This paper offers the first systematic evidence on environmental, social, and governance (ESG) disclosures provided by a large global sample of private equity (PE) firms. Using historical websites from 2000 to 2022, we develop and validate a novel dictionary‐based measure of voluntary PE firm ESG disclosures. Descriptive statistics reveal an increasing time trend in these disclosures, with social topics becoming as important as environmental topics recently. Multivariate analyses show that the demand for ESG information from fund investors is a significant determinant of PE firms’ ESG disclosures. Leveraging data on PE firms’ portfolio companies, we document that more PE firm ESG disclosures are associated with better ESG outcomes at the portfolio company level, suggesting that voluntary ESG disclosures align with real actions for the average PE firm

This paper explores the relationship between environmental, social and governance (ESG) information and systemic risk, an increasingly important issue for both regulators and investors. While ESG ratings are widely used to assess a company’s non-financial performance, the impact of these factors on financial stability and systemic risk is still under debate. By extending the Forecast Error Variance Decomposition (FEVD) method with a double regularization on both the underlying vector autoregressive (VAR) parameters and the covariance matrix of the VAR residuals, we are able to address the curse of dimensionality within each estimation. This allows us to examine how vulnerable a company is and how much systemic impact a company has given its specific ESG. Looking at a larger sample of European stocks over the period 2007-2022, we empirically show that both the best and worst ESG performers have the largest impact on the financial system in normal times. However, during a crisis, companies with the best ESG ratings generate significant spillovers throughout the system. These findings highlight the importance of incorporating ESG factors into systemic risk assessments and monitoring companies’ ESG performance to ensure financial stability. Policymakers can benefit from this research by supporting investment in high ESG companies to mitigate relevant spillovers during stressed market conditions, when such companies are more interconnected

We compile a novel data set on mandatory environmental, social, and governance (ESG) disclosure around the world to analyze the stock liquidity effects of such disclosure mandates. We document a positive effect of ESG disclosure mandates on firm‐level stock liquidity. The effects are strongest if the disclosure requirements are implemented by government institutions, not on a comply‐or‐explain basis, and coupled with strong enforcement by informal institutions. Firms with weaker information environments benefit more from ESG disclosure mandates. Our results support the view that ESG disclosure regulation improves the information environment and has beneficial capital market effects

We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias

Using SASB’s materiality framework, prior research finds alpha for the portfolio of firms with improving ratings on material ESG issues. We replicate this finding and provide a fundamentals-based perspective on why the materiality portfolio outperforms. Our basic premise is that changes in material ESG issues reflect fundamental firm characteristics. More financially established firms—firms with larger size, lower growth, and higher profitability relative to their sector—are more likely to not only create material strengths but also resolve material weaknesses in their ESG scoring. This fundamental link dictates that one should comprehensively control for fundamental determinants of stock returns before attributing portfolio outperformance to improving material ESG scores. Indeed, we find that the materiality portfolio does not generate alpha after we account for its exposure to profitability and growth factors. Our evidence underscores the issue of correlated omitted fundamental factors in the debate of ESG alpha. Data Availability: Data are available from the sources cited in the text

Sustainable investing is characterized by considerations of both financial returns and ESG (Environmental, Social and Governance) impacts. We investigate how information about these two aspects, individually and in combination, affects investors’ decision to invest sustainably and their satisfaction with the information they received. We also test whether different ESG preference elicitation modes affect these investment decisions and investors’ satisfaction. We conduct an incentivized online experiment with two samples, experienced retail investors and a representative sample of the Austrian population in terms of age and gender (N = 2,254 in total). We find that both financial return information and ESG impact information stimulate ESG investment. Providing both types of information does not have a greater effect than presenting either one alone. Finally, we find no effect on satisfaction and the ESG preference elicitation mode significantly affects neither investment decisions nor satisfaction

We investigate whether CEOs around the world are held accountable for stakeholder-related corporate misbehavior. The likelihood of CEO turnover increases significantly when the media coverage of the ESG incidents reaches extreme levels. CEO turnovers occur even in the cases where an incident does not lead to a stock price decline. In such cases, the board likely has a non-pecuniary motive for the turnover. This suggests that such non-pecuniary reputational concerns are an important determinant of CEO turnover decisions around the world, especially when the firm is facing intense public pressure due to stakeholder-related corporate misbehavior. This effect is more pronounced when firms are headquartered in stakeholder-oriented countries like many European countries

We find strong evidence that measures of social responsibility contribute to increasing the resilience of banks. This finding holds when social responsibility is measured by aggregated ESG scores provided by Thomson Reuters, both according to their older Asset 4 categorization and to the reformed ESG Refinitiv classification, and resilience is proxied by various measures of systemic and systematic risk. The results hold on the level of subcategories of the ESG pillars, where we find that, particularly, variables related to the long-term perspective enhance resilience. Moreover, in our international study, we find significant transatlantic differences

We examine the pricing of sustainability-linked bonds (SLBs), where the cash flows depend on the bond issuer achieving one or more Environmental, Social and Governance (ESG) goals. Investors are willing to accept a 1–2bps lower yield due to the bond’s ESG label, providing evidence of investors caring about environmental impact. Furthermore, we find the average probability of missing the target is 14%–39% so firms set ESG targets that are easy to reach. We find that the SLB market is efficient: the prices of SLBs depend strongly on the size of the potential penalty and there is no evidence of mispricing. Finally, our results suggest that SLBs serve as financial hedges against ESG risk

We provide large‐sample evidence on whether U.S. publicly traded corporations use voluntary disclosures about their commitments to employee diversity opportunistically. We document significant discrepancies between companies' external stances on diversity, equity, and inclusion (DEI) and their hiring practices. Firms that discuss DEI excessively relative to their actual employee gender and racial diversity (“diversity washers”) obtain superior scores from environmental, social, and governance (ESG) rating organizations and attract more investment from institutional investors with an ESG focus. These outcomes occur even though diversity‐washing firms are more likely to incur discrimination violations and have negative human‐capital‐related news events. Our study provides evidence consistent with growing allegations of misleading statements from firms about their DEI initiatives and highlights the potential consequences of selective ESG disclosures