Research

Publications

Do Investors Care About Impact? with Julian Kölbel, Falko Paetzold & Stefan Zeisberger

The Review of Financial Studies, 2023, 16(5), 1737–1787

[Selected as Editor’s Choice and lead article] [Winner of the FIR-PRI Finance & Sustainability Award Best Published Article]

Abstract: We assess how investors’ willingness-to-pay (WTP) for sustainable investments responds to the social impact of those investments, using a framed field experiment. While investors have a substantial WTP for sustainable investments, they do not pay significantly more for more impact. This also holds for dedicated impact investors. When investors compare several sustainable investments, their WTP responds to relative, but not to absolute, levels of impact. Regardless of investments’ impact, investors experience positive emotions when choosing sustainable investments. Our findings suggest that the WTP for sustainable investments is primarily driven by an emotional, rather than a calculative, valuation of impact.

Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact with Julian Kölbel, Falko Paetzold & Timo Busch.

Organization & Environment, 2020,  33(4), 554-574.

[Policy Impact: Draft EU Ecolabel Criteria for Retail Financial Products]

Abstract: This article asks how sustainable investing contributes to societal goals, conducting a literature review on investor impact—that is, the change investors trigger in companies’ environmental and social impact. We distinguish three impact mechanisms: shareholder engagement, capital allocation, and indirect impacts, concluding that the impact of shareholder engagement is well supported in the literature, the impact of capital allocation only partially, and indirect impacts lack empirical support. Our results suggest that investors who seek impact should pursue shareholder engagement throughout their portfolio, allocate capital to sustainable companies whose growth is limited by external financing conditions, and screen out companies based on the absence of specific environmental, social, and governance practices that can be adopted at reasonable costs. For rating agencies, we outline steps to develop investor impact metrics. For policy makers, we highlight that sustainable investing helps diffuse good business practices, but is unlikely to drive a deeper transformation without additional policy measures.

Working Papers

Green Investing and Political Behavior with Julian Kölbel, Stefano Ramelli, and Anna Vasileva

R&R, The Review of Financial Studies

Selected Presentations: EFA Annual Meeting 2024, AFA Annual Meeting 2024 (poster session), University of Cambridge Finance Seminar, CEPR Conference on Politics, Corporations, and the Common Good (Rotterdam), Sustainability and Finance Conference (KU Leuven), Conference on CSR (UMass Boston), Lichtenstein Workshop on Sustainable Finance (University of Lichtenstein), Sustainable Finance Workshop (University of Zurich).

Abstract: A fundamental concern about green investing is that it may crowd out political support for public policy addressing negative externalities. We examine this concern in a preregistered experiment shortly before a real referendum on a climate law with a representative sample of the Swiss population (N = 2,051). We find that the opportunity to invest in a climate friendly fund does not reduce individuals’ support for climate regulation, measured as political donations and voting intentions. The results hold for participants who actively choose green investing. We conclude that the effect of green investing on political behavior is limited.

The Impact of Climate Engagement: A Field Experiment with Julian Kölbel

Selected Presentations: Harvard Corporate Carbon Targets Research Workshop (HBS), SFI Research Days 2024, E-axes Young Scholars Webinar, Alliance for Research on Corporate Sustainability Conference 2024 (UCLA), Finance Seminar at Victoria University of Wellington, ACP Seminar at MIT Sloan, Sustainable Finance Workshop (University of Zurich).

Abstract: We report results from a pre-registered field experiment that evaluates the impact of shareholder engagement on corporate climate policy. A randomly chosen treatment group of 300 out of 1227 international companies received a letter from an index provider, asking the company to publicly commit to setting a science-based climate target or face gradual elimination from its climate indices. After one year, we observed a significant treatment effect: 21.0% of companies in the treatment group have committed, vs. 15.7% in the control group. The results show that financial institutions can affect corporate climate policy via engagement, provided they request a feasible outcome combined with a credible threat of exit.

The Economic Impact of ESG Ratings with Florian Berg and Julian Kölbel

Selected Presentations: FMA Annual Meeting 2023 (Chicago), Global Research Alliance for Sustainable Finance and Investment Conference 2023 (Yale University), Alliance for Research on Corporate Sustainability Conference 2023 (University of Virginia), Geneva Finance Research Institute Seminar, Cornell Finance Seminar, MIT Applied Economics/Finance/Accounting seminar, Oxford Smith School Seminar, ESG summit of the European University Institute/Bank of Italy.

Abstract: This study examines the impact of ESG ratings on fund holdings, stock returns, and firm behavior. First, we show that among five major ESG ratings, only MSCI ESG can explain the holdings of US funds with an ESG mandate. We document that downgrades in the MSCI ESG rating substantially reduce firms' ownership by such funds, while upgrades increase it. However, this response in ownership is slow, unfolding gradually over a period of up to two years. This suggests that fund managers use ESG ratings mainly to comply with ESG mandates rather than treating them as updates to firms' fundamentals. Accordingly, we also find a slow and persistent response in stock returns. For a one-year holding period, downgrades lead to an abnormal return of -2.37%. For upgrades, we find a positive but weaker effect. Yet, the extent to which ESG ratings matter for the real economy seems limited. We find no significant effect of up- or downgrades on firms' subsequent capital expenditure. We find that firms adjust their ESG practices following rating changes, but only in the governance dimension.

Environmental Sciences

Organic Micropollutants in Rivers Downstream of the Megacity Beijing: Sources and Mass Fluxes in a Large-Scale Wastewater Irrigation System with H. Singer, B. Pernet-Coudrier, W. Qi, H. Liu, P. Longrée, B. Müller & M. Berg

Environmental Science & Technology, 2012, 46(16), 8680-8688. 

Abstract: The Haihe River System (HRS) drains the Chinese megacities Beijing and Tianjin, forming a large-scale irrigation system severely impacted by wastewater-borne pollution. The origin, temporal magnitudes, and annual mass fluxes of a wide range of pharmaceuticals, household chemicals, and pesticides were investigated in the HRS, which drains 70% of the wastewater discharged by 20 million people living in Beijing. Based on Chinese consumption statistics and our initial screening for 268 micropollutants using high-resolution mass spectrometry, 62 compounds were examined in space and time (2009–2010). The median concentrations ranged from 3 ng/L for metolachlor to 1100 ng/L for benzotriazole and sucralose. Concentrations of carbendazim, clarithromycin, diclofenac, and diuron exceed levels of ecotoxicological concern. Mass-flux analyses revealed that pharmaceuticals (5930 kg/year) and most household chemicals (5660 kg/year) originated from urban wastewaters, while the corrosion inhibitor benzotriazole entered the rivers through other pathways. Total pesticide residues amounted to 1550 kg/year. Per capita loads of pharmaceuticals in wastewater were lower than those in Europe, but are expected to increase in the near future. As 95% of the river water is diverted to irrigate agricultural soil, the loads of polar organic micropollutants transported with the water might pose a serious threat to food safety and groundwater quality.