This study investigates the imbalance of ESG investing across its environmental (E), social (S), and governance (G) pillars. We find that E plays a more significant role in influencing the imbalance level, and mutual funds prioritize mitigating E risks over S and G risks, which is more pronounced in funds with higher sustainability ratings. Moreover, our findings indicate that investors respond to ESG imbalance, with the level of imbalance showing a negative impact on fund flows, especially for funds with higher sustainability ratings. However, this negative relationship is mitigated as climate change concerns increase. Furthermore, we find that political ideology plays a role in the ESG imbalance, with the imbalance of funds in blue states being more driven by lower environmental considerations compared to those in red states. Additionally, we observe that the ESG imbalance is positively associated with various fund risks. Our study offers implications for policymakers and stakeholders in the asset management industry regarding ESG investing practices

Using a sample of 3083 firms from 62 countries over 18 years, we analyze how the structure and identity of firms' material owners influence their Environmental, Social, and Governance (ESG) performance. We find that firms with founding families or other individual investors as owners underperform, unless family members serve as CEOs, when they outperform all others. Non-family management and government entities also perform significantly better in most analyses. These results are robust to multiple data and methodological stress tests. Our findings show that ownership matters for ESG performance and give us an indication of the preferences of different types of owners regarding ESG

We provide the most comprehensive analysis to date of the relation between ESG ratings and stock returns, using 16,000+ stocks in 48 countries and seven different ESG rating providers. We find very little evidence that ESG ratings are related to global stock returns between 2001 and 2020. This finding obtains across different regions, time periods, ESG (sub)ratings, ESG momentum, ESG downgrades and upgrades, and best-in-class strategies. We further find little empirical support for prominent hypotheses from the literature on the role of ESG uncertainty and of country-level ESG social norms, ESG disclosure standards, and ESG regulations in shaping the relation between ESG and global stock returns. Overall, our results suggest that ESG investing did not systematically affect investment performance during the past two decades

We reexamine the impact of hedge fund activism on corporate social performance as measured by ESG ratings. Using a high-quality dataset on hedge fund activism, we find that the impact of hedge fund activism on ESG ratings is neither statistically nor economically significant. In our preferred model, relative to control firms, the ESG ratings of target firms increase by 0.033, about 1.6 % of the sample standard deviation, following activist interventions. In addition, we find no evidence that stock market reactions to the announcement of activist interventions are significantly higher for firms with high ESG ratings, inconsistent with the view that hedge fund activism harms corporate social performance to benefit shareholders

We examine how sovereign rating downgrades affect firms' environmental, social, and governance (ESG) policies, leveraging the sovereign “ceiling” rule as a quasi-natural experiment that generates exogenous variation in corporate credit ratings. Under this rule, firms originally rated at or above the sovereign rating (bound firms) face a higher likelihood of downgrade following a sovereign downgrade. Using a difference-in-differences (DiD) setting, we find that bound firms experience a decline in ESG performance following a sovereign downgrade. This decline occurs only after the downgrade, not before, validating the parallel trends assumption. Our analysis further indicates that this effect is not driven by financing frictions and is concentrated in countries with a shareholder-centric orientation, and among firms with low institutional ownership from countries with strong social norms. Additional evidence suggests that affected firms experience an increase in ESG-related incidents, damaging their reputation post-downgrade. Overall, our findings underscore the crucial role of sovereign risk in shaping corporate sustainability practices

Concerns about the sustainability of contemporary capitalism have inspired a search for organizational forms that are more concerned with solving environmental and social problems. We examine whether one such model – foundation ownership – where a non-profit foundation owns and controls business companies, is associated with better sustainability outcomes. We hypothesize that foundations prioritize environmental and social objectives over profit maximization, resulting in stronger ESG performance in the companies they own. Using data on listed foundation-owned companies over the period 2003–2020 matched with control groups by firm size and industry, we find that foundation-owned firms have higher environmental, social, and governance (ESG) performance, particularly in the environmental and social dimensions. They maintained ESG activities during the financial crisis and committed to more significant emission reductions in the post-Paris Agreement period. Collectively, our findings highlight the potential of purposeful ownership in promoting corporate sustainability

We show that political polarization among directors negatively affects corporate board effectiveness by reducing forced CEO turnover-performance sensitivity. Our results are more pronounced in presidential election years and for firms with more monitoring and advising needs. Polarization also increases the departure likelihood for directors who are ideologically distant from the rest of the board, making boards more politically homogeneous over time. Finally, we show that polarization in the boardroom lowers firms' investment- Q sensitivity and Environmental, Social and Governance (ESG) performance. Our findings highlight the real economic cost of political polarization

We study the effects of employee welfare policies (EWPs) on labor investments of U.S. firms. We show that EWPs are associated with a significantly weaker pass-through of industry sales shocks to firm employment growth. EWPs’ insulation effect is stronger in states with less generous unemployment insurance, in states with lower wage growth, and in firms relying more on qualified labor. We corroborate our results exploring policy-induced variation in workforce policies from the adoption of Paid Sick Leave laws, and industry-wide shocks to labor ESG incidents. Our findings suggest that EWPs may insure workers against employment fluctuations

We examine disasters caused by individual firms with severe environmental impacts. These disasters trigger industry-wide demand for corporate social responsibility (CSR). We analyze whether affected firms respond by adopting substantive or symbolic CSR measures. We find that firms increase overall CSR performance through improvements in diversity and human rights rather than decreasing environmental concerns. This suggests firms prioritize symbolic CSR to legitimize their operations rather than substantive measures to mitigate environmental harm. We also document diverging costs and welfare effects. On average, substantive CSR actions are costlier and cause lower margins but avoid divestments by ESG-oriented funds while improving long-term credit ratings. Some of these benefits of substantive actions also accrue through symbolic actions at a lower cost