Sustainability and Finance
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Malcolm Baker, Harvard University
Are All ESG Funds Created Equal? Only Some Funds Are Committed
AbstractAlthough flows into ESG funds have risen dramatically, it remains unclear whether these funds perceive ESG to be a value driver, and relatedly, whether they strive to influence portfolio firms’ ESG policies. We shed light on this debate by examining the incentives of fund managers. We find that conditional on similarly large ESG investments, ESG funds with higher incentives to engage with portfolio firms– committed ESG funds – adopt longer-term investment strategies, pay more attention to portfolio firms’ ESG risk exposure, and implement less negative screening. Committed funds also demonstrate more discretionary voting on portfolio firms’ ESG proposals and devote more attention to ES issues during the Q&A section of earnings conference calls. Strikingly, only investments by committed ESG funds contribute to real ESG-improvements, and these funds have outperformed other ESG funds on their ESG holdings. Our paper highlights the importance of incentives when assessing the real impacts of sustainable investments.
Green Mandates in Two Sided Markets
AbstractWe model 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. We
identify three differences 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.
- G3 - Corporate Finance and Governance