ESG, Corporate Governance & Future of the Firm

Many financial commentators thought that the surge of retail investors participating in the stock market, the most notable of whom boosted “meme stocks” like GameStop, would democratize corporate governance and improve prosocial firm behavior, including the promotion of environmental, social, and governance (ESG) goals. In new research, Dhruv Aggarwal, Albert H. Choi, and Yoon-Ho Alex Lee find evidence that the exact opposite took place.

New research by Vesa Pursiainen, Hanwen Sun and Yue Xiang finds that competition hurts corporate incentives to fulfill environmental, social, and governance (ESG) goals. Firms facing more competitive pressure have worse ESG scores, in particular when the firms have short-term-oriented shareholders. However, firms located in areas that are more concerned about climate change appear more willing to sacrifice profits for better ESG performance.

In new research, Michal Barzuza, Quinn Curtis, and David Webber create a framework explaining why CEOs have powerful incentives to promote ESG, why these incentives are distinct from those of shareholders, why they are powerful despite the lack of governance mechanisms, and why they are at times excessive or skewed.

In a new paper, Bing Guo, Dennis C. Hutschenreiter, David Pérez-Castrillo, and Anna Toldrà-Simats study how large institutional investors impact firm innovation. The authors find that large institutional investors encourage internal research and development but discourage firm acquisitions that would add patents and knowledge to their firms’ portfolios, hampering overall innovation.

The Stigler Center for the Study of the Economy and the State hosted with the Rustandy Center for Social Sector Innovation, in partnership with the Financial Times, a virtual event discussing whether corporate ESG policies puts politics before shareholder and stakeholders' best interests or looks out for their long term best interests, with Marianne Bertrand, Jay Clayton and Damien Dwin. The following is a transcript of the event.

The Stigler Center for the Study of the Economy and the State hosted with the Rustandy Center for Social Sector Innovation, in partnership with the Financial Times, a virtual event discussing shareholder democracy with Lisa Fairfax, Alex Thaler and Luigi Zingales. The following is a transcript of the event.

Anti-ESG rhetoric from conservative states conflates valid financial evaluations of company and industry prospects with the ideological values of political opponents. Politicians that pass legislation preventing businesses and state agencies from working with financial services with ESG standards will only harm their constituents. Instead, states should encourage competition and variety in financial services, writes Jennifer J. Schulp.

Todd Gormley and Manish Jha find that institutional investors holding bonds may experience greater investor attention and more active shareholding voting on their equity positions.

Study participants are less likely to accept lower returns in support of social goals when acting as investors versus consumers or donors with a third accepting no reduction in returns. Additionally, those with higher income, women and Democrats were willing to accept lower return in support of social goals than those with lower income, men, Republicans and Independents.

Investment advisors on both sides of the aisle have coopted ESG for their own exploitative marketing tactics to increase their own assets under management...