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

We study environmental and social (E&S) disclosures in annual reports. Using the word embedding model to examine over 210,000 annual reports from 24,271 public firms in 30 international countries/regions between 2001 and 2020, we create an E&S dictionary that allows us to document trends in annual report E&S disclosure. Specifically, we find: (1) increases in length and boilerplate language and (2) decreases in specificity. Our results also suggest that E&S disclosure quality improves after the adoption of voluntary ESG reporting frameworks but deteriorates after disclosure mandates. Our findings provide systematic evidence on the evolution of E&S disclosure in annual reports over the past two decades and shed light on how voluntary and mandatory standards have shaped global E&S reporting practices

This article provides first evidence on the capital market effects of the EU Taxonomy Regulation (TR). The TR introduced a new classification scheme to identify companies with environmentally sustainable economic activities. The results offer support for a significant estimated TR alignment premium, compatible with the interpretation that investors already apply the TR and allocate capital to TR-aligned companies. This effect strengthens with an increase in investor attention. We also find significant cross-sectional variation in abnormal stock returns surrounding the publication date of the TR conditional on the degree of estimated TR alignment. Traditional ESG ratings cannot explain the TR premium

Firms with more competitive threats from the product market are less likely to commit violations and pay lower penalties. These findings are robust to alternative measures, specifications, and subsamples, as well as different attempts that mitigate endogeneity concerns. Further analyses reveal that the disciplining effect of competition is more pronounced when managers have greater incentives to shirk and when internal governance is weaker, and that violations are associated with poor product market performance only in the presence of competitive pressure. Firms under competitive pressure are more likely to adopt ESG-related incentives in executive compensation contracts and exhibit better worker safety practices. Overall, our evidence suggests that product market threats reduce managerial slack in combating misconduct by increasing the expected damage of violations

We examine firms' trade‐offs in their voluntary disclosure decisions following negative media coverage of climate change incidents. By combining a keyword discovery algorithm and a fine‐tuned BERT model, we identify “hard” and “soft” climate disclosures on Twitter. Our findings indicate that firms tend to issue climate tweets as a rapid response to negative climate incidents. Additionally, firms with a history of hard climate change disclosure, as measured by ESG reports, are more likely to issue climate‐related responses than firms without such a history. Furthermore, we show that prior hard disclosure is associated with hard responses when the incident receives moderate media attention, but with soft responses when the incident receives low media attention. Our findings provide empirical insights for dynamic disclosure theory by illustrating how prior disclosure shapes firms' response strategies to negative media coverage

During the revelation of the Harvey Weinstein scandal and the reemergence of the #MeToo movement, firms with a nonsexist corporate culture, proxied by having women among the five highest‐paid executives, earn excess returns of 1.3% relative to firms without female top executives. These returns are driven by changes in investor preferences toward firms with a nonsexist culture. Institutional ownership increases in firms with a nonsexist culture after the Weinstein/#MeToo events, particularly for investors with larger holdings and investors with a lower ESG focus ex ante. Firms without female top executives improve gender diversity after these events, particularly in more sexist states and in industries with few women executives. Our evidence attests to the value of having a nonsexist corporate culture and indicates that changes in societal norms toward women are permeating into capital markets and corporations

This paper provides evidence that the #MeToo movement revised investors’ beliefs about the costs (benefits) of fostering an exclusive (inclusive) culture, as reflected by the absence (presence of a critical mass) of women directors in the board room. Tracking a timeline of events associated with the #MeToo movement that begin with the Harvey Weinstein exposé in October 2017 in the New York Times , we document contrasting market reactions to the movement depending on the existing culture of the firm. Firms that historically excluded women from their board experienced a negative market response as momentum for the cause increased, whereas investors responded favorably to firms that historically embraced the inclusion of women on their boards. In contrast, we do not detect differences in the market’s response to randomly generated pseudo-events during the same time frame when comparing firms with exclusive and inclusive cultures. In the context of increased regulator attention to board gender diversity, as well as the ESG activist campaigns by large institutional investors, our study documents a shift in investors’ beliefs about the risks associated with sexual misconduct and about the value of having women in the boardroom shaping the culture of the firm

This paper examines the role of the “Big Three” (i.e., BlackRock, Vanguard, and State Street Global Advisors) on the reduction of corporate carbon emissions around the world. Using novel data on engagements of the Big Three with individual firms, we find evidence that the Big Three focus their engagement effort on large firms with high CO2 emissions in which these investors hold a significant stake. Consistent with this engagement influence being effective, we observe a strong and robust negative association between Big Three ownership and subsequent carbon emissions among MSCI index constituents, a pattern that becomes stronger in the later years of the sample period as the three institutions publicly commit to tackle Environmental, Social, and Governance (ESG) issues

How do banks contribute to the green economy? Using a unique dataset detailing firms' revenue exposure to green business activities, we present new evidence that firms generating revenue from green products and services are associated with lower syndicated loan spreads. We find that the green revenue effects on loan spreads are attributable to firms' prospects tied to climate change-related opportunities and banks' environmental orientation. Foreign banks subject to mandatory environmental, social, and governance (ESG) disclosure regulations reduce the loan spreads to green revenue firms. We also find suggestive evidence that firms with green revenue tend to file more green patents following loan origination. While banks typically perceive green innovation as riskier and demand higher loan spreads, this effect is offset if a firm also generates green revenue. Collectively, our results highlight the pivotal role that banks play in channeling financial resources toward green business practices