Conference Agenda

This study examines the effects of ESG ratings on firms' financial decisions. Theoretical models predict that Socially Responsible Investing (SRI) positively impacts firms with high ESG performance by reducing their cost of capital. I provide evidence that SRI can have positive impact on firms with high ESG performance through another channel. In a regression discontinuity design, I show that firms with higher ESG ratings have lower perceived cost of equity capital and issue more net equity than net debt compared to similar firms with lower ESG ratings. These results imply that access to cheaper equity financing acts as another impact mechanism of SRI.

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We analyze whether voluntary green pledges by lenders result in greener loan origination in the project finance (PF) market. The PF market is of key importance for financing large-scale, climate-relevant projects globally. We can directly classify the environmental impact of expenditures financed through PF loans because projects are single-purpose developments. We exploit a tightening of the Equator Principles (EP) that introduced comprehensive climate risk management requirements to newly originated PF loans. This allows us to disentangle the effect of a lender's sign-up decision from the impact of the green pledge itself. In lender-level and loan-level analyses, we find no evidence for a shift from brown to green lending by EP members relative to non-EP members after the tightening. We corroborate this null result using a wide range of alternative model specifications.

Combining new data on biodiversity-capacity and biodiversity-footprint with firm fundamentals, we conduct a causal analysis of the impact of biodiversity physical risk on firms’ profitability and stock returns. With this purpose, we build a biodiversity index for 35 countries and use a time series model to capture its variation over time. We show that such time trend estimation can be aggregated as risk exposure and can significantly forecast establishment-level profitability. We then show that the market under-prices biodiversity physical risk, which is due to the insufficient analysis of related information and its impact on the firm-level future cash flow. We also document disparities of risk exposure across firms and sectors, and our results are consistent with previous findings in terms of climate physical risk.