Conference Agenda

 
 
Session Overview
Session
CF 13: Corporate Finance Theory: ESG
Time:
Friday, 18/Aug/2023:
1:30pm - 3:00pm

Session Chair: Deeksha Gupta, Johns Hopkins University
Location: 4A-33 (floor 4)


Show help for 'Increase or decrease the abstract text size'
Presentations
ID: 1297

Externalities of Responsible Investments

Alessio Piccolo1, Jan Schneemeier1, Michele Bisceglia2

1Indiana University, Kelley School of Business, United States of America; 2Toulouse School of Economics

Discussant: Jan Starmans (Stockholm School of Economics)

When political institutions fail to control firm externalities, responsible investors can act as substitutes for government intervention. Individual investors, however, are unlikely to consider the aggregate effects of their choices, which raises the question of whether responsible capital is efficiently allocated across firms in the economy. In a general equilibrium model with heterogeneous social attitudes, we show that responsible investors tend to concentrate on a subset of firms while excluding others. This concentration of green capital can create product market power and crowd out the green investments of excluded firms. If this crowding-out dominates, aggregate CSR investments and welfare are higher without responsible investments.

EFA2023_1297_CF 13_1_Externalities of Responsible Investments.pdf


ID: 1140

Making sure your vote does not count: ESG activism and insincere proxy voting

Dunhong JIN1, Thomas Noe2

1University of Hong Kong, Hong Kong S.A.R. (China); 2University of Oxford, Said Business School

Discussant: Lin Shen (INSEAD)

This paper models strategic voting on ESG proposals by blockholders with heterogeneous reputational concerns and varying levels of commitment to ESG values. ESG activists, whose public-good gains from intervention are not attenuated by selling shareholders’ free-riding, rationally sponsor even long-shot proposals. Proposals that lower firm value but produce environmental benefits pass with positive, but perhaps small, probability. Our analysis leads to some non-obvious insights: neither increases in blockholders’ personal commitments to ESG values nor increases in blockholder dispersion reliably increase the probability of proposal success. However, the probability of success is uniformly increased both by increasing overall reputational pressure on blockholders and by increasing the gap between the pressure faced by the most and least pressured blockholders.

EFA2023_1140_CF 13_2_Making sure your vote does not count.pdf


ID: 413

Socially Responsible Divestment

Alex Edmans1, Doron Levit2, Jan Schneemeier3

1London Business School; 2University of Washington; 3Indiana University

Discussant: Daniel Green (Harvard Business School)

Blanket exclusion of “brown” stocks is seen as the best way to reduce their negative externalities by starving them of capital. We show that a more effective strategy may be tilting – holding a brown stock if the firm has taken a corrective action. While such holdings allow the firm to expand, they also encourage the action. We derive conditions under which tilting dominates exclusion for externality reduction. If the action is not publicly observable, the investor might not tilt even if she can gather private information on the action – tilting would lead to accusations of greenwashing. The presence of an arbitrageur who buys underpriced stocks increases the relative effectiveness of tilting. A responsible investor who is partially profit-motivated may be more likely to tilt than one whose sole objective is minimizing externalities.

EFA2023_413_CF 13_3_Socially Responsible Divestment.pdf