated with positive investor emotions, leading to higher asset prices and increased overpricing. Higher social preference levels among traders amplify price bubbles in sustainable assets. Female investors contribute more to overpricing when assets are sustainable, countering their usual risk-averse behavior.

ESG renaming has mixed effects on fund flows, with significant increases primarily observed in European funds. ESG renaming leads to improved ESG performance, reduced exposure to controversial businesses, lower carbon intensity, and overall reduced ESG risks. The study finds no significant changes in expense ratios post-renaming, suggesting that ESG renaming is not merely cosmetic.

There is limited accountability for corporate emissions reduction targets. Of the 1,041 firms analyzed, 8% failed their targets, while 31% disappeared (stopped reporting outcomes). Media coverage of failed targets was extremely low, and firms faced no significant financial market penalties, changes in media sentiment, or reductions in environmental scores after missing targets. In contrast, firms received positive media sentiment and ESG score improvements when announcing new emissions targets, even without evidence of follow-through.

ESG investing lowers the cost of capital for auto ABS issuers with high ESG scores but does not necessarily penalize high-carbon securities. ESG investors focus on issuer ESG scores rather than the actual CO2 emissions of collateral pools, leading to a paradox where high-emission auto ABS can have a lower cost of capital. ESG funds invest more in high-ESG-score ABS issuers even when these securities have higher financed CO2 emissions.

Multinational firms headquartered in countries with strict environmental policies reduce their overall CO2 emissions but shift polluting activities abroad, especially to countries with weaker regulations. Carbon leakage occurs primarily due to stricter home-country regulations rather than foreign countries actively attracting polluters. While strict environmental policies reduce global emissions, they also create regulatory arbitrage opportunities.

ESG rating divergence is influenced by the social origins of data vendors, including their founding principles, ownership structure, and market positioning. Two major clusters emerge: value-driven providers (focusing on financial returns) and values-driven providers (prioritizing ethical and social impact). The study also highlights how consolidation in the ESG rating market is shifting the focus from values-based to value-based assessments.

Mutual funds identified as climate-responsible (via Morningstar’s Low Carbon Designation) experience increased investor inflows (+0.23% AUM per month). Funds not initially awarded the designation adjusted their holdings toward lower-carbon firms to attract climate-conscious investors. However, Low Carbon funds exhibit higher idiosyncratic risk due to lower sectoral diversification.

The ECO2BAR model provides a risk-based approach to measuring CO2 emissions in credit portfolios. The analysis of a real traded investment-grade credit portfolio (2011–2016) shows that maintaining a CO2-efficient portfolio does not impair alpha generation (average alpha of 4.5% per annum). Similarly, a CDS-based trading strategy with CO2 constraints exhibited insignificant alpha loss while achieving meaningful emission reductions.

Disruptive energy transition scenarios can lead to significant financial stress, with asset losses for Dutch financial institutions ranging from 1% to 11%. The impact varies by sector: banks face direct credit risk exposure, insurers and pension funds experience valuation losses due to rising interest rates. The study emphasizes that climate transition risks warrant urgent attention from financial regulators.

ESG investing, as currently practiced, is ineffective at addressing systemic risks because it focuses on portfolio risk rather than mitigating real-world risks. Universal owners, such as pension funds and sovereign wealth funds, should adopt a new framework emphasizing active ownership, primary market exclusions, forceful stewardship, “ungameable” metrics, and policy engagement to drive systemic change.

The study shows that sectors like energy, materials, and utilities are highly sensitive to carbon price increases. Long-term scenarios indicate that carbon prices aligning with a 1.5°C warming target could significantly increase default risk in these sectors. However, medium-term risks are limited under current pricing trends. The research also proposes a new carbon price threshold indicator that considers a firm’s economic and capital structure.

Sustainability scores are influenced by stock-inherent uncertainty, investor sentiment, and an idiosyncratic sustainability factor. The resilience of sustainable stocks during the COVID-19 crash is primarily driven by the uncertainty component rather than intrinsic sustainability. Experimental evidence suggests that investors value sustainability more in times of crisis.

The study finds that corporate commitments to sustainability initiatives, such as the World Bank’s Zero Routine Flaring (ZRF) Initiative, correlate with modest reductions in routine gas flaring. However, these reductions are largely concentrated in countries with stronger regulatory enforcement and higher levels of foreign investment scrutiny. In contrast, firms operating in countries with weaker governance structures show limited compliance, as enforcement mechanisms are insufficient to hold corporations accountable. Furthermore, oil companies that sign sustainability pledges often continue to flare gas at significant levels, suggesting that voluntary corporate commitments alone may not be sufficient to drive environmental improvements in areas lacking external oversight. The study highlights that financial and reputational incentives, rather than ethical considerations alone, are primary drivers of environmental compliance.

The study reveals that over 75% of investors, including nearly two-thirds of traditional fund managers, consider ES performance in their investment processes. The primary motivation is financial returns, with few managers willing to sacrifice performance for ES considerations, largely due to fiduciary duty concerns. Additionally, 71% of respondents reported that fund mandates, firm policies, or client preferences influenced their investment decisions, sometimes leading to actions they wouldn’t have taken otherwise. This includes avoiding certain stocks, which could impact both financial returns and ES outcomes.

The study finds that sovereigns with significant populations vulnerable to coastal flooding experience increased medium- to long-term credit risk, as reflected in widening CDS spreads, in response to heightened media attention during international climate summits. This suggests that the credit market incorporates information about coastal flooding risks, but does so asynchronously, often lagging behind emerging data. Predictive tests indicate that markets are slow to adjust to adverse trends in SLR and population growth projections, leading to potential mispricing of sovereign credit risk. Additionally, the study highlights that reliance on historically inaccurate climate projections contributes to this mispricing, underscoring a lack of attention to complex climate information among investors.

Corporate customers significantly influence the CSR practices of their suppliers, primarily through positive assortative matching, stakeholder pressure, and common ownership or board interlocks. This influence leads to improved operational efficiency and firm valuation for both customers and suppliers, but only the customers experience significant future sales growth.

Impact investing contracts incorporate both aspirational and operational impact terms. More rigid contracting is observed in market-rate-seeking (MRS) impact funds to balance financial and social goals. Participatory governance mechanisms, such as advisory committees and board seats, are widely used to monitor impact. Incentive compensation structures in impact funds differ from traditional private equity models, with lower financial performance sensitivity.

Organizations respond to institutional complexity through three dynamic mechanisms: oscillating between logics in the moment and over time, becoming hybrid organizations, and experiencing external shocks that shape their responses. The study highlights the evolving and unstable nature of institutional complexity in the impact investment market.

Shifts in political climate systematically affect stock prices by altering industry-level investor portfolios. This weakens arbitrage forces, generating predictable patterns in returns. A trading strategy leveraging these demand shifts yields an annualized risk-adjusted return of 6%. Predictability is stronger during political transitions, especially when a challenger party wins.

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Coordinated engagements through a two-tier strategy, with lead investors heading dialogues and supporting investors providing influence, are more effective in achieving engagement goals. The success rate increases when lead investors are domestic and when coalition members are from countries with strong social norms. Successful engagements are followed by improved financial and operational performance of target firms and increased investor fund flows.

The study finds that after institutional investors acquire significant stakes in firms, there is a notable alignment in the political contributions between the investors and the portfolio firms. Specifically, portfolio firms’ PAC donations increasingly mirror those of their institutional investors, suggesting that investors may influence corporate political strategies to reflect their own political preferences.

The study found that remunerated engagement by passive managers led to significant improvements in ESG scores of portfolio companies. Additionally, the adoption of best-in-class indexes, which rewarded high ESG-scoring companies with increased equity investment, resulted in notable positive stock price reactions. The research also indicated that ESG scores for Japanese companies improved more during the treatment period compared to firms in other countries.

The study argues that large institutional investors, holding diversified portfolios, have economic incentives to act as “surrogate regulators” by encouraging firms to reduce activities that impose negative externalities on the broader economy, such as greenhouse gas emissions. This behavior challenges the traditional notion that shareholders uniformly seek to maximize individual firm profits.

The study identifies distinct phases in the evolution of corporate responsibility, highlighting shifts from profit-centric models to the integration of Environmental, Social, and Governance (ESG) considerations. Notably, the term “ESG” was popularized in 2004 through the “Who Cares Wins” initiative, aiming to align sustainability goals with financial value. Public attention to social issues around business arises during times of macroeconomic and social instability, whereas attention to environmental issues is heightened during times of relative prosperity.

The study reveals that approximately 80% of funds receive customized proxy advice, which often differs significantly from standard benchmark recommendations. Customization serves two primary functions: it enables shareholders to express their specific ideologies through voting and streamlines the decision-making process by allowing investors to focus on more critical proposals. This dual role of customization influences both the aggregation of preferences and information in voting outcomes.

The study found a significant correlation between the occurrence of environmental violations and the proximity to Indigenous and minority populations, suggesting that these communities are more likely to be affected by environmental misconduct. This highlights systemic environmental justice issues and the need for targeted policy interventions.

The study identifies a significant loophole in current corporate disclosure regulations, where misalignment between financial and climate reporting allows companies to make net-zero pledges without corresponding financial accountability. To address this, the author proposes the “Net-Zero Ledger,” a regulatory mechanism that would require businesses to integrate their financial reporting with their net-zero commitments, ensuring that financial statements reflect the costs and investments associated with achieving these environmental goals.

The study reveals that corporate leaders predominantly negotiate terms that favor shareholders and themselves, with minimal protections for stakeholders such as employees, customers, and communities. Even when some stakeholder provisions are included, they tend to be superficial or symbolic. This suggests that, despite having the authority under constituency statutes to consider stakeholder interests, leaders prioritize shareholder value and personal gains.

The study reveals that 67% of directors would sacrifice shareholder value to avoid controversy over CEO compensation, indicating that directors face significant constraints beyond participation and incentives. These constraints often lead to lower pay levels and standardized compensation structures. Shareholders are identified as the primary source of these constraints, suggesting a misalignment between directors and investors on value maximization strategies.

The study finds that the RI sector is more prominent in countries with higher GDP per capita, suggesting that RI investments may be considered luxury goods. Additionally, cultural norms significantly influence the size of the RI sector. Specifically, countries with a long-term orientation, lower emphasis on achievement and success, and higher individualism tend to have larger RI sectors. These cultural attributes align with the principles of responsible investing, such as future-oriented thinking and a cooperative societal approach.

The study develops a novel dataset linking various ESG outcomes at the U.S. county level to a panel of municipal bonds issued between 2001 and 2020. The analysis reveals that improvements in community-level ESG factors, particularly those related to racial justice, are associated with reduced credit risk for municipal bonds. This suggests that municipalities with better ESG performance benefit from lower borrowing costs. The findings imply that even investors without a social agenda should consider ESG performance in their credit assessments, as it correlates with fiscal health and creditworthiness.

The study finds that employees are less inclined to invest in their company’s stock following negative CSR incidents, particularly those related to social factors such as working conditions. This suggests that employees’ investment decisions are influenced more by self-interest, prioritizing their well-being and that of their colleagues, rather than by altruistic concerns for broader societal or environmental issues.

The study identifies two main issues with ESG-based compensation: (1) ESG metrics often focus on narrow aspects of stakeholder welfare, potentially neglecting broader concerns; (2) The inclusion of ESG metrics can exacerbate agency problems by making executive pay less transparent and more susceptible to manipulation. The authors argue that current ESG-based compensation practices may serve executives’ interests more than those of stakeholders or shareholders.

Firms are more likely to adapt when facing higher forecasted climate exposures, particularly those most salient to their operations. Adaptation is more prevalent among firms with greater Environmental, Social, and Governance (ESG) capabilities and longer time horizons. However, the overall adaptation rate remains low, with many firms not responding to significant climate risks.

The study presents three key findings: (1) Municipal bond yields increase after the proposal of a new environmental standard and decrease upon its finalization, indicating that regulatory uncertainty elevates borrowing costs. (2) Yields decrease for counties maintaining compliance but increase for those newly deemed noncompliant during annual compliance announcements. (3) Bonds from counties slightly exceeding pollution thresholds have significantly higher yields compared to those just below, suggesting that marginal differences in pollution levels can substantially affect borrowing costs. These findings imply that heightened regulatory stringency or uncertainty escalates the cost of municipal debt intended for essential infrastructure projects.

The study argues that large institutional investors, due to their diversified portfolios, have a vested interest in reducing systematic risks like climate change. By engaging in stewardship activities that promote sustainable practices across their portfolio companies, these investors can enhance overall risk-adjusted returns. The paper suggests that such “systematic stewardship” aligns with fiduciary duties and can be more effective than firm-specific engagements.

The study finds that implementing board renewal mechanisms, such as adopting majority voting for directors and introducing female directors, leads to significant improvements in environmental performance. Specifically, majority voting adoption is associated with a 7% increase, while adding a female director correlates with a 14% increase in environmental performance. These effects are more pronounced in firms within countries with robust institutional frameworks and active institutional investors.

The study finds that firms effectively managing material ESG factors experience enhanced profitability and reduced losses. By focusing on ESG issues pertinent to their industry, companies can mitigate risks and capitalize on opportunities, leading to improved financial outcomes. The research emphasizes the importance of prioritizing material ESG factors over immaterial ones to achieve these benefits.

The study reveals that negative environmental and social externalities have a significantly greater impact on investment choices than positive externalities of the same magnitude. Specifically, negative externalities influence investment decisions three times more than positive ones. This asymmetry is persistent but varies among individuals. Additionally, negative externalities slightly increase pessimism about investment prospects, whereas positive externalities do not have a noticeable effect. These findings align with existing theories suggesting that social preferences lead to different investment choices and highlight the need for models that account for this asymmetry.

The study develops a dynamic stochastic general equilibrium model to assess the impact of portfolio mandates on welfare. It finds that such mandates incentivize firms to invest in decarbonization capital to qualify as sustainable, thereby reducing their required rate of return. This investment leads to welfare gains by mitigating weather disaster risks associated with carbon emissions. However, the model also indicates that while these mandates improve welfare compared to a laissez-faire approach, they may not achieve the first-best outcome due to potential overinvestment by firms.

The study finds that properties exposed to sea level rise are increasingly more likely to be owned by Republicans and less likely by Democrats, with a partisan residency gap exceeding 5 percentage points, which has more than doubled over six years. This sorting is evident among owners, regardless of occupancy, but not among renters, and is driven by long-term sea level rise exposure rather than current flood risk. These patterns persist even after controlling for demographics and property characteristics, including home value. The findings suggest that individuals less inclined to support climate-friendly policies are more likely to reside in areas vulnerable to future climate risks.

The study analyzes lobbying activities and their impact on EU climate policy decisions. It finds that both green and brown lobbies significantly influence policy outcomes, with industrial (brown) lobbies often achieving more substantial concessions. The research highlights the complex interplay between environmental objectives and industrial interests, suggesting that policy compromises are frequently made to accommodate economic concerns.

The study finds that an increasing number of companies worldwide are pledging to reduce their carbon emissions by specific dates. Companies that make such commitments do tend to lower their emissions over time. However, the overall reduction in emissions across all companies, including those that do not commit, remains minimal. Notably, firms that undertake these pledges, especially those with ambitious targets, often already have lower emission levels. Additionally, corporate commitments are less common in countries where governments have established national emission reduction goals. This suggests that while commitment movements attract willing participants, they face resistance from companies that most need to reduce their emissions.

Strengthened limited liability protection for parent companies leads to a 5% to 9% increase in toxic emissions by subsidiaries, primarily driven by less solvent subsidiaries. This increase is associated with reduced investment in pollution abatement measures, without corresponding changes in production levels or reallocation across plants. The findings suggest a moral hazard problem, where enhanced liability protection may incentivize riskier environmental practices among financially weaker subsidiaries.

The study finds that non-financial environmental, social, and governance (ESG) sustainability performance factors are positively associated with idiosyncratic volatility, serving as a proxy for SPI, after controlling for financial-economic performance. This association is stronger for firms with higher sustainability disclosure and when economic performance is weaker, indicating that investors pay more attention to ESG factors in financially underperforming firms.

The study finds that investors with a preference for SRI may experience lower returns due to their “taste” for responsible assets. Specifically, the premium related to the responsibility score is negative and significant, with responsible firms underperforming by approximately 4.8% annually. This suggests that while SRI aligns with ethical preferences, it may come at a cost in terms of financial performance.

The paper discusses the widespread implementation of boardroom gender policies driven by the belief that female directors can enhance firm performance and economic health. However, it highlights that existing research faces challenges such as data limitations, selection biases, and issues with causal inference. The author emphasizes the need for more rigorous studies to conclusively determine the benefits of board diversity.

The study reveals that a significant number of institutional investors consider climate risk reporting to be as crucial as traditional financial reporting. Many advocate for mandatory and standardized climate disclosures, citing current reports as insufficient and lacking precision. Investors who believe that climate risks are underpriced in equity markets are particularly critical of existing disclosure practices.

The study analyzes 74,486 observations of 736 U.S. firms from January 2005 to December 2015. It constructs a carbon efficient-minus-inefficient (EMI) portfolio based on firm-level carbon efficiency, defined as revenue-adjusted greenhouse gas (GHG) emissions. The EMI portfolio generates positive abnormal returns since 2010, with a “long carbon-efficient firms and short carbon-inefficient firms” strategy yielding abnormal returns of 3.5-5.4% per year. The positive cumulative returns are particularly notable post-2009.

The study analyzes a three-year thematic engagement project on carbon risk involving 20 companies. It identifies that intermediaries play crucial roles in facilitating dialogue between investors and companies, providing expertise, and coordinating collective actions. Their involvement enhances the effectiveness of engagements by bridging information gaps and aligning stakeholder interests.

The study finds that unexpected data breaches lead to significant declines in equity value and brand value, increased customer attrition, and more negative media coverage. In response, firms attempt to repair their reputations by increasing charitable donations, political contributions, employee wages, and investments in information technology. These remedial actions are often targeted toward stakeholders most affected by the breach. Similar patterns are observed following negative news about firms’ social behaviors.

The study finds that a significant number of hedge funds that endorse the PRI engage in greenwashing, exhibiting lower Environmental, Social, and Governance (ESG) exposures than their non-signatory counterparts. These greenwashing funds underperform both genuinely green and non-green funds after adjusting for risk. The underperformance is more pronounced in funds with poor incentive alignment, higher regulatory violations, and suspicious return patterns. Regulatory reforms aimed at enhancing stewardship and curbing greenwashing are found to mitigate these agency problems. Despite underperformance, investors do not effectively distinguish between greenwashing and genuinely green funds, leading to misallocated capital.

The study finds that traditional debt financing is associated with increased pollution levels and intensity. This effect is more pronounced in firms with short-term borrowing, managerial short-termism, or higher risk-taking behavior. Public environmental awareness can mitigate this debt-pollution link. The findings suggest that traditional debt financing may exacerbate short-termism, leading firms to prioritize immediate financial gains over long-term environmental considerations.

The study investigates the impact of environmental and social shareholder activism on corporate social behavior and financial performance, emphasizing the materiality of the issues addressed. Findings suggest that shareholder proposals targeting material environmental and social issues are more likely to lead to positive changes in corporate behavior and enhance financial performance. In contrast, activism focusing on immaterial issues shows less significant effects. This highlights the importance of aligning shareholder activism with issues that are financially material to the firm to achieve meaningful outcomes.

The study explores the paradoxical role of the financial logic in the emergence of SRI funds. Findings reveal an inverted U-shaped relationship between the prevalence of the financial logic and the founding rate of SRI funds. Initially, the financial logic provides necessary resources and legitimacy, facilitating the establishment of SRI funds. However, as the financial logic becomes more dominant, its profit-maximizing focus conflicts with the social objectives of SRI, leading to a decline in new SRI fund foundings. This relationship is further moderated by societal factors such as union density, Christian population, and the presence of green parties, which can either amplify or mitigate the tensions between financial and social logics.

The study reveals a significant decline in retail investors’ proxy voting participation over the past four decades, attributing this trend to a system that prioritizes economic rights over ownership rights. It emphasizes the need for regulatory reforms to create a proxy voting system that is more accessible and responsive to retail investors, thereby strengthening their influence in corporate governance and promoting responsible investment practices.

Banks involved in scandals, such as those financing the Dakota Access Pipeline (DAPL), experienced a significant decline in deposit growth, particularly in branches located near the pipeline and in regions with a strong preference for ethical banking. In contrast, banks that were not implicated in scandals, particularly smaller and community-oriented financial institutions, saw an increase in deposits as customers moved their funds away from controversial banks. On a global scale, banks linked to environmental, tax, and corruption scandals also faced negative deposit growth, demonstrating that depositors actively respond to unethical behavior by shifting their funds to more trusted institutions.

Contrary to traditional multitasking models, few impact funds directly tie compensation to social impact metrics, instead retaining conventional financial incentives. However, these funds incorporate social objectives through specific contractual terms and enhanced governance structures, such as granting advisory roles to limited partners and including operational impact clauses. This approach suggests a nuanced adaptation of contract theory to accommodate dual financial and social goals.

The research identifies four configurations of coalition composition levers—coalition size, shareholding stake, experience, and local access—that are consistently associated with successful engagements. These configurations are tailored to the financial capacity and environmental predispositions of target firms, highlighting the importance of a “tailor-to-target” approach. The study also identifies mechanisms such as synchronizing and contextualizing that facilitate successful engagements, while overfocusing on single levers is linked to failure. The findings underscore the need for investors to move beyond one-size-fits-all strategies and emphasize the value of configuring coalitions to match the receptivity of target firms, offering practical insights for enhancing the impact of shareholder activism on climate-related corporate practices.

The study investigates the relationship between outside investors’ control rights and firms’ environmental performance using an extensive international sample of 3,487 non-U.S. firms from 41 countries over the period 2004-2015. The research reveals that family-controlled firms exhibit significantly lower environmental performance compared to widely-held firms, with family ownership associated with a 9% to 13% reduction in environmental scores. The study also finds that specific governance mechanisms, such as majority voting provisions and board independence, which enhance outside investors’ control rights, positively impact environmental performance. Notably, the presence of at least one female director on the board is associated with a substantial improvement in environmental performance, particularly in family-controlled firms, where it can offset the negative environmental impacts associated with family control. The findings suggest that sustainability-oriented investors should focus on enhancing corporate governance mechanisms in firms where control is contestable, and advocate for the inclusion of female directors to improve environmental outcomes.

Using extensive international databases, the research reveals a unilateral effect where socially responsible corporate customers significantly influence their suppliers to adopt similar CSR standards. The study finds that customers exert this influence through positive assortative matching and decision-making processes, leading to improved operational efficiency and firm valuation for both parties. The research underscores the economic benefits of collaborative CSR efforts.

Using data from 41 countries, the research finds that greater institutional ownership is associated with higher firm-level E&S scores, with the effect being both statistically significant and economically meaningful. A one standard deviation increase in institutional ownership is associated with a 4.5% increase in environmental performance and a 2.1% increase in social performance. The study also finds that investors who are signatories to the United Nations Principles for Responsible Investment (UN PRI) have more than double the average impact on firms’ E&S performance. The 2010 BP Deepwater Horizon oil spill served as a quasi-natural experiment, revealing that firms with greater institutional ownership at the time of the shock subsequently displayed higher environmental performance. The results suggest that institutional investors play a significant role in driving firms’ E&S performance, motivated by both financial and social returns.

The study investigates whether foreign institutional capital fosters green growth in emerging market firms. Utilizing the inclusion of firms in the MSCI index as a quasi-natural experiment, the authors find that while foreign capital boosts output, emissions rise disproportionately in these firms, leading to substantial increases in emissions intensity. This suggests that environmental considerations are assigned lower priority when emerging-market firms utilize foreign capital to boost growth.

The study examines how banks adjust their risk models and lending practices in response to emerging climate risks, particularly flood risks. Following Hurricane Harvey, banks updated their internal risk models to better reflect flood risk projections, even in areas unaffected by the disaster. However, this adaptation was primarily observed in banks with direct exposure to the hurricane. The study finds that banks in less competitive markets reduced lending to areas with higher flood risks, suggesting that competition may discourage risk mitigation efforts. Additionally, banks were less likely to adapt in markets where competitors also showed low adaptation levels, indicating a strategic complementarity in adaptation behaviors.

The study investigates the relationship between corporate sustainability efforts and financial performance in emerging market firms. By applying nonlinear econometric models to firm-level data, the authors find that the financial payoffs to sustainability initiatives are not linear. Specifically, moderate investments in sustainability yield positive financial returns, while both low and excessively high investments may lead to suboptimal financial performance. This suggests an optimal level of sustainability investment that maximizes financial benefits for firms in emerging markets.

The study examines the long-term effects of corporate legal violations, specifically environmental and social fines, on stock performance. Analyzing 1,887 fines incurred by 394 U.S. firms from 1994 to 2012, the authors find that firms experience significant underperformance in the year following a fine, with monthly Carhart model alphas decreasing by 25 to 29 basis points. Larger fines correlate with greater underperformance, indicating that the magnitude of the fine impacts stock returns. Initial announcements of violations lead to more substantial negative returns. Industry-specific analysis reveals that investors react more negatively to violations in manufacturing, mining, transportation, and public utilities. Environmental violations consistently concern investors across all stages, while social and long-term issues have a less pronounced effect. Overall, illegal corporate behavior detrimentally affects long-term firm performance.

The study investigates how the presentation of climate information influences retail investors’ decisions to invest in climate-friendly funds. Through a choice experiment involving 953 participants from six European countries, the authors test three different climate performance labels: “Climate Award,” “Impact Scale,” and “Star Rating.” The findings suggest that climate labeling can serve as an effective nudge, encouraging climate-friendly investing. However, the effectiveness varies across different label designs and is influenced by the cognitive characteristics of investors. Specifically, intuitive decision-makers place more weight on a fund’s climate performance compared to its financial performance, while reflective decision-makers do not show this tendency.

The study examines how power dynamics and calculative agencies shape the construction of the socially responsible investment (SRI) market in France. By integrating performativity theory with Lukes’ ‘radical view of power,’ the authors analyze the roles of various organizations acting as calculative agencies—entities that produce metrics, ratings, and standards—in the development of the SRI market. The findings reveal that these agencies become sites of power through their calculative practices, influencing market construction by exercising power over, through, and against other actors. This process involves micro-level power struggles that interact with macro-level market-building politics, highlighting the political nature of calculability in market formation.

The study decomposes carbon emissions into expected and unexpected components to analyze their respective impacts on firm market value. The expected component reflects emissions inherent to a firm’s business model and operating environment, while the unexpected component represents deviations from this norm. Findings indicate that both components are valued by investors: the expected component consistently influences market value, whereas the unexpected component’s relevance is heightened when accompanied by assurance, which enhances the credibility of the disclosed information. The results provide evidence of a firm-value effect of carbon emissions and therefore highlight the relevance and usefulness of a good carbon management system. Environmental performance alters investors’ valuation of the firm’s perceived future financial performance, and higher stock prices represent the actual financial benefits of low carbon emissions. In addition, the paper finds the strongest firm-value effect for the assured unexpected component of carbon emissions. If future carbon emissions measurement and reporting systems become more accurate and reliable, investors will consider the unexpected component of carbon emissions to be more relevant to their decision-making.

The study investigates how the investment horizons of institutional investors and the presence of monitoring blockholders influence long-term corporate investments, particularly in CSR. Findings indicate that short-term investors pressure managers to prioritize immediate profits, leading to reduced long-term investments—a manifestation of managerial myopia. Conversely, in the absence of short-term pressure, managers may overinvest in CSR due to empire-building tendencies, unless effectively monitored by long-term blockholders. These blockholders play a crucial role in ensuring that managers pursue CSR strategies that align with shareholder value, particularly by mitigating risks associated with environmental, social, and governance (ESG) incidents.

The study examines how firm size influences ESG scores, utilizing Thomson Reuters ASSET4 ratings. Findings reveal a significant positive correlation between firm size and ESG scores, suggesting that larger firms, with more resources, achieve higher ESG ratings. This may be attributed to organizational legitimacy, where larger firms have greater capacity to disclose ESG-related information. The results raise concerns that current ESG measurement practices might favor larger firms, potentially misguiding SR investors seeking to align investments with ethical standards. The study calls for a reevaluation of ESG rating methodologies to ensure they accurately reflect corporate sustainability, irrespective of firm size.

The study explores the feasibility and implications of integrating ESG criteria into factor-based investment strategies. Findings indicate that incorporating ESG considerations can enhance risk-adjusted performance without significantly altering target factor exposures. The research demonstrates that ESG integration can be achieved through various approaches, such as screening, optimization, or tilting, allowing investors to align portfolios with sustainability objectives while maintaining desired factor characteristics.

Stock prices of firms with emission shortfalls decrease when carbon prices rise, while firms with surplus allowances benefit from higher carbon prices. However, firms reduce regulated emissions but do not lower global emissions, suggesting a regional effect of carbon pricing.

Responsible investors tend to concentrate their investments in a subset of firms, which can mitigate coordination problems in green investments but may also lead to market power distortions and crowd out green efforts by excluded firms. If the crowding-out effect dominates, aggregate green investments and welfare are higher without SRI.

Firms operating in less strictly regulated areas pollute more and donate more to local nonprofits as a form of reputation insurance. Firms strategically allocate donations where they have the highest pollution impact. Corporate philanthropy benefits firms but imposes net social costs.

Banks react to stricter domestic climate policies by increasing cross-border lending, particularly to countries with lower policy stringency. This enables them to circumvent regulatory constraints and maintain loan portfolio performance.

The Texas anti-ESG laws led to higher borrowing costs for municipalities due to reduced competition among underwriters. Municipalities historically reliant on affected banks faced increased borrowing costs of approximately $300-$500 million in additional interest on $31.8 billion borrowed, mainly due to reduced underwriter competition and loss of relationship-specific assets.

The study investigates how shocks to expected cash flows influence CEO incentive compensation. Exploiting changes in compliance with environmental regulations as shocks to expected future cash flows, the authors find that adverse shocks typically prompt corporate boards to recalibrate CEO compensation to reduce risk-taking incentives. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a “gambling for resurrection” strategy. Moreover, the strength of corporate governance influences shareholders’ capacity to align executive incentives with shareholder risk preferences following unanticipated changes in the stringency of environmental regulations.

The study examines whether green investors can influence corporate greenhouse gas emissions through capital markets and whether divestment or engagement is more effective. By analyzing changes in public pension fund ownership resulting from political shifts, the authors find that companies reduce their greenhouse gas emissions when ownership by green funds increases. This suggests that engagement by green investors is more effective than divestment in prompting companies to lower emissions.

This study highlights the critical role that asset markets play in responding, to climate change, particularly in the context of water resources. First, the findings demonstrate that water entitlement rights act as a climate change, hedge, providing protection against the financial risks associated with climate change. Second, the study reveals that entitlement prices in climate-exposed areas have increased significantly compared to non-climate exposed areas, while allocation prices remain similar. This, suggests a growing separation between water users and entitlement owners in climate-exposed, regions. Lastly, the research attributes approximately one-fifth of the price difference to differences in expected cash flow, with the remainder due to a lower discount rate for climate, hedge assets., The results of this study underscore the importance of effective policy and legislation,, such as Australia’s Water Act 2007, in creating sustainable frameworks for managing water, resources in the face of climate change. The establishment of a robust water market, the, separation of water rights from land titles, and the oversight of water trading rules have, facilitated the effective pricing and allocation of climate risk. As the world continues to, grapple with the challenges posed by climate change, the insights derived from this research, can help inform the development of sustainable practices and policies that ensure the long_x005F term resilience of water resources and the communities that depend on them.

The study examines whether crowdfunding helps individuals in greater need after major wildfires. By analyzing data from crowdfunding campaigns linked to individual credit records, the authors find that social networks play a significant role in providing informal insurance to those affected by wildfires. However, the effectiveness of this support varies, with individuals possessing stronger social networks or higher socioeconomic status receiving more substantial assistance. This indicates that while crowdfunding can serve as a valuable tool for disaster recovery, it may also exacerbate existing inequalities in financial support.

The study examines the discretionary information that mutual funds provide about their ESG investment strategies in prospectuses. By conducting a text analysis, the authors find that funds often include ESG-related terms without corresponding ESG investment practices, a phenomenon referred to as “greenwashing.” Despite this, investors respond positively to the presence of ESG terms in prospectuses, leading to increased fund flows. However, the study also finds that funds with genuine ESG commitments, as evidenced by their holdings, attract even greater investor interest.

The study develops a general equilibrium model with heterogeneous firms to assess the allocative efficiency of green finance instruments. It finds that while green finance can incentivize firms to adopt environmentally friendly practices, the effectiveness of these instruments depends on factors such as firm productivity and the design of the financial instruments. The model suggests that appropriately designed green finance policies can enhance overall economic efficiency by reallocating resources towards more productive and greener firms.

The study examines how board diversity affects firm performance volatility. It finds that firms with more diverse boards experience greater stock return and fundamental volatility. This increased volatility is attributed to both the benefits and challenges of diversity: diverse boards are associated with more innovative outcomes, such as a higher number of patents and greater deviation from industry norms, but also face challenges like increased board meetings and higher turnover among directors.

The study examines the compensation and leadership roles of minority and female directors in over 1,800 U.S. companies. It finds that, while diverse directors often serve on boards of larger, more visible firms—which typically offer higher compensation—within the same firms, they receive 3% to 9% less compensation than their non-diverse peers. Additionally, diverse directors are less likely to hold leadership positions, such as committee chairs, despite possessing equal or superior qualifications.

Increased likelihood of subsidy withdrawal reduces investment in wind energy while accelerating investment in gas, creating a substitution effect that significantly impacts energy transition dynamics.

Investments in R&D for green technology remain valuable despite uncertainty. Uncertainty in technological progress plays a more significant role than climate and damage uncertainties in shaping optimal policies. Policymakers should focus on accelerating R&D to mitigate long-term economic risks.

PRI signatories exhibit slightly better ESG portfolio scores, primarily in governance, but ESG integration strategies do not consistently improve ESG scores. PRI signatories tend to have higher risk and slightly lower returns compared to non-signatories, suggesting ESG investing functions more as a risk management tool than a return enhancer.

Firms with higher ESG attention improve in ESG ratings and real ESG outcomes (e.g., pollution reduction, worker benefits). Investors with high ESG attention trade and vote in more ESG-friendly ways, influencing firm ESG practices. Different ESG rating agencies react differently to ESG attention.

Investors from E&S-conscious countries and with sustainable portfolios reduce holdings in firms with heightened E&S risk, leading to stock price declines and motivating firms to improve E&S policies. Similarly, sales decline in E&S-conscious countries for firms facing negative E&S news.

Firms with at least one woman among their five highest-paid executives earned excess returns of 1.3% following the Weinstein/#MeToo events. Institutional investors increased ownership in firms with a nonsexist culture, and firms with fewer female top executives improved gender diversity in response to investor pressure.

ESG funds tend to invest in companies with strong promotional green efforts (“talk”) rather than those with substantive environmental improvements (“walk”), suggesting a misalignment between fund objectives and real environmental impact. ESG rating agencies also assign higher ratings to firms with stronger green image promotion efforts.

Green bonds are significantly more oversubscribed than conventional bonds; issuers anticipate higher demand and offer lower initial spreads, which further decrease after bookbuilding. The observed “greenium” results primarily from increased demand rather than inherent pricing differences.

Personalized pricing can harm firm profits by reducing price transparency and coordination among consumers. Firms with CSR commitments are more likely to commit to lower prices, mitigating inefficiencies and enhancing both consumer welfare and firm profits.

Firms covered by female analysts show higher E&S performance scores. Following a loss of female analyst coverage due to broker closures, firms experience a 7% decline in E&S scores and real E&S outcomes. Female analysts are more likely to discuss E&S issues in research reports and during earnings calls and take stronger actions in response to negative E&S discussions.

Minimum wage hikes increase industrial pollution and reduce firms’ abatement efforts. State-owned enterprises (SOEs) mitigate this effect, absorbing part of the externality. Pollution increases are more significant in financially constrained firms, non-SOEs, and firms with lower market power.

High-emission firms with lower stock valuation tend to reduce carbon emissions, enhance green innovation, and downsize operations. The valuation gap is driven by climate policies and investor awareness. Private firms do not exhibit similar trends.

The study utilizes earnings conference call transcripts and the FinBERT machine learning model to measure greenwashing intensity across U.S. public firms from 2007 to 2021. It documents an increase in greenwashing following the 2015 Paris Agreement, especially among fossil fuel industries. Higher greenwashing intensity is associated with negative market reactions and poorer future performance, indicating that investors can discern and penalize insincere ESG communications.

The study develops a model to compare the effectiveness of divestment (exit) and shareholder activism (voice) strategies in influencing firms’ CSR practices. It finds that while divestment can lead to a decrease in stock prices, potentially pressuring firms to improve CSR, shareholder activism may be more effective in directly influencing corporate behavior. The effectiveness of each strategy depends on factors such as the firm’s ownership structure and the costs associated with activism.

The study analyzes 1,560 corporate green bond announcements between 2013 and 2022. It finds no significant positive stock market reaction to these announcements. Additionally, firms issuing green bonds do not show subsequent improvements in carbon emissions or ESG scores. The research suggests that some firms may use green bond issuance to divert attention from poor financial performance, as evidenced by negative abnormal operating performance in the announcement year.

The study examines ownership changes of coal power plants in Europe from 2015 to 2022. It finds a significant decrease in public equity ownership, primarily due to these investors rapidly scaling down their plants rather than selling them. Conversely, private firms have increased their ownership stakes, often acquiring plants from state investors who have been more gradual in scaling down operations. The authors develop a model suggesting that state investors’ prioritization of social factors, such as employment and energy security, may impede efforts by green finance initiatives to reduce emissions.

The study introduces a novel measure of revenues from green products and services for publicly listed firms worldwide. It finds that green revenues have grown at an accelerated pace since the Paris Agreement, driven by innovative U.S. companies converting green patents into green revenues and firms with higher sustainability-focused institutional ownership prior to the Agreement. The research also provides modest evidence of a “green alpha” in stock returns during the post-Paris period, primarily concentrated in U.S. stocks.

The study applies a novel text-based classification procedure to identify green trademarks in the USPTO dataset, examining the development of environment-friendly products and services in the U.S. economy over the past forty years. It finds that firms respond to environmental scandals by increasing their efforts to develop and register green trademarks, indicating a strategic move to align with consumer demand for environmentally friendly products. This response is more pronounced in industries with higher public visibility and consumer pressure.

The study examines how stock markets react to changes in environmental regulation and firm pollution. Utilizing county-level ozone nonattainment designations induced by discrete policy changes in air quality standards as part of the Clean Air Act, the authors find that nonattainment designations impose strict environmental regulations, leading to significant reductions in local pollution levels. However, these regulations also have economic implications, affecting shareholder wealth through changes in firm profitability and compliance costs.

The study investigates the financial market’s response to biodiversity conservation efforts by analyzing the “Green Shield Action,” a regulatory initiative launched by the Chinese central government in 2017 to enforce biodiversity preservation in national nature reserves. The authors find that, while the initiative improved local biodiversity, it also led to a significant increase in bond yields for Chinese municipalities with national nature reserves. This suggests that investors demand higher returns to compensate for the anticipated costs associated with enforcing conservation regulations, such as shutting down illegal economic activities and increased public spending on biodiversity.

The study develops a principal-agent model to examine how firms can incentivize managers to create value while being socially responsible. It finds that when a firm’s board prefers a higher level of corporate social responsibility (CSR) than what would maximize stock price, compensation contracts incorporate social performance measures. However, since managers can anticipate how their decisions affect these measures, they may game the system, leading to distorted social investments and reduced sensitivity of pay to social performance. The research suggests that using multiple performance measures based on different methodologies can mitigate inefficiencies due to gaming, implying that harmonization of social performance measurement might backfire.

The study develops an equilibrium intermediary asset pricing model to assess how environmentally-minded retail investors influence the cost of capital for green firms when investing through financial intermediaries. The model reveals that even if the intermediary does not exhibit a green preference, the presence of green-tilted retail investors can lead to a significant green premium, resulting in a lower cost of capital for green firms. However, achieving this impact requires retail investors to take substantial leveraged positions, and the effectiveness of this strategy is sensitive to economic conditions and preference specifications.

The study examines the economic impact of mandates to consume renewable and clean energy on U.S. state finances. It finds that states adopting Renewable Portfolio Standards (RPS) experience increased bond yields and decreased credit ratings, attributed to higher electricity prices resulting from RPS. In contrast, states implementing Clean Energy Standards (CES), which encompass a broader range of energy technologies, show muted or opposite effects, suggesting a more favorable fiscal impact.

Targeted firms do not significantly outperform matched control firms in the long run; activist hedge funds demonstrate strong stock selection and trading skills, benefiting primarily their own investors rather than long-term shareholders of targeted firms.

Green bonds are more oversubscribed than conventional bonds, leading to lower initial offering spreads and higher spread compression, confirming that greenium arises from investor demand.

The study finds that non-executive employee diversity is strongly associated with long-term corporate innovation and employee satisfaction. However, it is not related to short-term financial performance. The market may undervalue the contributions of minority employees, possibly due to a focus on immediate financial results over long-term human capital benefits. A trading strategy exploiting this undervaluation yielded an annualized risk-adjusted return of over 7% during 1990–2021.

The study finds that when an investor’s child is diagnosed with a respiratory disease, the investor decreases (increases) portfolio weights of “brown” (“green”) stocks but does not alter their holdings of ESG funds. This suggests that personal health experiences can influence investment preferences, particularly in relation to industries affected by air pollution.

The study finds that regulations mandating minimum energy efficiency standards in rental properties lead to significant investments by landlords to improve property energy efficiency. These investments result in reduced carbon emissions and lower energy consumption. However, the effectiveness of such regulations depends on factors such as enforcement mechanisms and the initial energy efficiency levels of properties.

The study finds that wildfires increase mortgage prepayment and foreclosure rates, leading to larger losses during foreclosure sales. MBS deals with lower spatial concentration of dollar balances and lower spatial correlation in wildfire events exhibit reduced exposure to wildfire risk. The authors propose constructing climate-resilient MBS portfolios by optimizing portfolio weights to balance return and risk, demonstrating that such portfolios can maintain returns while supplying mortgage credit to wildfire-prone areas.

The study finds that institutional investors are less likely to support SRI proposals for firms headquartered in Republican-led states. This reduced support is particularly pronounced in recent years, coinciding with increased political polarization around corporate social responsibility, and is more evident among larger institutions and firms that attract greater political and media attention. The findings suggest that state-level politics and the politicization of social responsibility issues significantly influence institutional investors’ voting behavior.

The study finds that banks targeted by Operation Choke Point reduced lending and terminated relationships with firms in affected industries. However, these firms were able to fully substitute credit through non-targeted banks under similar terms, resulting in no significant changes in total debt, investment, or profitability. This suggests that targeted credit rationing was ineffective in disrupting the operations of firms in controversial industries.

The study finds that the reclassification of industrial plants as carcinogenic emitters leads to a decline in nearby property values and changes in neighborhood composition, with an increased presence of minority households in affected areas. These effects highlight the significant impact of perceived environmental health risks on housing markets and demographic patterns.

The study finds that self-reported nonpecuniary concerns are significant among both investors and non-investors. Concerns about the treatment of workers and CEO pay rank highest, surpassing issues like workforce diversity and fossil energy usage. Moral universalism emerges as a key driver of nonpecuniary preferences, explaining substantial variation across participants and corporate actions.

The study conducted a large-scale field experiment with an online grocery delivery service in Germany, involving over 250,000 consumers. Consumers were offered the option to offset the carbon emissions of their deliveries by purchasing carbon offsets. The experiment varied both the price of the offset and the quantity of carbon compensated. Results indicated that consumers are initially price-sensitive but insensitive to the actual impact of the offsets, suggesting a “warm glow” effect. However, repeated exposure to information about the impact led to increased sensitivity to the effectiveness of the offsets.

The study finds that mutual funds where managers have significant personal investment (“skin in the game”) tend to exhibit lower ESG performance compared to those where managers have less personal investment. This suggests that managers with personal financial stakes may prioritize financial returns over ESG considerations. The effect is more pronounced among managers whose compensation is tied to assets under management, indicating that financial incentives can influence the degree of responsible investing.

The study reveals that racial minorities face significant taste-based discrimination in asset management. Specifically, hedge funds operated by racial minorities experience challenges in capital raising due to investor biases, despite no significant differences in investment performance compared to non-minority-led funds. This suggests that discrimination is not based on rational assessments of performance but rather on racial biases.

The study finds that climate disasters influence corporate ESG policies through ownership networks. Specifically, institutional investors exposed to climate disasters in one part of their portfolio are more likely to support ESG shareholder proposals in other firms they own. This change in voting behavior leads to firms enhancing their environmental focus, as evidenced by increased discussions of climate issues during conference calls and a long-term reduction in emissions. These findings suggest that the experience of climate disasters can propagate through ownership networks, prompting investors to advocate for stronger ESG practices across their portfolios.

The study finds that El Niño-induced temperature increases lead to lower house prices and a significant reduction in mortgage lending in affected U.S. counties. Banks with higher exposure to these regions experience declines in deposits, total assets, and lending activities. The research suggests that supply-side factors, such as reduced bank capital and liquidity, drive the contraction in lending. Additionally, banks with lower physical capital demonstrate greater resilience to the climate shock, maintaining more stable lending levels.

The study examines how manufacturing firms respond to emission capping regulations by analyzing detailed product-level data. The authors find that firms reduce pollution by transitioning from self-generated to externally sourced electricity, shifting toward producing less coal-intensive products, and increasing abatement expenditures. To maintain profitability, firms increase the production of higher-margin products. However, firms in highly polluting industries tend to produce fewer products. At the aggregate level, the regulation leads to lower product variety, higher markups, changes in the firm-size distribution, and reduced business formation. These findings highlight the mechanisms through which mandated pollution reduction can be effective, as well as its associated costs, suggesting a potential loss in agglomeration externalities.

The study posits that firms engage in competitive sorting toward value-optimizing strategies, either embracing climate transition opportunities or maintaining the status quo, inspired by Roy’s (1951) model. Utilizing latent variable techniques from Heckman, Stixrud, and Urzua (2006), the authors analyze a novel dataset of active manager edits of ESG fundamentals, focusing on industrial base economy sectors. They find that firms in the energy and mining sectors experience significant revaluations when adopting transition or status quo growth strategies. Specifically, energy firms see revaluations of 52 basis points for transition strategies and 24 basis points for status quo strategies, while mining firms experience 83 basis points for transition and 77 basis points for status quo. In contrast, firms in industrials and basic materials sectors show positive return impacts only when adhering to status quo strategies. The effects diminish in countries with stringent environmental regulations, suggesting that such policies may lead to a convergence toward transition investments, thereby reducing the distinction between transition and status quo strategies.

The study finds that firms obtaining third-party assurance for their carbon accounting report, on average, a 9.5% higher carbon intensity than their peers. When controlling for assurance, there is no evidence that firms setting Science Based Targets initiative (SBTi) targets reduce their future emissions. However, firms with assured carbon reports reduce their future carbon intensity by 3.3%. These findings suggest that third-party assurance leads to more accurate emission reporting and actual reductions in carbon intensity, highlighting the importance of mandatory assurance in carbon reporting and its reliance in regulation.

The study finds that high-temperature shocks significantly increase energy costs and lower productivity for small manufacturing plants, while large plants remain mostly unaffected. Over the long term, regions experiencing higher increases in average temperatures between the 1980s and the 2010s see a decline in the number of small plants, a reallocation of labor from small to large plants, and higher local labor market concentration. Factors such as differences in energy costs per unit, managerial skills, and access to finance contribute to these outcomes.

The study finds that since the rise of sustainable investing post-2016, green firms perceive their cost of capital to be, on average, 1 percentage point lower than that of brown firms. This trend has intensified as sustainable investing has grown. Additionally, some major energy and utility firms have started applying a lower cost of capital to their greener divisions. These changes in the perceived cost of capital incentivize the reallocation of capital toward greener investments both across firms and within firms.

The study finds that different types of climate transition risks have varying effects on energy prices and firm valuations. Specifically, restrictions on new fossil fuel capacity can lead to higher energy prices today, as incumbent firms may withhold production to capitalize on future scarcity. Conversely, technological breakthroughs in renewable energy can decrease energy prices, as firms anticipate reduced future demand for fossil fuels. The introduction of carbon taxes and drilling restrictions can also influence firms’ investment decisions and future energy prices.

The study finds 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. The paper highlights the , importance of incentives when assessing the real impacts of sustainable investments

This paper models the welfare effects of a green mandate in two-sided markets. Examples include banks, and workers conditioning lending or employment on firms cutting emissions, respectively. Three differences are identified when compared to the first-best carbon-emissions tax. First, despite, complementarities, productive firms need not hire productive agents due to abatement costs. Second, the welfare-maximizing mandate requires firms abate for others, which might be infeasible., Third, agents without a mandate earn more and productive firms do better than under an emissions tax. Calibrating to lending and labor markets, a mandate approximates first best only when firms and agents are relatively homogeneous.

The paper explores how large firms and institutional investors can drive green innovation and decarbonization. It models the impact of carbon taxes and green innovation subsidies on firms’ decisions to reduce emissions and invest in green technologies. The paper finds that even profit-maximizing firms can benefit from committing to green innovation, as it spurs more innovation across the economy and reduces the overall cost of decarbonization. It also highlights the role of common ownership in coordinating these efforts and enhancing the credibility of government commitments to future carbon taxes.

The study finds that financial constraints significantly impact the adoption of clean technology, leading smaller firms to invest in older, more polluting capital while larger firms acquire newer, more energy-efficient assets. This relationship results in a positive correlation between firm size and energy efficiency, as larger firms can afford cleaner technologies and operate newer capital. The model suggests that financial development, by improving access to credit and reducing collateral constraints, could enhance the adoption of clean technology, leading to both increased productivity and lower aggregate energy consumption. These insights highlight the distributional consequences of environmental policies and the role of financial conditions in shaping firms’ investment decisions.

The study finds that performance-based pay significantly enhances productivity in firms with well-structured management practices. However, it also reveals that excessively focusing on monetary incentives can lead to diminishing returns, suggesting that firms should balance pay structures with non-monetary incentives and a strong organizational culture. The findings underscore the importance of incorporating broader managerial practices, such as employee development and job satisfaction, in fostering long-term productivity.

The study reveals a consistent outperformance of green stocks over brown stocks, which contributes to the global equity greenium. This outperformance is largely driven by sector-specific factors, particularly within the energy sector, which sees lower returns for brown stocks. The greenium effect is especially pronounced in North America and prior to 2016, with traditional asset pricing models failing to fully account for the observed return differential.

The study finds that institutional investor demand for sustainable equity investments is significantly influenced by environmental scores and emissions. However, investor interest is less responsive to green patents. This suggests that sustainability metrics based on firm-level environmental performance, particularly regarding emissions, play a more significant role in driving demand than innovation in green technologies.

The study finds that firms with higher carbon emissions are more likely to invest in brown R&D and less in green R&D, indicating that technological progress in certain sectors may exacerbate emissions. This phenomenon reflects Jevons’ paradox, where improved efficiency in some processes can lead to higher overall emissions. The research highlights the importance of path dependency in green innovation and suggests that firms’ technological profiles are shaped by learning-by-doing and the Arrow replacement effect.

The study reveals that the primary factor influencing investors’ willingness to pay higher fees for sustainable investments is financial literacy, rather than social preferences. Through large-scale experiments conducted in five European countries, the authors found that while social preferences play a role in determining the allocation to sustainable investments, they do not significantly affect sensitivity to fees. Conversely, investors with lower financial literacy were more likely to pay higher fees, as they are less attentive to fee structures and often overestimate the post-fee performance of higher-cost funds. This suggests that a lack of financial literacy, rather than a preference for sustainability, is the main driver of higher fee acceptance in sustainable investing.

The study provides evidence that top managers significantly impact firms’ ESG outcomes. Utilizing a CEO fixed-effects approach, the authors find that innate managerial characteristics explain a substantial portion of the variation in corporate ESG policies and outcomes, including CSR ratings, employee satisfaction, the development of green innovation, and toxic chemical emissions. This suggests that individual managerial styles play a crucial role in shaping a firm’s ESG performance.

Participants, are willing to pay $.7 more for buying a share in a firm giving one more dollar per share to, charities. Symmetrically, a firm that makes profits by exercising a negative externality of, $1 on a charity is valued $.9 less than a similar company with no externality. The scaling, of non-pecuniary preferences is linear: doubling the size of a social externality doubles its, impact on willingness to pay. Second, the data show that whether investors are pivotal or, not with regard to the ethical actions of the firm does not affect their willingness to pay., Third, when participants make investment decisions on behalf of a third party (delegation),, their generosity level remains similar. Our results appear to be compatible with a utility, model where non-pecuniary benefits are conditional on stock holding.

The study investigates the expected consequences of negative ESG news on firms’, future profits. After learning about negative ESG news, analysts significantly, downgrade their forecasts at short and longer horizons. Negative ESG news, affect forecasts more strongly at longer horizons than other types of negative, corporate news. The negative revisions of earnings forecasts following negative, ESG news reflect expectations of lower future sales (rather than higher future costs). Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news and ESG sensitive analysts tend to, provide more accurate forecasts.

This paper studies the restrictions on consumption, portfolio choice, and social discounting implied by a sustainability constraint, that utility should not be expected to decline over time, in an economy with risky investment opportunities. The sustainability constraint does not distort portfolio choice and implies a consumption-wealth ratio and social discount rate that can be considerably higher than the riskless interest rate.

This paper studies the market-based premium associated with the carbon-transition risk in 81 countries from July 2004 to January 2022. Industries and firms with more carbon-intense business models earn significantly higher future returns. The pricing displays significant cross-country, cross-firm and cross-time differences. The carbon premium is higher in countries with lower income, lower emission levels, and more exposure to climate changes, such as emerging markets, and is magnified following increased investment attention and policy risk. The findings highlight the importance of global coordination and regulatory actions in response to global warming.

This paper examines the pricing of a firm’s carbon risk in the corporate bond market. Contrary to the “carbon risk premium” hypothesis, bonds of more carbon_x005F intensive firms earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon alpha, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to the predictability of carbon intensity for firm cash-flow news, creditworthiness, and environmental incidents.

Voting policies are a major predictor of funds’ voting behavior. Exploiting staggered changes in funds’ voting policies, this paper shows that investee companies adopt their mutual fund shareholders’ preferred governance provisions. This adoption is the result of mutual fund shareholders’ active voting. Announced voting policies also stimulate strategic proposal submissions by non-mutual fund shareholders. Portfolio firms adopt the governance preferences of their mutual fund shareholder base, but not the environmental and social ones (which may be explained by greenwashing in public statements)

The main finding of the estimation is that, just as legislators’ ideological differences in Congress can be represented along a left-right spectrum (Poole and Rosenthal, 1985, 2007), institutional investors’ ideal points map onto a line, where the far-left investors are best described as socially responsible investors (those who vote most consistently in favor of pro-social and pro-environment shareholder proposals) and the far-right investors can be described as “money-conscious” investors (those who oppose proposals that could financially cost shareholders). In other words, the issue that most separates institutional investors is the degree to which they weigh social responsibility. The paper also finds that governance is a second dimension separating investors, with investors differing on how tight a discipline should be imposed on management. Note that the difference in voting behavior could be due to either preferences about the objective of the firm or beliefs about the policies that best implement a given objective.

This paper studies how creditor control influences the operation of municipal water utilities through debt contracts and their covenants. Using a sample of California water utilities, the study demonstrates that creditor protections like the rate covenant affect the budgetary decisions of local officials. When approaching covenant thresholds, utilities raise prices and cut their operations and maintenance expenses. Utilities that are more constrained by their covenants raise prices more following drought restrictions. The cuts to operating expenses are severe when rate covenants are most binding. the paper gives evidence that administrative expenses are most sensitive to distance to the covenant threshold, which is partly explained by a reduction in the premium paid to the general manager of the utility.

The study conducts a large-scale global study of ESG-linked pay for major firms that make up 85% of the market capitalization across 59 countries. It shows that the pay adoption is higher for firms in extractive and utility industries, in countries that value individualism and femininity, have stronger shareholder protections, and are of civil legal origin, and for large firms or firms with high return to assets. The adopters experience better future social and financial performances. Exploiting a regulatory shock that mandates corporate ESG disclosure, we show that the effect of ESG-linked pay on performances is likely causal and suggest employee satisfaction as a channel.

Evironmental-Social (ES) funds support ES proposals that are , far from the majority threshold, while opposing them when their vote is more likely , to be pivotal. This strategy results in a high average support for ES proposals, , seemingly consistent with their fiduciary responsibilities, while opposing contest_x005F ed ES proposals. This greenwashing strategy is driven by ES funds in non-ES , families who cater to institutional investors. Indeed, these funds experience lower , inflows when providing low average support for ES proposals. This strategic vot_x005F ing is not exhibited in governance proposals, nor by ES funds in ES families or , by non-ES funds in non-ES families, reinforcing the notion of strategic voting to , accommodate family preferences while appearing to meet the fiduciaries respon_x005F sibilities of the funds.

In a labor market where talent is allocated based on productivity, the level of corporate sustainability is shaped by competition for attracting skilled workers. Sustainability boosts firm profits only when some firms have a cost advantage in providing it.. Using a model-based approach, the study identifies this cost advantage and analyzes wage and sustainability data. The results show that large firms tend to have a cost advantage. A counterfactual analysis suggests that large firms in industries with dispersed worker talent achieve about 13% higher profits due to their cost advantage in offering sustainability.

Using the Paris Agreement as a shock to expected climate regulation, we provide evidence of a causal relation between climate regulatory risks and the credit ratings and yield spreads of bonds from issuers with problematic environmental profiles.

Stock options of firms with establishments, in the landfall region exhibit large, long-lasting increases in implied volatility, reflecting impact uncertainty. Using hurricane forecasts, we find both landfall uncertainty and potential impact uncertainty are reflected before landfall in the options of exposed firms. However, comparing exante expected volatility to ex post realized volatility by analyzing volatility risk premia changes due to hurricanes shows that investors significantly underestimate the uncertainty associated with hurricanes. Since Hurricane Sandy, this underreaction is less pronounced.

Projected climate change damage has large effects on yields for bonds with long maturities, but not for short term maturity bonds. The effect of projected climate change damage is monotonically increasing in maturity.

Municipal bond markets began pricing sea-level rise (SLR) exposure risk in 2013, coinciding with upward revisions to worst-case SLR projections and accompanying uncertainty around these projections. The effect is larger for long-maturity bonds and not solely driven by near-term flood risk. We use a structural model of credit risk to quantify the implied economic impact and distinguish between the effects of underlying asset values and of uncertainty. The SLR exposure premium exhibits a trend different from house prices and is unaffected by house price controls.

We find that option expensiveness, as measured by implied volatility, is higher for low-ESG stocks, , showing that investors pay a premium in the option market to hedge ESG-related uncertainty. , Using delta-hedged option returns, we estimate this ESG premium to be about 0.3% per month. , All three components of ESG contribute to option pricing. The effect of ESG performance , heightens after the announcement of Paris Agreement, after speeches of Greta Thunberg, and in , the aftermath of Me-Too movement. We find that investors pay ESG premium to hedge volatility, , jump, and other higher moment risks. The influence of ESG on option premia is stronger for firms , that are closer to end-consumers, facing severer product competition, with higher investors’ ESG , awareness, and without corporate hedging activity

SRI funds select firms with higher environmental and social standards, but there is no evidence that SRI funds improve firm behavior.

Learning rationalizes empirical findings, including the responses of Tobin’s q, equity risk premium, and risk-free rate to disaster arrivals. Adaptation is more valuable under learning than a counterfactual no-learning environment. Learning alters social-cost-of-carbon projections due to the interaction of uncertainty resolution and endogenous adaptive response.

Public water infrastructure has traditionally been financed using municipal debt partly backed by a small number of monoline, insurers. Starting in the 90’s, some of these insurers became increasingly involved with, structured financial products unrelated to municipal water bonds, such as residential, mortgage backed securities. We show that when these products crashed in value in, 2007, municipalities that had relied on these insurers for water infrastructure financ_x005F ing subsequently experienced higher borrowing costs. These municipalities then cut, investments in water infrastructure, which in turn, has led to elevated levels of wa_x005F ter contamination. Our findings thus reveal how the U.S drinking water crisis can be, partly traced back to financial market failures.

After natural disasters credit in unaffected but connected markets declines by about 50 cents per , dollar of additional lending in shocked areas, but most of the decline comes from loans in areas , where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order , to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear , better able than smaller ones to shield credit supplied to their core markets (those with branches), by aggressively cutting back lending outside those markets

Firms with high ratings have significantly higher, albeit temporary and, time varying, alphas than those with low ratings.

Peers of a voting , firm that passes a close-call CSR proposal experience lower announcement returns and higher , following-year CSR scores than those of a voting firm that marginally rejects. Such effects are stronger , in peer firms with higher competitive pressure and a more transparent information environment, and , vary across peer firms with different financial constraints.

Stocks that experience an increase in SRI ownership (SRIO) tend to , increase CSR, especially for those with high current CSR. hedge funds are less likely to be classified as SRI, and that hedge fund , holdings tend to be associated with lower CSR growth even when they are classified , as SRI.

The study investigates how insider control (entrenchment) affects companies’ environmental and social (E&S) performance. The researchers hypothesized that insiders, such as family owners or long-term controllers, prioritize their own private benefits over broader social responsibility goals, leading to weaker E&S outcomes. They found that companies with entrenched family control tended to have worse E&S results, while those under government control showed better social performance. Additionally, when outsiders (e.g., investors or stakeholders) have more influence, E&S performance improves, especially when control is not fixed.

prices react only to financially material ESG news, and the reaction is larger for news that is positive, receive more news coverage, and related to social capital issues. The market reacts most to unexpected news. We conclude that investors are motivated by financial rather than nonpecuniary motive as they differentiate in their reactions based on whether the news is likely to affect fundamentals.

oil, gas, and energy-producing firms – firms with lower Environmental, Social, and Governance (ESG) scores, and who are often explicitly excluded from ESG funds’ investment universe – are key innovators in the United States’ green patent landscape. These energy producers produce more, and significantly higher quality, green innovation. In many green technology spaces, they appear to be influential first-movers, not easily substitutable, and to produce ongoing foundational aspects of innovation and commercialization on which other alternative energy producers build. This is broadly true across the green patenting spectrum, and continues through the present day, concentrating specifically in certain green technology branches (for instance, in carbon capture).

There is increase in mortgage deliquency and foreclosure after a fire event. Default and foreclosure decrease in the size of the wildfire. This results from the coordination externalities afforded by large fires, whereby county requirements to rebuild to current building codes and insurance-covered losses work together to ensure that rebuilt homes will be more valuable than they were pre-fire. This is only true as long as there exists a well-functioning insurance market, and the size of recent losses, combined with regulatory distortions in the market, casts doubt on the contin_x005F ued ability of insurance companies to absorb fire-related losses. The technology in this paper can help by providing central banks and insurance regulators with a framework for building benchmark models to evaluate proposed banking and insurance-company models, much like the bank stress-testing carried out by the Federal Reserve System.

firms respond to the disclosure regulation by reducing their emissions because of a mix of institutional , investor, general stakeholder, and competitive pressures.

When investors place a high value on ESG performance across multiple categories, the unique equilibrium is for the raters to generalize — splitting their effort among the categories, resulting in less informative ratings. Greenwashing by firms can make generalization the only equilibrium. Specialization maximizes ratings disagreement and, thus, empirical measures of disagreement may be poor measures of surplus.

the political leanings of judges influence the availability of ESG options in retirement plans. However, reducing judicial bias can promote fairer access to ESG investments, encouraging greater participation in retirement savings, particularly in conservative areas.

envi_x005F ronmental and social (E&S) ratings positively relate to local sales, especially in , counties with more Democratic-leaning and higher-income households. Higher , ratings of a firm’s product market rivals negatively affect a firm’s sales. Controlling , for product-year-level heterogeneity, monthly product sales decline after negative , firm news on E&S issues. Finally, immediately after major natural and environ_x005F mental disasters, sales in counties close to the disasters become more sensitive , to E&S ratings. Our study provides direct evidence that E&S investments affect , consumer demand–the cash flow channel of ESG

Windfall wealth increases likelihood of holding responsible mutual funds and green stocks. Findings indicate that both supply factors (e.g., bank advice) and demand factors (e.g., preferences) play a role in shaping allocations to responsible investments. Notably, inheritors with a history of charitable donations exhibit a stronger response, emphasizing the influence of a ‘warm glow’ effect on portfolio formation.

In endowment economies, the cost of capital is used to measure mandate effectiveness., In production economies, the cost of capital is a misleading metric. Mandates can significantly affect capital allocation without altering the cost of capital., Using a dynamic stochastic general equilibrium (DSGE) model, at least 50% of the mandate’s intended impact is achieved in equilibrium, leading to a 4% long-term increase in the share of capital allocated to the favored sector., The reliance on endowment-economy models in the responsible investing debate may underestimate mandate effectiveness.

Firms spend on average $277k per year on anti-climate lobbying ($185k on pro-climate lobbying). Anti-climate lobbyists have more carbon-intensive business models, while pro-climate lobbyists exhibit more green innovation. Firms that spend more on anti-climate lobbying earn higher returns, probably because of a risk channel.

Fossil fuel assets provide valuable opportunities for renewable development, and PE firms are better able to identify and realize these opportunities. PE firms are more likely to acquire fossil plants that provide higher solar investment opportunities after solar generation becomes viable. PE acquisition of fossil fuel power plants is followed by an 8% higher likelihood of solar development and a 10% increase in the number of solar plants in the same county. This increase comes from institutional investment in solar energy, specifically from the investors related to the PE owners of fossil plants. These findings contradict the notion that PE firms adversely affect the environment, and suggest that regulations prohibiting PE investment in fossil fuels may unintentionally prevent clean energy financing and impede the green transition.

Socially responsible or sustainable and responsible (SRI) funds , exhibit greater growth, more persistence and less performance sensitivity than flows to , conventional funds. These attributes appear to result at least in part from investors’ , nonfinancial considerations. SRI funds increase relative to conventional funds during exogenous events expected , to heighten investors’ considerations of such funds: corporate environmental disasters and , corporate accounting scandals, indicating a strong influence of nonfinancial considerations. SRI funds show a high level of persistence in their ESG profiles.

A reduction in analyst coverage causes firms to engage more aggressively in , irresponsible behavior, especially in the dimensions of environmental issues and product , quality and safety concerns. The effects of analyst coverage on irresponsible activities are , more pronounced in firms with lower initial analyst coverage, weaker corporate , governance and higher financial constraints.

Firms most heavily affected by the regulation experience significantly positive valuation effects. Increases in value are strongest for large firms and for firms from carbon intensive industries (e.g., oil and gas). Valuation increases are driven by capital market effects such as higher liquidity and lower bid — ask spreads for the most affected firms.

Firms experiencing an exogenous drop in female analyst coverage subsequently suffer a 7% decline in their environmental and social (E&S) scores and a deterioration in real E&S outcomes., Female analysts are more likely to discuss environmental and social (E&S) issues in their research reports and during earnings conference calls compared to their male counterparts., After negative E&S discussions in their reports, female analysts are more likely to take actionable steps, such as downgrading stock recommendations and lowering target prices., The analysis finds that gender diversity among analysts is a key driver of corporate E&S practices., These findings highlight the importance of promoting gender diversity in the finance industry, offering novel insights into the role of female analysts in shaping corporate E&S practices.

First, ceteris paribus, the carbon premium in cryptocurrencies is lower compared to equities. Second, carbon intensity increases cryptocurrencies’, exposure to the market portfolio, which can be mitigated by using green energy in production. Speculative behavior weakens carbon sensitivity, thereby lowering carbon premium in, cryptocurrencies. Regulations targeting cryptocurrencies’ carbon footprints may provoke, negative market reactions as security concerns from lower energy use outweigh environmental benefits.

imposing personal liability leads to a 23% reduction in toxic chemical releases. Treated small firms scale down operations while large firms invest in clean technology. This environmental benefit is accompanied by a 2.6% decrease in abnormal returns following the shock, as well as an increase in director turnover, particularly among the wealthiest directors and environmental experts who are the most exposed to liability risk. These findings contribute to the debate on the optimal level of personal liability to regulate corporate externalities.

After Sinclair entry, CSR ratings of local firms decline across all dimensions: environmental, social, and governance. The effect operates through two mutually non-exclusive channels: shifts in ideology and reduction in local coverage. We provide evidence consistent with the first channel based on public opinion surveys, election results, and firms’ political contributions. Consistent with the second channel, the effect is stronger for firms with higher customer awareness, low institutional ownership, in sin industries, and in Sinclair-dominated markets.

regulation-induced clean innovation disclosure can generate positive, externalities beyond the individual firm. Clean innovation disclosure is associated with reduced air and water pollution in filing and citing firms, with knowledge spillovers occurring via supply chains and local network

firms increase their pollution intensity as they become more financially distressed. This is particularly the case in high-environmental liability risk locations, akin to a risk-taking motive. Dirty assets reduce short-term costs but expose firms to persistent liability and regulatory risks. Thus, as firms become more financially distressed, they gradually take on more risk and shift the composition of their assets toward the more polluting ones. Our counterfactuals highlight the limited environmental impact of blanket divestments when heightened financing costs lead firms to increase their pollution intensity while scaling down. Tilting strategies, however, are more effective at tapering pollution.

Stronger investor ESG preferences may reduce real green investments due to increased greenwashing, which undermines the reliability of ESG information. When this information distortion is severe, firms are disincentivized to make real green investments, as the market-perceived ESG gains are obscured by misinformation, while the financial costs of green investments are still reflected in stock prices. This paradox is most likely to occur when the cost of manipulating ESG information is low, the correlation between ESG and financial fundamentals is weak, and financial information quality is high. Additionally, brown firms with poorer financial performance tend to greenwash more. These findings raise concerns that ESG investing could backfire without effective disclosure regulations.

we find a significant, albeit relatively small, decrease in a firm’s store visits following such incidents. The decrease in visits by more E&S-conscious consumers is nearly four times greater than that by less E&S-conscious consumers. Our results are more pronounced when (1) the negative incident is more severe and widespread; (2) populations feature more educated and younger consumers; (3) firms have high E&S ratings and large advertising expenditures; and (4) local product markets are more competitive. Lastly, we find that following a negative E&S incident, the average firm loses about $19.2 million sales in more E&S-conscious areas and about $9.6 million in less E&S-conscious areas. Our findings suggest that firms’ E&S practices can directly affect firm value via consumer shopping behaviors and cash flows.

Cumulative abnormal returns around the news day average out to zero, while the variation is substantial. Market reactions are favorable if firms address issues frequently discussed and choose methods for effectively handling issues. Although the paper does not exclude the potential for CSR initiatives to be reported as virtue signaling, it demonstrates that public needs for CSR play a role in influencing the valuation of CSR initiatives.

We document an economically significant negative causal relationship between foreign, institutional ownership and corporate carbon emissions., 1. The relationship is driven by foreign institutional investors with higher climate awareness,, long-term orientation, and higher independence., 2. Regarding the active engagement to reduce carbon emissions, foreign institutional, investors increase carbon-compensation sensitivity and initiate ES proposals in their, portfolio firms.

Firms operating internal carbon markets in the European Union Emissions Trading Sys_x005F tem reallocate more carbon allowances from subsidiaries with generous free allowance, allocated to those with modest free allowance allocated by the regulator, and vice versa,, after allowances become relatively scarce. In response to allowance scarcity, subsidiaries, of firms with internal carbon markets also become 15% more carbon intensive. The in_x005F crease in carbon intensity is consistent with an agency conflict based explanation related, to the reallocation of resources within a firm.

Measuring greenwashing as the discrepancy between companies’ external carbon-related discussions and their underlying carbon performance, we find MCR leads to a decline in three types of greenwashing: excessive length, over-optimism, and vague commitments, relative to performance. MCR also curtails greenwashing of other, non-carbon disclosures, suggesting a positive spillover from MCR to firms’ broader environmental reporting. Companies that reduce misleading carbon talk also decrease their carbon footprint, consistent with a substitution between greenwashing and real efforts to mitigate climate change. Our results inform recent regulatory proposals to mandate climate-related reporting.

firms’ lobbying is unrelated to innovation: green innovators are equally likely to lobby green or brown. Firms’ environmental lobbying is explained by current business operations and predicts real actions, for example future emissions. In contrast, green innovation is better characterized as a real option, to be exercised only if necessary. Despite the informativeness of lobbying, neither environmental ratings nor UNPRI signatories’ investments incorporate this signal.

Responsible investors tend to concentrate on specific firms, excluding others., This concentration can reduce free-riding and improve coordination for green technology adoption., However, it may also create market power for favored firms and reduce green investments by excluded firms., If the negative “crowding-out” effect dominates, aggregate green investments and welfare are higher without SRI., Responsible capital often concentrates the most when it is least desirable.

while both banks and bondholders charge low-ESG borrowers a higher interest rate compared to high-ESG borrowers, the premium charged by banks is relatively lower. Second, while bondholders reduce the amount of financing when borrowers’ ESG performance deteriorates, banks keep the size of their loans unchanged or even increase loans issued to low-ESG borrowers. We provide evidence that the difference in creditors’ policies is driven by banks’ superior information about how material borrowers’ low ESG performance is and by lenders’ different preferences regarding their borrowers’ ESG performance.

earlier access to childcare not only increases new mothers’ employment and earnings, but also prompts them to reallocate careers to firms previously unattractive to new mothers. These firms subsequently benefited from the reform, drawing more young, productive female workers and experiencing better performance. Our results suggest that childcare frictions hamper women’s career progression and the allocation of human capital in the labor market

inundated residents are 7% less likely to work in startups relative to their neighbors outside the flood boundary, within a 0.1-mile-wide band. The effect is more pronounced for homeowners, consistent with the wealth effect. The career distortion leads to a significant long-run income loss, highlighting the importance of self-insurance for human capital allocation.

Sea Level Rise exposed households participate less in the stock market compared to their unexposed counterparts within the same neighborhood.

unexpected extreme heat reduces firm-level and plant-level labor productivity, making labor less efficient than capital as a production input. Firms adapt by shifting toward more capital-intensive production functions, with increased capital expenditures and R&D expenses, acquisition of robotics-related human capital, and development of automation-related technology. The results are stronger among firms facing higher long-run heat risks and fewer financial constraints.

capital constraints discourage pollution prevention and have no impact on pollution treatment without environmental laws. First, financially constrained firms are less likely to invest in pollution prevention but not in pollution treatment. Second, by applying a staggered difference-in-differences methodology, I find that a negative shock to firms’ cash flows reduces the amount spent on pollution prevention. Finally, my results show that financially constrained firms increase their investments in pollution treatment relative to unconstrained firms after the implementation of an environmental regulation. Overall, my findings suggest that financial constraints lead to reduced pollution prevention and encourage treatment when environmental laws are enforced.

Geographically dispersed, multi-state, and larger banks reduce small farm lending by 2 to 3 percent more, relative to their counterparts, following a standard deviation increase in the frequency of abnormal hot temperature in a county. Banks do not reduce credit flows indiscriminately as they strategically shield markets with branch presence. Furthermore, within-bank analyses suggest significant rebalancing of farm loans across counties that differ in climate risk exposure.

this paper lends support to, recent theoretical frameworks on ESG investing with non-pecuniary preference and reconciles mixed, evidence in the empirical literature. The prominence of ESG is explaines by non-pecuniary and risk-mitigating preferences,

There is a large and persistent cross-sectional variation in banks’ propensity to lend to minorities. Inequality-averse banks have a higher propensity to lend to borrowers in high-minority areas and, within census tracts, to non-white borrowers compared to other banks. This higher propensity (i) is not explained by selection of applicants, (ii) allows these banks to retain and attract their inequality-averse stakeholders, and (iii) does not predict worse ex-post loan performance.

The change in the ESG rating influences stocks’ returns but this is mainly due to retail investors’ misinterpretation about the change in the ratings scale. Sophisticated investors, such as 13F institutions and short sellers, take advantage of individual investors’ blind trust in ratings by taking the opposite side of their trades. We find no effect on mutual funds’ portfolio rebalancing or investor flows. Firms react to the change in their ESG rating and subsequent abnormal returns by issuing or repurchasing shares.

43% of reviews discuss ESG topics, with governance surprisingly receiving the most attention. Assembling novel hard-to-manipulate ESG indicators, including emissions estimates from satellite imagery, the study finds employees’ ESG inside view is more informative about these indicators than existing ESG ratings. Moreover, the inside view appears robust to ESG cheap talk, as low-cost changes in firms’ ESG commitments do not affect it, while costlier changes do. Thus, employee perspectives can help investors assess firms’ authentic ESG performance.

SLLs do not offer advantageous loan terms nor result in improved borrowers’ ESG performance. However, we observe that SLL lenders attract higher deposits after issuance, supporting lending growth. Further, we find no evidence that lenders offer SLL contracts predominantly to low-risk borrowers. With the lenders reaping the majority of benefits from such arrangements, these findings call into question the purported objectives of SLLs in promoting sustainable practices.

Gender diverse boards are linked to more conservative CEO compensation (pension-focused). Bondholders perceive these boards favorably, resulting in lower yield spreads.

CSR practices spread through directors’ social networks, especially in firms pursuing product differentiation, strategically positioned for info exchange, and with aligned incentives.

Firms exposed to high transition risks face valuation discounts, especially non-proactive ones. Firms respond through investment, green innovation, and employment shifts.

Firms with high pay ratios experience negative abnormal returns. Equity investors with stronger prosocial preferences rebalance away from stocks with high pay ratios.

Base pay inequality negatively impacts employee morale, especially for top and bottom quartile employees. Wage increases improve morale for all employees, with greater inequity aversion for experienced employees and those in democratic-leaning regions. Base pay inequality is negatively related to firm performance, while total pay inequality has no significant relation to morale or firm performance.

the benefits of activism are not necessarily confined to shareholders, but may also extend to other stakeholders (e.g., the local community) affected by firms’ emissions.

a board that gains sustainability expertise increases a firm’s overall sustainability performance by 7.1% . The increase in sustainability comes both from improvements in environmental and social practices. boards have a stronger impact on sustainability in firms from clean industries and firms that face fewer operational and financial constraints

Shorting overpriced stocks with high ESG scores is exposed to higher 1) , synchronization risk—the long-side investors are reluctant to sell the overpriced stocks with better , ESG performance; 2) short squeeze risks associated with ESG sentiment—high ESG stocks , experience sentiment-driven positive price jumps when public attention to ESG spikes; and 3) ESG , reputation risk—short sellers who publicly disclose large positions on high ESG stocks may get a , bad reputation. The insufficient short demand has important implications for asset prices.bad reputation. The insufficient short demand has important implications for asset price

private equity (PE) ownership, in private-to-private buyouts, leads to a reduction in pollution when the target company faces high potential liabilities for polluting. PE-backed firms increase pollution when environmental liability risks are low. PE governance is the main driver of the results

competition fosters green innovation as firms respond to stricter regulatory policy. the cost of relocation is a critical mechanism that compels firms to innovate when responding to tightened environmental policies and heightened competitive pressure

ESG motives expand active fund management by increasing information acquisition. Price informativeness improves for assets with extreme ESG profiles. ESG-perceptive funds tilt toward green stocks, which amplifies the negative ESG-expected return relation for green assets.

Impact investors can improve social outcomes by counterbalancing profit-driven owners. Higher social output value increases impact investors’ stakes. Nonprofit status may be optimal for projects with the highest social value.

Agency theory supported: High levels of employee welfare are positively associated with stock price crash risk., Channels: Earnings management and reduced whistleblowing likelihood., Contextual factors: Stronger in labor-intensive firms, regulated labor markets, poorly governed firms, and countries with low investor protection.

Institutional ownership positively impacts E&S performance, driven by financial and social motivations. Investors from countries with strong E&S norms export these norms globally.

CSR activities decrease systematic risk and increase firm value, particularly for firms with high product differentiation. The evidence supports the model’s predictions that CSR enhances profitability through product differentiation.

CSR reduces market share losses for highly leveraged firms by mitigating negative actions from customers and competitors. CSR helps these firms retain customers and guard against rivals’ predation. Supports stakeholder value maximization view.

Firms with an EF culture are valued higher and exhibit better performance (ROA, ROE). The impact is stronger in countries with better investor protection and firms with better governance. Positive valuation linked to improved technical efficiency.

Easing financial constraints increases CSR, particularly for firms that are financially constrained, have higher analyst dispersion, and more cash flow volatility. Post-shock debt financing has a significant impact.

Financial reform lowers municipalities’ borrowing costs, increases bond issuance, and promotes investments in hospitals and the construction sector. Reform timing depends on union strength, bondholder interests, and court quality.

Extreme temperatures affect earnings in over 40% of industries with both positive and negative effects. Analysts do not react immediately to intra-quarter temperature shocks, though forecasts adjust by quarter-end.

Individual green investors exhibit higher financial risk tolerance, holding more volatile and riskier portfolios, while institutional green investors show no significant difference in risk behavior.

Introduction of SFDR led to significant capital flows into green funds (Articles 8 and 9), with institutional investors driving the change. Green funds without prior ESG ratings saw the strongest inflows, highlighting the role of reduced uncertainty.

The greenium reflects the shadow value of environmental concerns and varies significantly over time. It is higher for green bonds compared to their conventional twins, driven by climate shocks and investor preferences for green assets.

Firms with low emissions and net-zero commitments use more offsets, often of low quality, following ESG rating downgrades. High-emission firms reduce direct emissions but use fewer offsets.

Banks shift credit to low-emission borrowers rather than reducing high-emission lending. High-risk banks provide limited disclosures but increase anti-climate lobbying, reflecting limited contributions to decarbonization.

Social preferences significantly influence corporate technology supply and investment decisions, especially when investors internalize social harm. Consequentialist preferences can paradoxically increase harmful technologies under certain risk correlations.

Belief updates about climate change lead to divergent portfolio adjustments, with those more concerned about climate change increasing allocations to green funds and those less concerned reducing them, especially in politically polarized areas.

Politicians with higher carbon dependency are more likely to cast climate-skeptic votes. Electoral pressure strengthens this effect, and carbon-emitting firms benefit through higher abnormal stock returns when their connected politicians vote in favor of climate-skeptic bills.

The annual equity greenium is estimated at −30 basis points per standard deviation of greenness, increasing in greener countries and over time. Results highlight the challenges of identifying greenium using realized returns due to data limitations and noise.

Portfolio mandates significantly affect sectoral capital allocation, even when their impact on cost of capital is negligible. Their effectiveness depends on the returns-to-scale parameter and investor behavior.

Higher DEI is associated with better financial performance but unrelated to stock returns.,

Firms reallocate employment and establish new locations in unaffected areas during heat shocks, particularly when damages are severe. Larger firms with ESG-oriented investors are more active in mitigation, reducing the impact on aggregate employment and wages while redistributing economic activity.

Anti-climate lobbying is driven by carbon-intensive firms and linked to higher future returns, reflecting a risk premium, while pro-climate lobbying correlates with green innovation but shows no significant return effects.

Voluntary climate commitments increase banks’ ESG ratings but do not significantly alter lending patterns, pricing, or borrower decarbonization efforts, questioning their efficacy.

U.S. banks’ exposure to climate transition risks is modest, with exposures not exceeding 14% of loan portfolios under adverse scenarios. NZBA banks have reduced lending to high-risk industries compared to non-signatories.

Firms with lower DTE face greater transition risks and require higher stock returns. The DTE measure effectively predicts stock return variations and highlights the importance of decarbonization efforts in mitigating risks.

Institutional divestment reduces stakeholders’ economic exposure to harmful assets, influencing political votes for asset stranding by signaling environmental harm and citizen preferences.

Institutional investors systematically underweight foreign high-carbon emitters while showing a mild preference for domestic high-carbon emitters. This carbon home bias is driven by political pressures, familiarity bias, and client preferences.

Backward-looking ESG scores fail to predict future emission reductions and may inadvertently incentivize firms to pollute more. Emission futures provide a measurable and market-based mechanism to align corporate actions with real impact goals.

Proactive ESG managers exhibit persistent skill, predicting future ESG rating changes and generating higher fund flows. Reactive managers, in contrast, show limited skill, adjusting portfolios based on ESG ratings without adding value.

Carbon-contingent securities can substitute carbon taxes in economies lacking political support for regulation but may weaken future tax support in economies with existing regulation.

Better management of biodiversity, water, and pollution risks improves long-term refinancing conditions for infrastructure firms, with a significant flattening of the CDS term structure.

Banks with extensive environmental disclosures lend more to brown borrowers and do not significantly increase lending to green industries, with no evidence of transition financing.

Increased credit supply significantly raises the likelihood of green investments, particularly in regions with high environmental awareness and among financially stable firms.

Customer managers with strong green values favor green firms in recommendations, but some enviro-skeptical managers and loan officers counter this by downgrading green applications.

CO2-intensive firms benefit more from tax deductions on debt, lowering their effective tax rates. Removing the debt tax shield reduces emissions without affecting GDP.

Activist campaigns succeed with positive probability despite significant firm value reduction. Universal owners balance reputation costs and economic impact when voting on ESG proposals. But when proposal adoption entails significant reductions in market value,, after activists acquire stakes they can reap considerable financial rewards from aborting their own campaigns.

The activation of the sea wall increased property values by reducing flood risks, with residential properties gaining approximately €1 billion in capitalized benefits.

Retail investors’ investments in “brown” stocks are negatively related to local air pollution after a monitoring station appears nearby, with particularly pronounced effects on “alert” dates when air quality is listed as harmful to the general population. The effect of pollution information on investment choices is most prominent amongst tech-savvy investors who are most plausibly “treated” by real-time pollution data, and by younger investors who tend to be more sensitive to environmental concerns

Financial constraints can reverse the standard relationship between emissions taxes and economic outcomes. Cap-and-trade systems may outperform emissions taxes under specific conditions.

Firms with high environmental scores donate significantly more to anti-climate politicians, driven by brown shareholders. These donations do not alter political stances but are associated with substantial firm value increases when anti-climate policies are enacted.

Banks reduce loans to polluting firms and increase lending to greener ones; no short-term emission reductions observed.

Firms innovating or diffusing disruptive environmental technologies are less likely to receive bank credit:, Innovators: 4.4 percentage points (p.p.) less likely., Diffusors: 1.0 p.p. less likely., Individual investors with fewer legacy risks play a critical role in easing the asset overhang and facilitating the transition to environmentally friendly technologies.

Greener stocks have lower expected returns (negative greenium) and act as hedges against climate-related disasters.

Exposure to heat stress leads to higher yield spreads for municipal and corporate bonds and increases conditional expected returns for equities, especially after 2013.

Carbon returns are negative in the U.S. but vary globally based on climate policy and investor preferences. Brown firms underperform in developed markets due to climate concern shocks.

Non-ESG sibling funds hold more high-ESG stocks and generate superior returns on these stocks, but ESG funds outperform non-ESG siblings overall due to cross-fund subsidization strategies.

Mortgage denial rates increased significantly in SFHA areas after insurance premium hikes under the Biggert-Waters Reform Act due to higher monitoring costs faced by lenders.

Institutional investors mainly decarbonize portfolios through re-weighting towards low-emitting firms, with limited engagement or impact on actual corporate emissions.

Stricter EPA regulations lead to increased green innovation and firm value, particularly for firms with weaker corporate governance.

Carbon pricing leads to shorter loan maturities, higher interest rates, and reduced term loans for firms with significant emissions., Private firms face stricter credit terms compared to public firms due to higher transition costs and financial constraints., Shadow banks increasingly participate in loans to affected firms as traditional banks reduce exposure., Credit conditions tighten during policy implementation, impacting the survival of polluting firms.

Activism strategies like boycotts and proxy voting are more effective than divestment in incentivizing green technology adoption., Boycott strategies reduce the stock price of polluting firms but may not always lead to green technology adoption., Proxy voting is most effective when brown firm shares have equal voting rights and the firm size is manageable for activists to influence., Activism can alter equilibrium risks and price dynamics of green and brown firm shares.

Socially responsible investors can cause strategic delays in the reform of polluting firms. Investment mandates can eliminate these delays by incentivizing entrepreneurs to adopt sustainable practices.

A 1°C increase in local temperature reduces firm sales by 2.5%. Effects are more pronounced in manufacturing and heat-sensitive industries. Financially constrained and non-diversified firms face greater impacts.

ESG investing does not necessarily lower returns; ESG measures provide significant information about firms’ exposure to aggregate risks but reveal deep disagreement about firms’ risk premia.

Providing information about climate change increases individuals’ willingness to pay for carbon offsets by 40% compared to the control group. Peer framing (information about others’ behavior) is slightly more effective than scientific framing.

A new measure of rate setting frictions for individual states and different states exercise varying degrees of price control, which positively correlates with how exposed a state is to climate events. Insurers in high friction states are restricted in their ability to set rates and respond less after experiencing climate losses. In part, insurers overcome pricing frictions by cross-subsidizing insurance across states. In response to losses in high friction states, insurers increase rates in low friction states.

The proposed quantity-based hedge portfolios outperform traditional methods, showing superior hedging against aggregate climate news shocks.,

Current climate stress tests are limited in scope and need to account for feedback loops, compound risks, and short-term impacts. Market-based stress tests are valuable complements to traditional approaches.

Firms outsource carbon emissions to foreign suppliers to improve short-term profitability, driven by agency problems rather than production efficiency. This increases transition risks, raising the cost of equity capital and reducing firm valuation.

Investors value good water management because it allows firms to offset the negative impact of droughts on operating expenses. Overall, the evidence supports the hypothesis that good water management provides a competitive advantage for firms

study suggests that engagements are an effective tool for long-term shareholders to address climate change risks : Using plant-level data, we find that targeted firms reduce their toxic releases, greenhouse gas emissions, and cancer-causing pollution. Improvements in air quality within a one-mile radius of targeted plants suggest potentially important externalities to local economies. These improvements come through increased capital expenditures on new abatement initiatives.

as the green investor share increases, the price becomes less informative to traditional investors, that is, less informative about the financial component, and more informative to green investors in any stable equilibrium

Carbon-intensive industries reduce emissions faster in economies with deeper stock markets because stock markets facilitate green innovation in carbon-intensive sectors, resulting in lower carbon emissions per unit of output. Stock markets also help to reallocate investment towards more energy-efficient sectors

workers earn substantially lower wages in more sustainable firms. the wage gap is larger for high-skilled workers and increasing over time

The optimal carbon tax is procyclical—higher during economic booms and lower during recessions. Implementing this tax can significantly reduce emissions, decrease risk premiums, and increase welfare. Its effectiveness depends critically on the efficiency of emission abatement technologies.

Voluntary disclosure significantly reduces adverse selection and transition risks, enhancing stock returns. Mandatory disclosure, such as the UK’s 2013 requirement, shows less pronounced effects. Peer pressure and industry norms also drive disclosure behavior, influencing firm valuations globally.

The regulation led to a 32% reduction in holdings of fossil energy securities by French institutional investors compared to other investors. Divestment was particularly significant for small-cap and less liquid securities. The regulation also influenced fossil firms’ behavior, increasing their likelihood of adopting greenhouse gas (GHG) emissions reduction targets.

Borrowers indirectly exposed to climate-related disasters face higher loan spreads post-disaster (e.g., 19 basis points for hurricanes)., Weaker borrowers with extreme exposure suffer the highest increases., Pricing effects are amplified during periods of high climate-change attention and fade over time., Banks update borrowers’ default probabilities (PDs) after disasters, suggesting increased risk awareness.

Mutual funds underweight heavy ozone-polluting stocks in counties subject to nonattainment designations., Rebalancing is driven by anticipated and unexpected regulatory shocks, with significant differences between the two., Regulatory shocks negatively impact the cash flows and profitability of heavily regulated firms, aligning with optimal hedging behavior by mutual funds., Funds with smaller size or local exposure show a higher tendency to adjust portfolios.

– Greater board diversity leads to lower volatility and better performance., – Lower risk levels are due to more persistent and less risky financial policies., – Firms with diverse boards invest persistently more in R&D and have more efficient innovation processes

State-owned enterprises are more responsive to environmental issues. The effect is more pronounced in economies lacking energy security and strong environmental regulation, and among firms with more local operations and higher domestic government ownership. We find a similar effect on corporate social engagement but not on governance quality. These results suggest a different role for “Leviathan Inc.,” especially in dealing with environmental externalities.

Brown firms are associated with higher average returns, while decreases in the greenness of firms are associated with lower announcement returns. While carbon risk explains systematic return variation, there is no evidence of a carbon risk premium, primarily due to offsetting price movements between brown firms and firms transitioning to greener practices, as well as carbon risk being linked to unpriced cash-flow changes rather than priced discount-rate changes.

Firms under the exogenous negative price pressure mainly improve CSR strengths, including costly environmental investments. CSR engagement attracts socially responsible investors and, lowers the cost of capital for signaling firms.

Firms in industries with high carbon intensity benefited, at least briefly from Trump’s election But in the mean time, investors actually rewarded companies with “responsible” strategies on , climate change. The analysis shows that this observed climate responsibility premium results, at least in part, from the strategic behavior of long horizon investors who looked into the future to assess the valuation of corporations.

The growth of the reserves of oil has a negative effect on firm value. This negative effect on value is stronger for oil producers with higher extraction costs. Our evidence is consistent with markets penalizing future investment in undeveloped reserves growth due to climate policy risk. High level of institutional ownership, stock market liquidity and analyst coverage do not change the negative effect of undeveloped reserves growth on firm value.

When a firm is exposed to disasters, investors overreact by depressing the current bond and stock prices, causing future returns to be higher. However, firms with a strong environmental profile experience lower selling pressure on their bonds and stocks, although their fundamentals weakened following disasters.

This paper examines how bank capitalization affects the risk-taking behavior of non-financial firms, focusing on labor productivity risks driven by weather conditions in Austrian ski tourism businesses. It finds that firms facing higher snow risk are more hesitant to hire workers early in the ski season, but this aversion diminishes when local banks have higher equity capital, which provides liquidity insurance. The study highlights a broader role of well-capitalized banks in enabling firms to adapt to climate-induced risks, underscoring the financial sector’s importance in climate-resilient economic development.

There is more electric facilities investement in regions with more extreme temperatures. These investments are mostly in flexible gas and oil-fired power plants that can easily adjust their output, to improve their operating flexibility. Our results suggest that climate change is becoming a meaningful factor affecting firms’ behavior

The study finds that higher voting support for such proposals predicts an increase in adverse ES incidents and associated negative financial impacts over the following years. This supports the “Informative ES Votes” hypothesis, suggesting that some investors possess valuable insights into ES risks. The research highlights the role of mutual funds with fewer agency frictions as stronger signals of underlying ES risks, emphasizing that investor support reflects their assessments of these risks. The findings also contrast with prior literature on private engagements, underscoring the potential and limitations of shareholder activism in influencing firm policies on ES issues.

CEO turnover likelihood increases with extreme media coverage of ESG incidents, even without stock price decline. Non-pecuniary reputational concerns influence turnover decisions, particularly in stakeholder-oriented countries (e.g., European nations)

Impact funds have lower market risk than comparable private market strategies but underperform the public market; investors’ wealth portfolios and personal tastes affect the financial perception of impact investing

Sister firms receive higher ESG ratings due to common ownership, but have poorer future ESG outcomes

After hurricanes, institutional investors increase support for environmental proposals, even in firms that were not previously supported. Proposals backed by affected investors are more likely to pass. Firms that pass environmental proposals experience declines in market capitalization and analyst recommendations.

ESG disclosure reduces underinvestment, particularly for firms with low disclosure, financial constraints, and entrenched managers. They also raise more debt to mitigate underinvestment.

Green loans reduce environmental emissions but negatively impact social performance (human rights, community, product responsibility). Sustainable loans improve overall ESG performance, enhancing both environmental and governance scores.

U.S. firms reduce imports by 29.9% when suppliers face E&S incidents, especially if publicly listed and facing E&S investor pressure. This leads to better supplier E&S performance over time.

Climate tipping points, investor disagreement, and long-run risks impact asset prices. Green stocks outperformed brown stocks from 2011-2021, and investors demand a small climate risk premium for holding brown assets.

Funds’ ESG betas rise before disclosure and drop after; funds outperform their portfolios and ESG stock prices temporarily rise before disclosure and fall afterward. Green window dressing impacts sustainability ratings and fund performance.

Companies with more children of block holders have larger boards with a higher share of female directors., – Daughters do not increase other women directors but replace them as directors., – Gender of children does not affect descendant CEO appointments or firm financial performance., – Environmental ratings improve with more daughters.

Mutual funds buy high-ESG stocks before quarter-end and sell low-ESG stocks, only to reverse these trades afterward. This behavior is concentrated around extreme ESG rating cutoffs, affecting both stock prices and mutual fund flows. The net effect of window dressing accounts for 1.2% of mutual fund trading volume, benefiting fund inflows but incurring some performance costs.

Green assets are riskier than brown assets when demand elasticity is high, leading to a positive green premium (11.7% annually for high-demand elasticity stocks). The green premium is driven by responsible consumption and varies across industries and firms, depending on their demand elasticity.

The study finds that transition risks impact systemic risk more significantly than physical risks. Financial institutions with reliable emissions data and long-term orientation are less exposed to transition risks. However, physical risks are less reflected in systemic risk measures.

Model uncertainty significantly alters optimal investment in green technology and emissions pathways. Uncertainty over climate dynamics, economic damages, and green technological innovations leads to different policy adjustments in capital allocation and social valuations.

Large emitters are 9 p.p. more likely to divest pollutive assets post-Agreement, an increase of over 75%. This effect comes from asset sales and not from closures of pollutive facilities and is stronger for emitters that face increased investor pressure. There is no evidence for increased engagements in other emission reduction activities. The results indicate significant global asset reallocation effects, shifting emissions out of the limelight.

Early-stage electric vehicles (EVs), compared to their internal combustion engine counterparts within the same model series, are financed with higher interest rates, lower loan-to-value ratios, and shorter durations.

Politically connected firms experience lower returns post-ruling. Independent political spending reduces the need for political connections. No significant effects on lobbying or PAC contributions.

Universal owners tend to support resolutions related to externalities less than other fund families, with support positively correlated with the proportion of socially responsible investment funds in the family.

CSR reduces the CEO-board information asymmetry by leveraging stakeholder information, leading to a higher level of board independence.

Green sentiment has a significant impact on stock returns for 25% of firms. Negative effect in energy and materials sectors (especially chemicals and metals); positive effect in real estate and utilities. Company-level impact tied to environmental performance

The socially optimal emissions tax may differ from the Pigouvian benchmark due to financial constraints, and policies such as carbon price hedging and cap-and-trade systems can enhance welfare. Leverage regulation can be an effective complementary tool, especially when carbon pricing alone is insufficient.

Investors with beliefs about the impact of climate change (LRR-T investors) perceive stocks to be riskier over longer horizons, leading to reduced equity allocations in long-term portfolios. The model shows that climate change increases estimation risk and weakens mean reversion in returns, impacting long-horizon investment strategies.

The study finds that products affected by negative ESG shocks experience a 5-10% drop in sales, with stronger effects among millennial households and more severe scandals. The decrease in consumption is driven by reduced consumer demand rather than production decisions by manufacturers.

The cap-and-trade policy significantly reduced emissions (by 50%) but also led to a decrease in profitability (70% decline in profits) in the short term. However, shareholders experienced a long-term increase in firm value, driven by institutional investment in environmentally focused firms, with a 22-36% increase in market-to-book ratios post-2008.

Firms that divest pollutive assets improve their ESG ratings and reduce regulatory compliance costs, but pollution levels remain unchanged. Pollutive assets are transferred to firms facing weaker environmental pressures, often private companies or those without ESG ratings, which benefits both buyers and sellers financially.

Firms with climate-linked pay reduce scope 1 emissions by 18% while increasing scope 3 emissions by 8.6%. The total emissions remain unchanged, suggesting emissions are shifted to suppliers. This behavior is more pronounced in firms with higher bargaining power over their suppliers and lower supplier switching costs.

Carbon pricing reduces emissions but also leads firms to focus on immediate abatement rather than long-term innovation. Green innovation subsidies can counteract this effect, ensuring sustainability without reducing firm value.

The paper finds that wildfire smoke leads to a 10% reduction in daily sales for affected establishments, particularly in consumer-oriented sectors, which experience a 20% sales decline. The impacts are long-lasting, with decreased establishment size and increased business exits in affected areas, particularly in regions where climate change concern is higher.

The entry of low-quality insurers into high-risk areas leads to higher mortgage delinquency rates, particularly in counties hit by climate disasters such as Hurricane Irma. Insurers rated by emerging rating agencies like Demotech are more fragile, with 19% of them becoming insolvent, and yet, they often meet the minimum rating requirements set by GSEs, contributing to increased counterparty risk for lenders.

Natural disasters substantially reduce returns on uninsured municipal bonds, with an average post-disaster decline of 0.31% for uninsured revenue bonds. Investor losses amount to approximately $10 billion across affected counties. Bond insurance mitigates the negative impacts, and federal disaster aid significantly reduces the post-disaster drop in returns.

Firms located in areas where lenders were more exposed to environmental liability (pre-1996) increased pollution by 13.7% and were 17.54% more likely to incur environmental violations after the passage of the Lender Liability Act, which reduced the responsibility of lenders. The effects were stronger for firms close to bankruptcy or with high environmental risks.

Firms selectively disclose relationships with environmentally responsible suppliers, particularly in competitive industries and firms with strong institutional investor holdings. Selective disclosure leads to increased sales and valuation, indicating that greenwashing is not fully penalized by the market.

When firms face financial constraints, the optimal cap on emissions is higher than the Pigouvian benchmark. Firms with sufficient internal funds should face stricter caps, while sectors with financially constrained firms should receive emission allowances at prices below market levels to balance investment and emission reductions.

Borrower firms of TCFD-member lenders significantly improve their environmental performance (e.g., reduced EPA enforcement actions, lower toxic releases) after their lenders join TCFD. Polluting firms experience credit rationing, higher loan spreads, and reduced loan supply.

Firms that engage in “diversity washing” tend to have higher ESG scores and attract more ESG-focused investors despite having more frequent discrimination violations and worse human capital outcomes. These firms often discuss DEI excessively relative to their actual diversity, and this selective disclosure behavior can mislead investors and stakeholders about the firms’ true DEI commitments.

Misclassifying high-risk homes as low-risk leads to underinvestment in adaptation and lower insurance take-up. Correct classification increases social welfare by encouraging better insurance uptake and risk-reducing adaptations. Identifying and pricing high-risk homes would increase social welfare by approximately $138 billion.

Advisors charge a premium to sustainable investors (5-8 basis points), particularly those with lower financial literacy. No significant additional effort or expertise is used for sustainable investments, indicating price discrimination rather than justified costs.

The net global social benefit of phasing out coal is estimated to be $85 trillion, with substantial benefits from avoided emissions. Financing the transition would require about $29 trillion in global investment, with most of the costs concentrated in Asia and Europe.

Borrowers and lenders with higher ESG scores tend to self-select into sustainability-linked loans (SLLs). However, borrowers’ ESG scores often deteriorate post-issuance, especially for loans with low contractual transparency, raising concerns about greenwashing. Stock markets respond positively only to high-transparency SLL announcements.

Increasing the stringency of environmental regulations can paradoxically increase pollution by shifting shareholder bases toward investors less averse to pollution. Optimal regulations may deviate from the Pigouvian benchmark due to their effects on shareholder composition and technology adoption incentives.

The gender pay gap declines by approximately 2 percentage points after the law’s implementation, mainly due to slower wage growth for male employees. While the overall wage bill declines, the law does not affect firm profitability, despite some reduction in firm productivity.

Female entrepreneurs face greater challenges accessing external equity and venture capital in male-dominated sectors, despite outperforming their male peers when they do secure funding. The gender gap is smaller in female-dominated sectors.

SR institutions are less responsive to quantitative mispricing signals, leading to stock return patterns that reflect inefficiencies, especially when arbitrage is constrained.

Firms’ beliefs about future climate regulation significantly influence their abatement activities, with stronger effects among firms that report plans for future emissions reductions. A two-firm model with reputational externalities explains why plan-reporting firms react more strongly to regulatory events like the Paris Agreement.

After the introduction of the LCD eco-label, low carbon funds saw a significant increase in investor demand. Fund managers actively reduced their holdings in high-carbon-risk stocks, especially those that correlated more with their portfolio, demonstrating a trade-off between climate risk and portfolio diversification.

Pre-quota, new female nominees received more shareholder support than new male nominees, consistent with women being held to a higher standard. Post-quota, support for new female nominees decreased to the same level as for male nominees, but not below it. Negative stock price reactions were concentrated in firms that retained less popular male directors rather than replacing them with female directors.

Public discontent with corporate behavior (“big business discontent”) influences policy preferences, reducing support for corporate bailouts when respondents are reminded of corporate responsibility. Positive corporate messaging can backfire due to negative memory recall, while framing bailouts in economic stabilization terms increases support.

CEO activism is associated with positive market reactions, especially for topics like diversity and environmental issues. The positive effects are largely driven by employee productivity and innovation, while investor alignment with CEO ideology also plays a significant role.

Investors perceive ESG startups to be less profitable and harder to evaluate compared to profit-driven ventures. However, investors with stronger social preferences are more likely to invest in impact ventures, supporting the non-pecuniary motivations behind impact investing. ESG ventures are associated with better ex-post performance globally, although not significantly in the U.S.

The study finds that stock returns are correlated with vendor-estimated emissions, not with firm-disclosed emissions. The association between carbon emissions and stock returns is driven by financial fundamentals rather than a direct carbon premium. Emissions intensity (emissions scaled by firm size) is not associated with stock returns.

Impact funds earn 4.7% lower IRRs than traditional VC funds. Investors with a mission focus or facing political pressure are willing to accept lower financial returns for social impact. WTP for impact ranges from 2.5 to 3.7 percentage points lower IRRs.

Firms where the CEO has a daughter tend to have CSR ratings that are 9.1% higher than firms where the CEO does not have a daughter, with the most significant impact on diversity, environment, and employee relations.

Independent private firms emit significantly less greenhouse gases than public firms, while there is no difference between sponsor-backed private firms and public firms. Among public firms, higher mutual fund ownership and larger boards are associated with reduced emissions.

Firms with greater financial constraints tend to emit more toxic chemicals. Relaxing these constraints reduces emissions by approximately 14%. Financial constraints also increase the likelihood of regulatory investigations and legal liabilities.

E&S policies propagate from customers to suppliers, especially when customers have more bargaining power or when suppliers are located in countries with lower ESG standards. Suppliers reduce toxic emissions and improve financial performance due to these policy spillovers.

Properties exposed to SLR sell at a 7% discount relative to unexposed properties. This discount has grown over time and is influenced by investor sophistication. No effect on rental rates was found, suggesting the discount is driven by long-term SLR risk rather than current property quality.

Controversial firms exhibit a significant negative four-factor alpha of −3.5% per year. Stock markets fail to fully incorporate ESG risks, and excluding controversial firms can enhance investment performance. The negative returns stem from ESG incidents and negative earnings surprises.

Investors with longer investment horizons prefer firms with higher ESG profiles more than short-term investors. Long-term investors are more patient with high ESG firms, holding onto their investments even after negative earnings surprises or poor stock performance.

Financially constrained firms reduce emissions in California but increase them in other states, resulting in a 21% overall increase in total emissions. In contrast, unconstrained firms do not show this reallocation effect.

Economies with more equity financing emit less CO2 per capita, as stock markets shift investment toward less polluting sectors and help carbon-intensive sectors adopt greener technologies. Stock markets are associated with increased production of green patents in polluting industries. However, outsourcing of pollution partially offsets domestic greening efforts.

The paper argues that CSR initiatives often fail to deliver the societal benefits they promise, primarily due to a focus on firm performance rather than societal impact. It calls for a reconceptualization of CSR as a science of design to enhance its effectiveness and societal contributions.

Lenders charge higher interest rates for mortgages on properties at greater risk of SLR. This premium is not present in short-term loans and is influenced by the visibility of climate change consequences and local beliefs about climate change.

A beneficial impact of ESG scores, particularly the governance pillar, on banks’ systemic risk contribution was found. The study suggests integrating ESG disclosures into regulatory frameworks to enhance financial stability.

ESG is vital for long-term value, but it is not inherently superior to other intangible assets. The author advocates for a broader perspective on value drivers rather than viewing ESG as a standalone factor. It should be integrated into a comprehensive assessment of long-term corporate value.

Employee satisfaction positively correlates with stock returns in countries with flexible labor markets, suggesting that in such environments, high employee satisfaction can enhance recruitment, retention, and motivation.

Common ownership can enhance governance by increasing price informativeness and investor incentives to monitor and manage firms. It enables investors to selectively sell low-quality firms, thereby providing stronger signals to the market about firm quality.

The study finds a small negative green bond premium of -2 basis points, suggesting that the yield of green bonds is lower than that of conventional bonds. This premium is influenced primarily by the bond’s rating and issuer type, with greater negative premiums for financial and low-rated bonds.

The largest institutions tilt increasingly toward green stocks, while other institutions and households tilt increasingly brown. UNPRI signatories and European institutions tilt greener, banks browner. ESG tilts are larger for less-volatile stocks and for institutions with smaller size and greater active share, consistent with our theoretical predictions.

Investors who seek impact should pursue shareholder engagement throughout their portfolio, allocate capital to sustainable companies whose growth is limited by external financing conditions, and screen out companies based on the absence of specific environmental, social, and governance practices that can be adopted at reasonable costs.

The opportunity to invest in a climate-conscious fund does not reduce individuals’ support for climate regulation. The spillover effects of sustainable investing on individual political behavior are limited.

The study documents widespread behind-the-scenes intervention and governance-motivated exits. Long-term investors and those less concerned with liquidity intervene more intensively, often using proxy advisors to inform their decisions.

ESG/CSR activities are linked to corporate performance and stakeholder interest, with conflicting evidence on their benefits.

The study suggests that decision-makers should account for dynamic scenario uncertainties and the gradual acquisition of information when evaluating investment projects. This can influence the timing of investment and the potential for asset stranding.

The study finds that green consumers who are also green investors exhibit consumption premia that counterbalance the green premium on expected asset returns. The green-minus-brown consumption premia differential reached 30-40 basis points annually, affecting the cost of capital for polluting firms.

The study identifies the significant impact of different ESG factor construction methodologies on expected returns and shows that ESG investing has been beneficial over recent decades, with variations in performance based on sentiment and other factors.

The study finds that certain market anomalies (like size and momentum) are highly sensitive to hurricane events, resulting in significant abnormal returns and liquidity changes. High momentum stocks particularly experience greater negative impacts than others.

An import-limited BCA is more effective than free emissions allowances in reducing leakage, but it does not preserve the export competitiveness of the country imposing it.

The paper shows that the effectiveness of socially responsible funds in reducing emissions depends on investor preferences and market frictions. To maximize impact, these funds should prioritize investments in firms with significant negative externalities and stringent capital market constraints.

The paper explores the social cost of carbon as a key measure, emphasizing how uncertainty in climate models and damage functions can significantly impact economic policies related to climate change mitigation.

The paper argues that while firms often benefit from responding to powerful stakeholders, the literature largely neglects the potential for firms to address broader societal issues, which can also yield business benefits.

Higher perceived greenwashing negatively impacts customer satisfaction due to perceptions of corporate hypocrisy. A firm’s capability reputation can mitigate this negative effect.

Firms that perform well on material sustainability issues significantly outperform those that perform poorly; investments in immaterial issues do not negatively affect firm value, suggesting that firms should focus on material sustainability.

Increased ESG disclosure correlates with greater disagreement among rating agencies; this disagreement is more pronounced for outcome metrics than for input metrics. Greater ESG disagreement is linked to higher stock return volatility and reduced likelihood of external financing.

Consensus ESG ratings predict future ESG news, but this predictive ability weakens with high disagreement among raters. Market reactions to ESG news are moderated by consensus ratings; positive news elicits higher stock returns for firms with low ratings and minimal reaction for firms with high ratings.

While a general measure of corporate purpose was not linked to financial performance, firms with high purpose combined with clarity from management exhibited superior performance. This effect was particularly driven by the perceptions of middle management and professional staff.

Firms that disclose more SASB-identified sustainability information exhibit greater stock price informativeness, whereas non-SASB disclosures do not significantly impact stock price informativeness. This relationship is stronger for firms with higher exposure to sustainability issues and poorer sustainability ratings.

Higher anticorruption ratings are associated with effective governance, lower corruption risk, and real efforts to combat corruption rather than just “cheap talk.” Firms with lower ratings face more media allegations of corruption.

Institutions with better sustainability footprints outperform their peers, with the effect concentrated in environmental factors; growing investor preferences for sustainability lead to price pressure on high-sustainability stocks.

Institutions outside the U.S. that commit to responsible investing show better ESG portfolio scores than their peers, while U.S. signatories often perform worse, suggesting a disconnect driven by greenwashing motivations.

The paper discusses the relationship between ESG/CSR activities and various corporate characteristics, market conditions, and firm performance, noting that while some relationships are well-supported, others are mixed and warrant further research.

Swiss households show low sustainable finance literacy despite high general financial literacy; literacy influences ownership of sustainable financial products; significant gender gap in knowledge.

The paper analyzes the opposing discourses around corporate responsibility related to conflict minerals, illustrating how corporations can be viewed as both traders with narrow responsibilities and citizens with broader social responsibilities.

Standard ESG ratings are noisy, leading to biased estimates of their impact on stock returns; using a noise-correction method, the median increase in regression coefficients is a factor of 2.1, indicating a stronger relationship than previously estimated.

Both internal and external CSR actions positively contribute to market value; a wider gap between the two negatively affects market value, indicating that effective communication of internal actions is crucial.

Mandatory disclosure regulations increase the quantity and quality of ESG disclosures; firms also seek assurance to enhance disclosure credibility, leading to an increase in firm valuations as reflected in Tobin’s Q.

firms setting more difficult targets complete a higher percentage of such targets. this effect is negatively moderated by the provision of monetary incentives. target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries.

Organizations’ responses to normative pressures vary based on their willingness (issue salience) and ability (cost-benefit analysis of resource mobilization). Five potential responses are identified: symbolic compliance, symbolic conformity, substantive compliance, substantive conformity, and inaction.

Firms adversely affected by increased credit costs reduced their workforce and capital expenditures but maintained investments in R&D and CSR, leading to better post-crisis performance.

Apex firms in business groups are more likely to engage in symbolic CSR without substantive actions; they are partially shielded from perceptions of greenwashing by the market due to their affiliation. The study highlights the role of business groups in shaping CSR practices and the implications for firm performance.

Nation-level institutions, including political, educational, financial, and cultural systems, significantly impact CSP variations across companies. The authors call for further research into the financial system’s role in CSP, reflecting on developments since their original study.

Increased renewable energy production leads to lower zonal prices, with distributional effects dependent on plant location. Renewable production affects market power, zonal generation mix, and network congestion.

The paper discusses the implications of the Paris Agreement on energy transition, the impact of renewables on markets, and policy measures to address climate change, highlighting challenges in energy risk management and decarbonization strategies.

The study finds a significant willingness to pay (WTP) for improving the ecological status of the Aspe River, with a total WTP of €1,225 per household per year. Environmental improvements were valued more highly than the maximum electricity bill rebate offered. The study suggests that the bidding contest for hydropower concession renewals should focus more on environmental enhancements.

Greater physical climate risk correlates with lower leverage post-2015, driven by both demand (firms’ optimal leverage decreases) and supply (lenders increase spreads) effects. The research suggests that climate risk affects leverage through higher expected distress and operating costs.

The study finds that the 2011 French board gender quota significantly improved firms’ environmental and social (E&S) performance. By requiring at least 40% female board members by 2017, E&S scores rose notably compared to control groups. Key factors include the formation of E&S committees led by women and increased female authority in important board roles. Female directors brought essential E&S skills, enhancing policy implementation, with improvements seen even in firms lacking dedicated E&S committees, supporting the idea that multiple female appointments improve decision-making.

The study shows that, under certain conditions, carbon taxation can actually increase the profits of fossil fuel owners by making dirtier, more abundant resources less competitive. This contradicts OPEC’s claims that carbon taxes would undermine their profits. The authors also provide a calibration for the transportation sector, showing that limiting CO2 emissions can increase the profits of conventional oil owners.

The study shows that the optimal taxation for local externalities should differentiate between rural and urban consumers, as urban fuel users cause greater social damage. The research finds that Pigovian considerations explain the majority of France’s fuel tax, but the government does not apply differentiated taxes on clean goods to address local pollution.

The study shows that while shale gas can serve as a bridge to renewables, its extraction may postpone the development of cleaner energy resources like solar. Tightening climate policies could either increase or reduce shale gas extraction, depending on the level of local damage and the relative advantage of shale gas over coal.

The study examines the aversion towards carbon tax in relation to economic beliefs and public perception.

Heat exposure at supplier locations reduces operating income; customers are 7% more likely to terminate relationships if suppliers exceed expected exposure; the effect increases with signal strength and decreases with country-level adaptation.

Complexity-based models such as agent-based and network models are more suited than equilibrium models to handle the nonlinearities, tipping points, and uncertainties associated with climate change. These models offer insights into coalition formation, energy markets, macroeconomic impacts, and climate-friendly technology diffusion.

Traditional economic models are ill-equipped to address the complexity and uncertainty of climate risks. Evolutionary economics and complexity-based approaches are better suited to analyze these dynamics. New financial and fiscal policies, like green finance, are needed for achieving global climate targets.

Phasing out fossil fuel subsidies improves macroeconomic performance and helps shift investments to renewable energy. Green bonds and fiscal policies contribute to fostering the low-carbon transition. The approach to subsidies has distributive effects across households and sectors.

The study shows that climate policies can create economic shocks that spread through financial networks, amplifying effects through feedback loops. These effects are particularly pronounced in sectors highly exposed to carbon risk, and the interconnection between financial institutions and the real economy can either mitigate or exacerbate climate policy impacts.

The study finds that banks with high overlap in exposures, particularly within the financial sector, are more vulnerable to contagion risk. Diversifying exposures across sectors can mitigate this risk, but excessive interbank diversification can amplify contagion in specific stress scenarios. The research highlights the importance of considering both direct and indirect contagion channels when evaluating systemic risk.

Horizontal mergers can improve welfare if efficiency gains are significant enough to outweigh decreased regulatory revenue from reduced permits prices, and a competitive outside market for pollution permits can make otherwise unprofitable mergers advantageous; additionally, in cases with differing production costs, mergers among dominant firms lower permits prices and are consistently profitable, particularly in the power sector.

The Market Stability Reserve effectively increases permit prices when there is excess supply and decreases them during excess demand. However, it can create dynamic inefficiencies in pricing under demand uncertainty, which may adversely affect welfare and market strategies of firms.

Optimization problem can be decomposed into when to launch a given schedule and at which rate the transition should be completed, Dynamic Abatement Cost (DAC) can be interpreted as the Marginal Abatement Cost (MAC) of the whole transition schedule, Shape of optimal transition schedule is independent of CO2 price level, For hydrogen vehicles in Germany, 2015-2050 trajectory consistent with carbon price at €52/t, Transition cost to achieve 7.5M car park in 2050 estimated at €21.6 billion

The study emphasizes the critical role of institutions at various levels in driving the green transition, highlighting both endogenous factors, like traditional energy sources, and exogenous factors, such as geopolitical influences. It underscores the importance of integrating social justice principles to mitigate economic dislocation and job losses, advocating for effective governance and policies to support vulnerable populations.

Imperfect competition leads to a hump-shaped innovation trajectory; state-subsidized firms initially innovate more, but as they dominate the market, innovation declines.

Sustainability is now a CEO-level issue, not just confined to corporate social responsibility., The rise of sustainable finance is driven by financial relevance, nonfinancial objectives, and investor preferences for green investments., Eight papers in the special issue cover various aspects of sustainable finance, highlighting both theoretical and empirical contributions., Key challenges include evaluating sustainability and understanding the impact on asset prices.

Evidence of a carbon risk premium exists globally, indicating that investors demand compensation for exposure to carbon transition risk., The carbon premium increased significantly after the Paris Agreement, showing a shift in market perception regarding carbon emissions., The analysis suggests a carbon valuation discount for price-earnings and book-to-market ratios.

Climate-related risks impact asset prices, often underpriced by financial markets.

Carbon pricing alone may not drive sufficient low-carbon investment; monetary and financial regulations are needed to stimulate green credit.

Informational policies dominate in Europe, while incentive- and quantity-based policies are more common in emerging economies.

The study reveals that the fossil fuel sector poses the highest risk of capital stranding, with strong effects cascading through global production networks. Sectors not directly involved in fossil fuel usage, such as public administration and real estate, are significantly impacted through indirect effects. These findings highlight that the entire economic system is vulnerable to disruptions from decarbonization, not just heavy industry.

The study highlights that weak policy commitment combined with ambitious climate targets can create a self-reinforcing cycle of policy credibility loss, increased carbon-intensive investments, and heightened transition risks. Behavioral frictions, such as firms’ delayed adaptation to policy changes and varied belief systems, further complicate the transition. A fully committed policy can lead to successful decarbonization, but only if accompanied by credible and consistent carbon price signals.

The reviewed models address key aspects of the new economic approach, such as complexity, non-equilibrium, and policy relevance for green energy transitions, though further improvements are required.

After the Paris Agreement, the correlation between low-carbon and carbon-intensive indices dropped. Systematic risk for low-carbon indices decreased, and their portfolio weight increased, suggesting that investors began favoring low-carbon assets, though carbon-intensive assets were not penalized.

Green fiscal policies and green sovereign bonds promote green growth by influencing firms’ expectations and investment choices. Green bonds offer a short-term win-win, but fiscal policies have stronger distributive effects with negative economic feedbacks.

Mutual funds labeled as “low carbon” experienced significant increases in investor demand after the release of Morningstar’s carbon risk metrics. Fund managers reduced exposure to firms with high carbon risks, especially where diversification benefits were minimal.

The first Global Climate Strike led to negative abnormal returns for carbon-intensive firms, driven by increased public attention to climate risks.

Climate change exposure impacts stock returns, particularly through perceived opportunities and risks. A risk premium is associated with higher exposure.

Climate change exposure affects green job creation, innovation, and is priced in financial markets.

ESG engagements, particularly successful ones, reduce target firms’ downside risk, Environmental engagements, especially on climate change, are most effective in reducing downside risk, Successful engagements lead to a decrease in environmental incidents for targets with large downside risk reductions

Mandatory ESG disclosure regulations have a positive effect on firm-level stock liquidity., The positive effects are strongest when ESG disclosure is implemented and enforced by government institutions, rather than on a voluntary “comply-or-explain” basis., Firms with weaker information environments benefit more from mandatory ESG disclosure requirements.

Institutional investors, particularly climate-conscious ones, significantly influence firms to enhance climate risk disclosures; regulations like France’s Article 173 increase disclosure levels.

The study finds that while biodiversity risks (measured by the Corporate Biodiversity Footprint, or CBF) were not initially priced by investors between 2019 and 2022, significant pricing effects began after the Kunming Declaration in 2021, suggesting rising investor sensitivity to biodiversity risks.

Higher stock returns are associated with higher levels and growth rates of carbon emissions., Carbon premia are more significant in countries with stricter domestic climate policies., The carbon premium is positively related to both levels of emissions and rates of change in emissions.

Higher stock returns are associated with higher carbon emissions across all sectors in Asia, Europe, and North America., The carbon premium has been increasing in recent years., Institutional investors are divesting based on carbon emissions, focusing more on foreign companies.

Investors generally expect ESG investments to underperform the market, with an average expected return of –1.4% annually over 10 years., Motivations for ESG investing vary widely: 45% see no reason to invest, 25% are motivated by ethics, 22% by climate hedging, and 7% by return expectations., Investors with ethics-driven motives tend to hold the highest ESG portfolio allocations., Financial considerations are key: meaningful ESG holdings are observed only among those expecting ESG investments to outperform, even when ethics or hedging are primary motives.

The key determinants of a firm’s Marginal Expected Shortfall (MES), a component of the SRISK index, are the firm’s time-varying volatility and correlation with the market., The authors’ approach to forecasting short-term MES performs better than simple benchmark models and can accurately rank firms by their downside exposure., The SRISK index was able to identify the most systemically risky firms well in advance of the financial crisis, with 8 out of the top 10 SRISK firms turning out to be troubled institutions a year and a half before the Lehman bankruptcy.

Respondents overwhelmingly believe that asset prices currently underestimate climate risks rather than overestimate them., Respondents view regulatory risk as the top climate risk in the short-term (next 5 years) but physical risk as the top risk in the long-term (next 30 years). , Respondents see institutional investors and carbon taxes/government subsidies as the most powerful forces for reducing climate risks.

CSR is not associated with agency problems, but rather with good corporate governance, as indicated by lower cash holdings, higher dividend payouts, and stronger pay-for-performance., CSR is positively associated with stronger legal protection of shareholder rights and lower excess voting power of controlling shareholders., CSR can counterbalance the negative effects of managerial entrenchment on firm value.

Target firms are typically large, well-performing companies with low ESG performance and high liquidity., Activist engagement leads to changes in ESG ratings, with low-ESG firms seeing improvements and high-ESG firms seeing declines., Activist engagement on environmental and social issues is more successful if the target firm already has a strong ESG profile., Successful activist engagements boost target firms’ sales and stock returns, with stronger results for firms with low initial ESG scores.

Corporate sustainability efforts have been limited in their ability to solve social and environmental problems, and public policy is needed to create the “rules of the game” that can drive more meaningful change., Corporate political action can have a greater impact on environmental quality than corporate sustainability efforts, but is often ignored in current sustainability metrics., There is a need for greater transparency around corporate political activity, as some firms use sustainability initiatives as “cover” for political efforts to block meaningful change.

Corporate governance has mixed impacts on sustainability. Inside directors positively influence sustainability, while general expert directors and IROs focusing on investor values negatively impact governance performance. Training is needed for BoDs and IROs to improve leadership in sustainability.

Different dimensions of CSR (e.g., quality vs. quantity) have different effects on a firm’s profitability., The combination of different CSR dimensions can lead to either substitution or complementarity effects on firm performance.

Heat exposure negatively impacts firm revenues and operating income. Analysts and investors fail to anticipate the negative impact of heat on firm performance, resulting in lower earnings surprises and more negative announcement returns.

SSPs show diverse energy and land-use pathways, influencing greenhouse gas emissions. The mitigation costs and emissions vary across the SSP scenarios, with challenges dependent on socioeconomic and policy assumptions.

ESG investments attract investors due to both financial and social returns, mixed performance depending on market conditions, and the role of investor preferences in driving market outcomes.

Companies use employee-related CSR to counter adverse employee behavior, particularly when unemployment insurance benefits increase, which lowers the cost of unemployment and raises the likelihood of shirking.

CSR contracting increases long-term orientation, firm value, social and environmental initiatives, reduces emissions, and increases green innovations.

The study finds that stakeholder orientation leads to an increase in innovation, both in terms of quantity (patents) and quality (citations per patent). Stakeholder orientation encourages experimentation and enhances employees’ innovative productivity, particularly in consumer-focused and high-polluting industries.

Carbon pricing alone may not be sufficient; complementary policies such as regulations and targeted interventions are necessary to address distributional and innovation concerns.

Shareholder activism, particularly led by long-term institutional investors, increases voluntary corporate disclosure of climate change risks. This leads to higher company valuation post-disclosure.

Firms increase CSR in response to the threat of knowledge spillovers to reduce employee mobility and the disclosure of valuable knowledge to competitors.

The issuance of $1,000 of green bonds per capita is associated with a 0.9-1.4% decrease in state-level carbon emissions. Green bonds that are certified by independent third parties have a stronger association with decreased emissions, suggesting that certification is an important governance mechanism in the green bond market.

Impact investing in disadvantaged urban areas (banlieues) leads to greater business success and social impact compared to similar investments in non-disadvantaged areas.This is because banlieue ventures tend to be discriminated against in the traditional loan market, so impact investors are able to identify and invest in ventures with greater unrealized potential in these disadvantaged areas.Loan officers are less likely to grant loans to banlieue ventures compared to non-banlieue ventures, even when the ventures are identical.

The study analyzes how changes in measures of systemic risk affect the distribution of shocks to industrial production and other macroeconomic variables in the US and Europe., The study proposes methods for constructing systemic risk indexes from multiple measures, and demonstrates the success of these indexes in predicting future macroeconomic shocks.

– The study introduces the concept of “green bond transparency” and finds that transparent green bonds (financing a specific project) have lower yields compared to non-transparent green bonds (financing a range of projects or with undetermined use of proceeds)., – The study empirically confirms the significant effect of green bond transparency on their yields., – The practical implication of the findings is that the creation of a foundation for issuing green bonds under more favorable financing conditions.

– Green bonds have a positive dependence on fixed-income markets and can serve as a diversifier, especially during market downturns or recessions., – Green bonds can provide hedging benefits for currency and stock markets, particularly in the medium term., – Green bonds can provide both hedging and diversification benefits when included in a portfolio.

– Green bonds and fixed-income assets have strong pairwise information transmission in both returns and volatility., – Equity assets produce the most extreme risk spillovers with green bonds., – Green-connected assets like green investment stocks and energy commodities have weak spillover effects with green bonds, suggesting a lack of green preference among investors in the Chinese green bonds market.

– Green bond policies implemented by Chinese financial regulators had a direct positive influence on increasing green bond issuance amounts., – Certain issuer characteristics, such as government ownership, green industry, and financial sector, had a stronger positive reaction to the policy announcements and led to more green bond issuances., – The study highlights the supporting role of financial regulators in advancing the green finance agenda in China.

– Higher quality environmental information disclosure (EID) is associated with lower financing costs for green bonds., – The relationship between EID quality and green bond yield spread is mediated by information transparency and investors’ expected risk., – The negative impact of EID quality on green bond yield spread is stronger for non-financial firms and issuers with better reputations.

– Green bonds are traded at a premium of 63 basis points compared to conventional corporate bonds., – The green label provides issuers an incentive to raise funds through green bonds and provides investors an opportunity to diversify their investment returns., – There is an urgent need to support the growth of the green bond market to achieve sustainable development and mitigate climate change challenges.

– The main findings are that the issuance of green bonds led to an increase in firms’ climate risk concerns, including transition risks, acute physical risks, chronic physical risks, and climate-related opportunities., – The researchers used propensity score matching and difference-in-difference analysis to confirm that the issuance of green bonds resulted in firms paying more attention to climate risks., – The findings have implications for policymakers and regulators.

The main findings of the paper are that taking stronger action on climate change can enhance economic growth, contrary to conventional wisdom, by driving innovation, investment, and systemic change, and by addressing severe climate risks and market failures that have constrained growth in the past.

IAMs have significant methodological flaws that limit their usefulness in analyzing the economics of climate change and the radical changes required for an effective response., The authors propose an alternative analytic approach that can better provide insights into managing the transition to net-zero emissions.

– The paper analyzes situations where differential carbon pricing or regulations can be desirable to address distributional concerns, allowing for lower carbon prices in other sectors while still meeting emissions targets., – The paper examines how the trajectory of carbon prices affects innovation, and provides conditions under which the optimal carbon price path should eventually decline over time., – The paper revisits the debate between price-based and quantity-based climate policies, and highlights important dynamic aspects of this policy choice.

The analysis shows that the current financial landscape can potentially provide between two and six times the necessary funds for a successful energy transition. However, institutional investors like pension funds and banks are hesitant to invest due to concerns over policy discontinuities. The study also highlights the need for more venture capital and household investments to support early-stage clean energy technologies. The authors develop a matrix indicating the roles and availability of different financial sources and new intermediation channels necessary for the energy transition.

The study identifies five types of RET investment risks (curtailment, policy, price, resource, technology) and shows that risk premiums and investment risks have decreased for solar photovoltaics and onshore wind technologies. Crucial elements in this decline include increasing technology reliability at lower cost, data availability, better assessment tools, and credible and stable policies.

– Firms experience positive stock price reactions when they issue green bonds., – Institutional ownership, especially from domestic institutions, increases after a firm issues green bonds., – Stock liquidity improves after a firm issues green bonds.

– The green bond market is closely linked to the fixed-income and currency markets, receiving sizeable price spillovers from those markets but transmitting negligible reverse effects., – The green bond market is weakly tied to the stock, energy, and high-yield corporate bond markets., – The findings have implications for portfolio and risk management decisions for environmentally aware investors holding positions in green bonds.

– Policies that reduce the cost of green bond issuance, such as green bond grants and tax incentives, incentivize the issuance of corporate green bonds., – Coordination policies, such as the establishment of green bond or green finance institutions, committees, groups, as well as other policy signals such as national commitments and targets, incentivize the issuance of corporate green bonds., – Global international cooperation and standardization incentivize corporate green bond issuance.

– Green bond issuance promotes green innovation, with stronger effects in regions with weaker climate regulation, industries with better environmental performance, and firms with more concentrated ownership., – Green bonds facilitate the reallocation of investment capital into green R&D, mitigating financial constraints on green innovation., – The increased green innovation driven by green bonds enhances financial performance and yields environmental benefits such as improved environmental investment and ESG performance.

The study finds that the green bond market strongly co-moves with corporate and treasury bond markets but weakly co-moves with stock and energy markets. Green bonds offer significant diversification benefits for stock and energy market investors but have negligible benefits for those in corporate and treasury markets. Price spillovers from corporate and treasury markets have a substantial impact on green bond prices, while large price swings in stock and energy markets have minimal effects.

– The study found a significantly positive and persistent relationship between green bond issuance (GBI) and corporate total factor productivity (TFP)., – GBI increases TFP by reducing maturity mismatch and lowering financing costs for the issuing companies., – The positive effect of GBI on TFP is more pronounced for non-state-owned firms, non-heavily polluting firms, and firms located in regions with lower financial development.

– The US 10-year Treasury bond index had a significant causal relationship with green bonds, with the causality running from the Treasury bond index to green bonds starting from the end of 2016 until the end of the study period., – The price of CO2 emission allowances had a significant causal relationship with green bonds, with the causality running from the CO2 emission allowances price to green bonds from the beginning of the sample period until the end of 2015., – The causality running from the clean energy index to green bonds was very limited, only occurring during the year 2019.

– Diversification benefits are more evident in the short run between green bonds and financial markets., – Green bonds and financial markets are highly integrated in the long run., – The world stock market is a net spillover transmitter, while the corporate bond market is a net spillover receiver., – The green bond market receives more volatility than it transmits., – The interconnection between green bonds and financial markets is volatile over time.

The paper argues that dependency theory remains highly relevant for understanding contemporary global development challenges. It proposes a new definition of dependency theory as a research programme with four core tenets: a global historical approach, theorizing the polarizing tendencies of global capitalism, a focus on production structures, and an emphasis on the specific constraints faced by peripheral economies. These elements, when combined, provide a powerful framework for analyzing the persistent inequalities in the global economy.

Energy systems models show potential to support just transitions, particularly in assessing distributional outcomes. However, the models are often poorly connected to current energy justice discourses, which limits their policy relevance. Eight actions are suggested for improving the relevance of energy systems models to policy, including the development of location-specific case studies and leveraging public participation in the modelling process.

Synergies exist between CWB principles and civil society approaches to energy transitions, particularly in fostering local economic empowerment and democratizing ownership., CWB has the potential to support more socially just and inclusive energy transitions., The role of anchor institutions is crucial in leveraging procurement spending to support local net zero innovations., CWB can help address social inequalities in community energy initiatives by ensuring inclusivity and broader community engagement.

Just transition policies as currently implemented could derail efforts to achieve low-carbon economy targets by 2030., Financing models used in just transition funds may prolong fossil fuel dependence., A comprehensive policy overhaul and reallocation of financial capital are needed to align just transition efforts with low-carbon goals.

Social protection payments and energy efficiency are crucial for reducing energy poverty; income alone is insufficient for targeting; machine learning improves targeting effectiveness.

Green financial development significantly promotes renewable energy transition in China., Marketization, energy efficiency governance, and environmental regulations positively moderate the effect of green finance on clean energy transition., Improved governance and environmental protection initiatives are crucial for fostering green financial markets and reducing reliance on fossil fuels., The relationship between green finance and energy transition is stronger in regions with well-functioning markets.

The study identifies that the interest rate is the most important attribute for all investor groups. The magnitude of the environmental impact also significantly influences investment decisions. Altruistic framing positively influences investment decisions in all groups. Investors are categorized into three groups: profit-maximizers, receptive altruists, and risk-seekers aiming for the best of both worlds

Green innovation is impaired by higher financing constraints. Green finance policies alleviate the effects of financing constraints but are less effective for privately owned enterprises. POEs face stronger financing constraints and discrimination in the financial system compared to SOEs. The study suggests government support and increased transparency in green credits and projects for privately owned enterprises.

Potential funding sources are identified, including public and private investments, and uses Integrated Assessment Models (IAMs) for detailed scenario analysis. The findings emphasize the necessity of supportive policies and international cooperation, highlighting significant financial commitments required at national and international levels. The study also suggests mechanisms to bridge financing gaps.

Identification of main barriers to renewable energy investment including economic, institutional, technological, and social factors., Several incentive policies such as tax incentives, financial subsidies, feed-in tariffs, and market development initiatives can promote renewable energy projects., Financial strategies like microfinancing, corporate venture capital, and public-private partnerships are essential for overcoming the financing gap in renewable energy projects., The role of government and policy-making is crucial in providing a conducive environment for renewable energy investments., The involvement of international oil companies and tech companies in the renewable energy transition is significant due to their market influence and financial capabilities.

– Positive oil supply shocks, positive oil demand shocks, and the issuance of sovereign green bonds increase the probability of corporate green bond issuance., – However, these shocks do not have a significant impact on the actual share or amount of corporate green bond issuance., – The results are robust to alternative model specifications.

– Green bonds have strong connectedness with treasury and corporate bonds in both the short and long run, with green bonds receiving sizeable spillovers from treasury and corporate bond prices but not transmitting significant effects., – Green bonds have weak connections with high-yield corporate bonds, stocks, and energy assets across different time scales., – The findings have implications for green bond investors’ portfolio design and hedging decisions, as well as for channeling financial flows towards economic activities consistent with decarbonization.

– Green bonds provide capital to fund environment-friendly projects., – Favorable regulations and improved disclosure quality are essential for The growth of green bonds., – green bonds can have an impact on The fundamental characteristics of The issuing organization and provide advantages over other financial securities.”

– The issuance of green bonds by companies can significantly promote their green technology innovation, with a stronger effect on strategic green innovation compared to substantive green innovation., – The promotion effect of green bonds on green technology innovation is more pronounced in regions with highly polluting companies and stronger bank competitiveness., – Green bonds promote green technology innovation by reducing the agency and financing costs of companies, but the degree of equity checks and balances can weaken this promotion effect.

– Investor sentiment extracted from social networks influences the green bond market., – Social networks should be considered as relevant sources of information for the bond market, particularly the green bond market.

The study finds that increases in energy poverty in Latin America are strongly linked to low levels of financial development. Approximately 17.45% of the population in the region does not achieve the efficiency frontier of adequate energy consumption. The study emphasizes the role of financial development and foreign direct investment (FDI) in alleviating energy poverty.

The paper argues that dependency theory offers a valuable and overlooked perspective for decolonizing IPE. It critiques mainstream IPE’s Eurocentrism and proposes that revisiting dependency theory, especially as it was discussed during the 1972 Dakar Conference, can help in developing a more inclusive and anti-colonial IPE. The authors highlight that dependency theory uniquely combines a focus on the Global South, an anti-imperialist stance, and a commitment to political engagement, which are crucial for understanding contemporary global inequalities.

The article introduces the concept of International Financial Subordination (IFS) as an umbrella term to better understand how DEEs are systematically disadvantaged in the global financial system. It outlines six analytical axes for future research: history of financial relations, relation between financial and productive subordination, role of monetary relations, state role, actions of non-state actors, and spatial relations of financial subordination.

The article argues that in the current stage of financialised capitalism, ECEs are increasingly subordinated in terms of value extraction, realization, and storage. The advancement of global financial networks and production systems has intensified the transfer of value from these economies to more dominant financial centers, constraining the agency of both public and private actors in ECEs.

The paper argues that Turkey’s financialisation is characterized by high interest rates and dollarisation due to its integration into the hierarchical global financial system. It highlights that Turkey’s economic activity is increasingly dependent on capital inflows, making it vulnerable to the monetary policies of major central banks in ACCs. The recurring crises in Turkey are seen as manifestations of the unsustainable nature of this dependent financialisation, leading to boom-bust cycles and economic instability.

The paper emphasize how the dynamics between Earth system destabilization and negative social tipping points can reinforce one another. Chaos theory is used to explain the non-linear transitions and phase shifts in social systems as they encounter environmental stressors. Specific examples include the polarizing effects of climate change debates and the resultant social disintegration. The study highlights how financial destabilization can act as a catalyst for negative social tipping points, ultimately impacting global stability. The analysis uses frameworks like the human–environmental–climate security (HECS) and the social feedback loop (SFL) to understand conflict as a social tipping phenomenon.

The concept of double materiality is central to the paper, urging financial institutions to consider both the financial and environmental impacts of their activities. This integrated approach aims to embed environmental sustainability into financial decision-making. The review of sustainable finance evolution highlights milestones such as the development of green bonds, the establishment of the Task Force on Climate-related Financial Disclosures (TCFD), and various regulatory frameworks, showcasing how the landscape has transformed over time.

Developing economies face higher WACC, leading to 35% lower green electricity production in Africa for a cost-optimal 2°C pathway. Early convergence of WACC values for green and brown technologies by 2050 would enable Africa to reach net-zero emissions about 10 years earlier. Current sustainable finance frameworks present barriers to necessary finance flows.

– The paper finds that socially responsible investor screens lead to abnormal returns for “sin stocks” and a premium for systematic investor boycott risk that impacts both targeted and non-targeted firms., – The investor boycott risk premium is distinct from and not explained by other factors like litigation risk, neglect effect, illiquidity, industry momentum, or concentration., – The investor boycott risk factor helps explain returns across different industries, and its premium varies with the wealth of socially responsible investors and the business cycle.

– Corporate environmental policies that mitigate environmental risk exposure create shareholder value., – Firms that increase their “greenness” without mitigating environmental risk exposure do not create shareholder value and are shunned by institutional investors., – Institutional investors value corporate environmental policies that reduce environmental risk exposure.

– ESG factors have a significant impact on the financial performance and value of companies, with companies that integrate ESG principles into their business models gaining strategic, operational, reputational, and financial benefits., – Ignoring ESG factors can lead to significant financial and reputational risks for companies.

– The paper identifies three main impact strategies that shareholders can use to influence corporate sustainability: portfolio screening, shareholder engagement, and field building., – The paper identifies 15 impact mechanisms through which these three impact strategies can influence corporate sustainability and benefit the environment and society., – The paper suggests that shareholder impact emerges gradually as different types of shareholders build on each other’s efforts, which the authors use to outline a research agenda on shareholder impact as a distributed process.

– The model can generate both positive and negative “greeniums” (premiums for green bonds), which aligns with the mixed empirical evidence on the existence of a greenium., – Green bonds can affect the issuer’s creditworthiness, depending on the correlation between the green project and the firm’s core business., – The paper studies the impact of green bonds on investor portfolio allocation.

– Companies that issue green bonds have a higher environmental score, lower CO2 emissions, a board with a higher percentage of women, and a sustainability committee., – Companies that issue green bonds continue to perform environmentally friendly actions in the years after issuance., – Companies with poorer environmental scores may use external certification of their emissions to improve their public image.

– Firms with higher reputational gains from being seen as “green” are more likely to issue green bonds instead of conventional bonds., – Firms with a stronger focus on eco-innovation are more likely to issue green bonds instead of conventional bonds., – The study found limited evidence that green bond issuance is driven by the net benefits of additional disclosure, and no evidence that green bond issuers cater to time-varying investor preferences for corporate greenness.

Recognition of environmental risks beyond climate change (e.g., biodiversity-related financial risks – BRFR) is growing among financial authorities. Alternate options for policymakers to both assess and manage CRFR and BRFR on the basis of information available today, emphasising the importance of identifying and reducing flows of finance that are facilitating the persistence of environmentally-harmful economic activities, that contribute to climate and biosphere tipping points.

Adoption of a Precautionary Financial Policy (PFP) approach is proposed to address financial stability risks from climate change, justified due to radical uncertainty in climate-related financial risks (CRFR). Traditional probabilistic financial risk models are inadequate for CRFR. A PFP approach supports immediate preventative action, integrating CRFR into macroprudential rules, capital adequacy requirements, monetary policy operations, and financial system resilience enhancements.

The paper finds that attracting low-carbon investments from insurers and pension funds requires comprehensive policy actions beyond transparency. Standards, reporting frameworks, liquid financial instruments, aligned remuneration, and improved risk assessments are crucial. Market-based policies, public long-term capital, and regulatory reforms enhance investment attractiveness. Transparency alone is insufficient to align climate finance with long-term goals

Transitioning to a net-zero carbon economy requires financial markets to integrate sustainability considerations. The “financial accelerator” concept shows how financial markets can amplify economic changes, influencing the real economy. Finance can expedite or impede the low-carbon transition by supporting innovations or maintaining carbon-intensive investments. Financial markets can drive systemic change towards sustainability if guided by policy and regulation.

The study highlights that effective implementation of Article 2.1(c) requires addressing trade-offs and ensuring that finance flows are consistent with both mitigation and adaptation goals, avoiding harm to vulnerable economies. National governments and international bodies must advance this goal through targeted policies, regulatory reforms, and cooperative efforts. The goal of making finance flows consistent with low greenhouse gas emissions requires a new understanding of ‘finance’ under UN negotiations.

Traditional financial risk management methods are inadequate in dealing with the radical uncertainties of climate change and biodiversity loss. It proposes a shift to a precautionary financial policy framework that integrates prudential and monetary policies, focusing on proactive measures to steer financial markets away from ecological tipping points.

Nature-related financial risks are systemic, endogenous, and characterized by radical uncertainty. Traditional market-fixing approaches are inadequate for managing NRFR. They advocate for a precauctionary policy approach that emphasizes qualitative methods and preventative measures. This includes identidying and excluding unsustainable activities from financing, using micro- and macroprudential policy tools, and integrating environmental risk management into central bank policies.

The monetary-fiscal policy coordination seen during the Covid-19 pandemic can offer valuable lessons for tackling environmental crises. The study examines policy innovations during the 2020-2021 period, focusing on creating fiscal space and targeted liquidity provisions to strategic sectors, and considers their applicability to environmental crises. The authors propose a precautionary macroeconomic policy approach to reduce the threat of ecological tipping points, prevent catastrophic losses, and support the Net-Zero transition.

A precautionary approach is necessary, involving deeper regulation and new supervisory frameworks. There is also a highlight on the importance of nature conservation finance, although scaling such initiatives to a global level remains challenging. The study identifies seven propositions to realign the financial system with planetary health goals, including systemic risk regulation, developing a taxonomy of sustainable activities, mandatory reporting frameworks, and integrating planetary health into fiduciary duties and shareholder engagement. It advocates for a holistic transformation of the financial system, recognizing finance as a tool to drive societal change rather than an end in itself.

The dynamics of NRFR are driven by multiple factors and exhibit high levels of uncertainty and non-linear interactions, making them difficult to quantify. It is shown that the concept of double materiality, where financial institutions not only face risks from environmental threats but also contribute to those threats through their financing activities. Empirical evidence shows significant dependencies on ecosystem services in financial portfolios and substantial financing of activities that harm ecosystems. There is a need for financial policymakers to consider precautionary interventions and integrate qualitative approaches alongside quantitative methods to manage these risks effectively. Policy actions should focus on preventing harmful financing activities and promoting sustainable capital allocation.

Greenwashing has become more prominent in recent years, particularly in the financial sector, affecting investor behavior by reducing flows into funds advertised as sustainable. It also distorts the estimation of stocks’ beta on climate risk, leading to an insignificant climate risk premium when greenwashing is accounted for.

The study found a significant divergence between the stated ESG commitments of funds and their actual portfolio carbon intensity. Funds that were members of climate initiatives or prioritized climate change in their ESG strategy often exhibited higher portfolio carbon intensities, suggesting potential greenwashing. The research highlights that retail investors may be misled by funds overstating their environmental commitments, and regulatory intervention might be necessary to address this issue.

The study finds that investors with pro-environmental preferences who penalize greenwashing can significantly reduce greenwashing practices by firms. However, the degree of information asymmetry and the effectiveness of penalties play crucial roles in determining the extent of greenwashing. Policies that increase transparency and promote environmental innovation are also effective in mitigating greenwashing.

The paper identifies three strategic gaps in the degrowth movement: building broader coalitions, achieving broad-based consent, and the necessity of coercion in governance.

Degrowth involves reducing harmful economic activities while enhancing sustainable practices across four interrelated plans: material transactions with nature, social interactions, social structures, and inner being. It necessitates comprehensive and nuanced approaches considering the diversity and interconnectedness of these plans.

Identified seven research areas to better integrate Global South and gender issues into ecological economics and degrowth.

Energy-saving technological change began after the 1970s oil shocks. Initially, the short-run elasticity between energy and capital-labor inputs was near zero but increased over the long term due to technological advancements. Projections indicate fossil energy dependence stabilizing around 7%, with a robust long-term consumption growth rate of about 1.9% annually. The findings suggest that endogenous technological change effectively mitigates resource scarcity impacts while sustaining economic growth.

EU member states show significant differences in just transition performance across regions. Scandinavian countries lead with low fossil fuel dependency and strong equity in transitioning to renewable energy. In contrast, Western Europe faces challenges due to high fossil fuel reliance. Eastern European countries also struggle, with high fossil fuel dependency and significant inequality. A more comprehensive EU approach is needed to address both the transition to renewables and the fair distribution of jobs within fossil fuel-dependent economies.

Financialisation has a negative impact on investment in non-financial corporations within developing and emerging economies, especially in countries with more developed stock markets and higher financial liberalisation. However, the effects are context-specific and vary significantly across different countries.

The paper finds that in a competitive world, exit strategies (divestment and boycott) are less effective than voice (engagement) in pushing firms to act in a socially responsible manner. Voice strategies align individual incentives with social incentives more effectively, especially when socially responsible shareholders are well-diversified.

The study finds that sustainable shareholder engagement is significantly more effective when timed with the physical depreciation cycles of real assets. When engagement aligns with periods when firms are already planning to retrofit properties, it leads to a substantial increase in sustainable investments. However, engagement is less effective or even counterproductive when it occurs outside these cycles.

The study finds that successful ESG engagements lead to positive abnormal returns for the engaged companies, particularly when the engagements are related to environmental and social issues. Companies with inferior governance and those with reputational concerns are more likely to be targeted for engagement. Success in these engagements is associated with improved accounting performance, governance, and increased institutional ownership. Collaboration among activists is crucial in increasing the success rate of engagements.

The study found that engagement by index providers can significantly increase the likelihood of companies committing to science-based climate targets. Specifically, companies in the treatment group were more likely to commit to climate targets compared to those in the control group.

Publicizing OSHA violations through press releases leads to substantial improvements in workplace safety at nearby facilities. Facilities exposed to these press releases saw a 73% reduction in violations. The effects were more pronounced in areas with strong labor unions and where the press release received more media coverage.

While low transparency incentivizes profit-driven firms to engage in greenwashing, it also increases overall CSR spending. High transparency can curb greenwashing and encourage socially responsible firms to invest more in observable CSR activities, but excessive transparency diminishes this incentive. Additionally, increasing firms’ budgets or consumers’ bargaining power can paradoxically lead to worse social outcomes.

The study found an overall negative market reaction to events increasing the likelihood of the EU’s mandatory nonfinancial disclosure directive. This suggests that investors anticipated net costs from the directive. However, firms with strong pre-existing nonfinancial performance and disclosure experienced positive market reactions, indicating expected net benefits from the regulation.

Firms with unfavorable environmental information use linguistic obfuscation to make their disclosures more complex, making negative content harder to interpret. This strategy reduces the negative impact of such information on environmental performance ratings given by intermediaries, demonstrating that linguistic tactics can influence environmental ratings.

The study introduces ClimateBertCTI, an algorithm to identify cheap talk in corporate climate disclosures. It finds that only engagement-driven climate initiatives effectively reduce cheap talk, while voluntary climate disclosures are associated with more cheap talk. Additionally, higher levels of cheap talk correlate with increased negative news coverage and higher emissions growth.

The paper identifies two possible equilibria: one where firms anticipate government-imposed emission caps and invest in green technologies, resulting in positive spillovers and lower costs for other firms; and another where firms do not anticipate caps, leading to insufficient investment in green technologies and high emissions. The presence of a large fund engaging with firms can shift the equilibrium towards one with lower emissions and greater green investment.

The study finds that banks with net-zero commitments do not significantly reduce credit supply to high-emission sectors or increase financing for renewable projects. Furthermore, borrowers of net-zero banks are not more likely to set decarbonization targets or reduce their emissions, suggesting limited impact of voluntary net-zero commitments on actual decarbonization.

The study finds that, following the Paris Agreement, European banks reallocated credit away from more polluting firms, decreasing their loan share by about 3 percentage points. Similarly, following President Trump’s 2017 announcement to withdraw from the Paris Agreement, European banks reduced their loan share to more polluting U.S. corporations by around 2.4 percentage points. These results suggest that recent climate change initiatives and the anticipation of stricter regulations are encouraging banks to move away from climate-sensitive sectors towards greener businesses.

The study finds that French banks with high CDP climate scores (indicating strong climate commitments) tend to reduce lending to the most carbon-intensive sectors, particularly large firms, compared to banks with lower CDP scores. However, this effect is less pronounced for small and medium-sized enterprises (SMEs).

The study finds that banks price climate policy risk into the loans they provide to fossil fuel firms, especially after 2015. Loan rates increase for firms with higher fossil fuel reserves, with the effect being more pronounced for firms in countries with stringent climate policies or closer proximity to coastlines. Additionally, green banks charge even higher loan rates to these firms, reflecting a growing recognition of transition risks associated with fossil fuel reserves.

The study finds that green firms borrow at significantly lower spreads, especially when the lender consortium is also green. This effect, termed “green-meets-green,” became significant after the Paris Agreement, suggesting lenders are increasingly considering environmental consciousness in their loan pricing decisions.

The study identifies three main strategies for SRFs: Scope 1, Scope 3, and Mere Exclusion. It finds that the Scope 3 strategy, which involves investing in clean sector firms while requiring them to limit their supply chain emissions, can maximize both the SRF’s size and its impact on social welfare. The paper also shows how the presence of capital market frictions influences the effectiveness of SRFs in reducing emissions and improving social welfare.

The paper presents a model showing that SR funds can induce firms to adopt clean technologies by trading off financial returns for reductions in social costs. The effectiveness of SR funds depends on their mandate, with impact mandates being essential for achieving real change. The study introduces the Social Profitability Index (SPI) as a tool for optimally allocating scarce SR capital to maximize social impact.

– The paper develops a framework to analyze how commercial and social investors compete, and identifies alternative strategies for social investors that can lead to higher social welfare and financial returns., – The paper argues that from the enterprise perspective, increasing profitability can have a greater social impact than directly increasing social value creation., – The paper presents empirical evidence that socially-guided mutual funds allocate their capital inefficiently in terms of generating impact and financial returns.

The paper characterizes how SR funds can achieve real impact by influencing firms’ production choices, particularly when firms face financial constraints. The impact is possible when SR funds are willing to trade off financial performance for reducing social costs. The study also introduces the Social Profitability Index (SPI) to optimize the allocation of scarce SR capital across firms.

The paper finds that sustainable investing strategies that increase the cost of capital for brown firms may be counterproductive, making brown firms more brown without making green firms more green. Green firms show little scope for further environmental improvement, while brown firms may worsen their environmental impact when financially constrained.

The paper develops a conditional asset pricing model that incorporates the dynamics of ESG demand and supply. The model shows that shocks in ESG demand represent a novel risk source, which can lead to higher premiums for green assets. The analysis also reveals a negative expected return for green assets due to a higher exposure to consumption risks, partially offset by positive risk premiums associated with ESG demand shocks.

The study finds that the presence of green investors significantly impacts stock prices, particularly those of the most polluting (brown) firms. Upon the announcement of a green index, there is a substantial drop in the stock prices of excluded brown firms and a moderate increase in the prices of greener firms. The results show that the cost of capital for brown firms rises due to divestment by green investors, with larger impacts when the proportion of green investors increases or when climate transition risk is introduced.

Current ESG divestment strategies have had little impact and are unlikely to have much impact in the future., – The impact of ESG divestment on the cost of capital is too small to meaningfully affect real investment decisions., – The researchers found no detectable effect on the cost of capital when firms were included or excluded from a leading socially conscious index.

– The performance of ESG investments is strongly driven by price pressure from flows into sustainable funds, rather than reflecting high expected returns., – The link between ESG flows and realized returns is driven by the deviation of ESG fund portfolios from the market portfolio, and the market’s demand elasticity of substitution between stocks., – Reallocating $1 from the market portfolio to an ESG fund increases the value of high ESG-taste stocks by $2-$2.5.

The study shows that climate policy uncertainty is priced in the option market. Specifically, the cost of option protection against downside tail risks is larger for firms with more carbon-intensive business models. The cost of this protection is magnified during periods of heightened public attention to climate change and decreased following the election of climate change skeptic President Trump.

Green bonds exhibit a negative premium of -2 basis points compared to conventional bonds, more pronounced for financial and low-rated bonds.

The paper derives a formula for how nonrenewable resource extraction should be taxed when governments need to collect commodity tax revenues. The study finds that optimal taxation distorts developed reserves, reducing them, and slows their depletion, moving further in the direction prescribed for resolving the climate externality. It also illustrates how carbon taxation on oil should be increased in light of public-revenue needs.

The study finds that the issuance of corporate green bonds leads to a positive stock market reaction, particularly for first-time issuers and bonds certified by third parties. Post-issuance, companies improve their environmental performance, reflected in higher environmental ratings and lower CO2 emissions, and attract more long-term and green investors. These results support the signaling theory, suggesting that green bonds serve as a credible commitment to environmental sustainability.

Issuing an SLB yields an average premium of -9 basis points compared to conventional bonds, with the premium decreasing over time. SLB issuers can benefit financially even without achieving sustainability targets, leading to what the authors term a “free lunch.”

The paper develops a model showing that the coexistence of contingent (sustainability-linked bonds) and non-contingent (green bonds) green debt contracts can be an equilibrium outcome. The choice between these contracts is influenced by factors such as manipulation costs, measurement frictions, and the firm’s ability to deliver green outcomes. High-type firms prefer non-contingent green bonds, while low-type firms may opt for contingent contracts to exploit manipulation opportunities.

The study finds that ESG ratings often reflect firms’ sustainable aspirations rather than actual sustainable performance, leading to a misalignment in socially responsible investing. Socially responsible investors tend to tilt their portfolios towards highly rated firms, which lowers their capital costs and increases their growth rates, even when these firms do not perform sustainably. This tilting can reduce the aggregate formation of sustainable assets in the economy.

The study finds that investors who consider ESG factors can achieve a higher Sharpe ratio compared to those who ignore them. The ESG-efficient frontier shows that investors can trade off between maximizing returns and achieving higher ESG scores. The study also finds that screening out low-ESG stocks can lead to portfolios with lower overall ESG scores, suggesting that unrestricted investment strategies might achieve better financial and ESG outcomes.,

The paper characterizes two taste premia (direct and indirect) and two exclusion premia affecting asset returns. It finds that sustainable investing through exclusionary screening and ESG integration can significantly impact asset prices, with varying effects depending on the industry and type of asset.

The study finds that stocks of firms with higher carbon emissions earn higher returns, a “carbon premium,” suggesting that investors demand compensation for exposure to carbon risk. This premium is observed across all three scopes of emissions (direct, indirect, and other indirect emissions). However, the intensity of emissions does not significantly impact returns, even though institutional investors are found to underweight firms with high emission intensity.

The study finds that green assets have delivered high returns in recent years, driven by unexpectedly strong increases in environmental concerns. However, this performance reflects lower expected returns for green assets compared to brown assets, consistent with the theory that green assets are better hedges against climate risk. The study also shows that green assets outperform brown when there is bad news about climate change, but this outperformance is temporary and does not imply high expected returns going forward.

The study finds that only the U.S. climate policy factor is priced in the U.S. stock market, especially post-2012. This suggests that investors hedge against the transition risks from potential government intervention rather than direct physical risks from climate change. The pricing of climate risks becomes more evident in the latter part of the sample, correlating with increased investor awareness of climate change.

The paper analyzes the impact of ESG rating uncertainty on asset pricing and portfolio management. It finds that ESG uncertainty leads to higher market premiums and affects both the CAPM alpha and beta, leading to changes in demand for stocks. The study also reconciles mixed evidence on the ESG-alpha relationship by showing that uncertainty affects the risk-return trade-off and has implications for social impact and economic welfare.

The paper demonstrates that green investing increases the cost of capital for carbon-intensive companies, encouraging them to reduce their greenhouse gas emissions. The impact of green investors is more significant when they anticipate tighter climate regulations and technological innovations. However, uncertainty about future climate risks can reduce the pressure on companies to mitigate emissions.

The study finds that on days with unexpected increases in climate change concerns, green firms’ stock prices tend to increase while brown firms’ prices decrease. The effect is stronger for brown firms, which are penalized more than green firms are rewarded.

The model predicts that green assets have lower expected returns because they hedge climate risk and because investors derive utility from holding them. It shows how ESG preferences can move asset prices, tilt portfolio holdings, and impact corporate behavior by encouraging firms to become greener.

The study finds that intrinsic social preferences and social signaling are significant drivers for holding socially responsible mutual funds, with financial motives being less influential. Investors with strong social preferences are more likely to hold SRI funds, and those with weak social preferences but strong signaling tendencies tend to hold smaller portions of SRI funds.

The study provides causal evidence that investors value sustainability, as funds rated highly in sustainability by Morningstar experienced significant inflows, while those rated poorly saw outflows. However, there is no evidence that high sustainability funds outperform low sustainability ones, suggesting that the observed fund flows may be driven by non-pecuniary motives or perceptions influenced by affective heuristics.

The study finds that investors exhibit strong value alignment preferences but little to no impact-seeking preferences. Investors are willing to pay more for stocks aligned with their social values, but this willingness does not significantly change if the social impact is contingent on their investment decisions.

The study finds that while investors have a substantial willingness-to-pay for sustainable investments, their WTP does not significantly increase with the level of impact (e.g., greater CO2 emissions savings). This suggests that emotional factors, rather than a calculative appraisal of impact, drive investor preferences for sustainable investments. The findings also raise concerns about the potential for greenwashing in sustainable finance.

The study highlights the significant impact of uncertainty in climate dynamics on economic outcomes and policy decisions. It shows how different sources of uncertainty—such as carbon dynamics, temperature changes, and damage functions—interact and affect the social cost of carbon and other policy-relevant metrics. The findings suggest that uncertainty must be explicitly incorporated into economic models to make robust policy recommendations.

The paper discusses the emergence and impact of climate-related financial risks on the financial system. It introduces science-based approaches such as the Climate Value at Risk (VaR), climate spread, and climate stress-tests to assess and manage these risks. The CLIMAFIN tool is used to incorporate forward-looking climate risks into financial risk management, particularly focusing on systemic risk and the integration of climate scenarios into financial decision-making.

The study finds that institutional investors believe climate risks have significant financial implications for their portfolio firms, with regulatory risks being the most immediate concern. Long-term, larger, and ESG-oriented investors are more likely to integrate climate risks into their investment processes and engage with firms on climate issues. However, despite recognizing the importance of these risks, many investors find it challenging to price and hedge them effectively.

The authors demonstrate that their hedge portfolios, which are constructed using firm-level ESG scores, can successfully hedge against climate news both in-sample and out-of-sample. The portfolios perform better than alternative strategies based on simple industry tilts, highlighting the importance of firm-specific ESG characteristics in managing climate risks.

The study finds that measurement divergence is the primary driver of ESG rating divergence, contributing 56% to the overall divergence. Scope divergence accounts for 38%, and weight divergence contributes the remaining 6%. The study highlights a “rater effect,” where a rating agency’s overall perception of a firm influences ratings across multiple categories. The findings suggest that ESG ratings are highly dependent on the specific methodologies used by different rating agencies.

The study finds that revisions to historical ESG data are not random but appear to be influenced by firms’ past stock market performance, with better-performing firms receiving retroactive upgrades in their ESG scores. This data rewriting can alter the results of ESG research and investment backtesting, creating a look-ahead bias. The paper highlights the need for transparency in ESG data and suggests that researchers and practitioners should use original, point-in-time data when possible.