The PRI Academic Seminar Series invites leading ESG experts to present their research to academic scholars and investors.
The aim of the series is to:
- give world thought leaders in responsible investing the opportunity to present their work and obtain valuable feedback
- provide an opportunity to junior scholars to network with the speaker and obtain career advice
- be more inclusive and strengthen our global PRI Academic Network community throughout the year
Kai Li, 26 May 2023
The Eco Gender Gap in Boardrooms
Using novel firm- and facility-level measures of corporate environmental performance over the period 2002–2021, we establish a positive association between board gender diversity and corporate environmental performance. For identification, we exploit variations in the legal protection and economic opportunity for women in states where directors went to college or when they were college-age, and the California law change in 2018 mandating female directors for firms headquartered in California. In terms of channels, we show that female directors bring more expertise on sustainability in boardrooms than male directors, that female directors are more likely to sit on sustainability committees and key monitoring committees than male directors, and that boards with more female directors are more likely to link top executives’ compensation to corporate ESG performance. We conclude that there are important environmental benefits for board to be gender diverse.
Kai Li is a Canada Research Chair in Corporate Governance and W. Maurice Young Professor of Finance at the UBC Saunder School of Business
Caroline Flammer, 21 April 2023
The use of private capital to finance biodiversity conservation and restoration is a new practice in sustainable finance. This study sheds light on this new practice. First, we provide a conceptual framework that lays out how biodiversity can be financed by i) pure private capital and ii) blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk private capital investments. The main element underlying both types of financing is the “monetization” of biodiversity, that is, the extent to which investments in biodiversity can generate a financial return for private investors. Second, we provide empirical evidence using deal-level data from a leading biodiversity finance institution. We find that projects with higher expected returns tend to be financed by pure private capital. Their scale is smaller, however, and so is their expected biodiversity impact. For larger-scale projects with a more ambitious biodiversity impact, blended finance is the more prevalent form of financing. While these projects have lower expected returns, their risk is also lower. This suggests that the blending—and the corresponding de-risking of private capital—is an important tool for improving the risk-return tradeoff of these projects, thereby increasing their appeal to private investors. Finally, we examine a set of projects that did not make it to the portfolio stage. This analysis suggests that, in order to be financed by private capital, biodiversity projects need to meet a certain threshold in terms of both their financial return and biodiversity impact. Accordingly, private capital is unlikely to substitute for the implementation of effective public policies in addressing the biodiversity crisis.
Caroline Flammer is Professor of International and Public Affairs and of Climate at Columbia University
Ivan Ivanov, 31 March 2023
Banking on Carbon: Corporate Lending and Cap-and-Trade Policy
We estimate the effect of carbon pricing policy on bank credit to greenhouse gas emitting firms. Our analyses exploit the geographic restrictions inherent in the California cap-and-trade bill and a discontinuity in the embedded free-permit threshold of the federal Waxman-Markey cap-and-trade bill. Affected high-emission firms face shorter loan maturities, lower access to permanent forms of bank financing, higher interest rates, and higher participation of shadow banks in their lending syndicates. These effects are concentrated among private firms, suggesting banks are less concerned about the policy’s impact on public firms. Overall, banks quickly mitigate their exposure to climate transition risks.
Ivan Ivanov is a Senior Economist in the Research Division, Federal Reserve Bank of Chicago.
Rob Bauer, 27 January 2023
Private Shareholder Engagements on Material ESG Issues
We study private shareholder engagements with 2,465 publicly listed firms from 2007 to 2020 about environmental, social, and governance (ESG) issues. We examine to what extent private engagements address financially material ESG issues and contribute to firm performance. We find that around 75% of engagements are financially material and that targets of successful material engagements significantly outperform their peers by 2.5% over the next 14 months. Further, we find that material engagements are more often significantly associated with improvements in profitability, sales, and cost ratios than immaterial engagements. Finally, our evidence indicates that a decrease in CO2e intensity accompanies environmental engagements but that total CO2 emissions are unaffected.
Rob Bauer is a Professor of Finance at Maastricht University School of Business and Economics.
Stefano Giglio, 4 November 2022
ESG Beliefs and Investor Portfolios
We study a survey of ESG beliefs and preferences of a large panel of retail investors, and link it to administrative data on their portfolio composition and trading activity. The survey asks two ESG-related questions: what long-term return investors expect from ESG investments, and what motivations they have, if any, to invest in ESG: ethical considerations, performance expectations, and hedging reasons (that is, that ESG investments perform better when climate risks materialize). We highlight several patterns. First, on average, investors expect lower return from ESG investments compared to the market, consistent with the idea that ESG provide some benefits to investors (in terms of utility or hedging). Second, we find substantial heterogeneity in investors’ motivations for ESG investing, with 40% not finding any reason to invest, and 60% mentioning ethical reasons, performance expectations, or hedging motives. Third, there is a significant link between the expectations and ESG motivations of investors and actual ESG holdings. Finally, we find that the heterogeneity in portfolio holdings is large, with especially younger investors tilting more strongly towards ESG.
Stefano Giglio is a Professor of Finance at the Yale School of Management.