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Journal Article
Policy Update: A Brewing Debate over ESG
Public companies, including banks, are being pressured by activists and some investors to disclose more information about the real-world effects of their activities — an effort known as the Environmental, Social, and Governance (ESG) movement. While the "E" (for environmental) often garners the most attention, ESG encompasses a broader range of issues and practices. As a result of this controversy, a debate is underway over ESG-related disclosure requirements.
Working Paper
Do Sustainable Investment Strategies Hedge Climate Change Risks? Evidence from Germany's Carbon Tax
It is difficult to assess the effectiveness of investment strategies that screen companies based on environmental criteria to hedge climate change risk because physical risks have not yet fully materialized and policies to combat climate change are usually widely anticipated. This paper sidesteps these limitations by analyzing the stock market response to plausibly exogenous changes in expectations about the level of a carbon tax in Germany. The risk-adjusted return on two sustainable investment approaches---screening companies based on environmental scores and on firms' carbon ...
Working Paper
Gas Guns and Governments: Financial Costs of Anti-ESG Policies
We study how regulation limiting ESG policies distorts financial market outcomes. In 2021 Texas enacted laws that prohibit municipalities from contracting with banks with certain ESG policies, leading to the exit of five of the largest municipal bond underwriters from the state. Issuers previously reliant on these underwriters face higher uncertainty and borrowing costs since the enactment of the laws. These effects are consistent with a deterioration in underwriter competition as issuers face fewer potential underwriters. Texas issuers will incur $300- $500 million in additional interest on ...