Working Papers

Financing the Green Transition of "Brown" Sectors

with Hao Liang, Yi-Cheng Shih, Yao Wang, Zhenshu Wu, and Tianhao Yao

Abstract: We examine whether cheaper financing conditions facilitate firms' transition away from carbon-intensive activities and toward sustainable ones, measured by the share of revenue from green activities ("green revenue"). Using a novel revenue-decomposition dataset for Chinese listed firms, we find that lower costs of debt are associated with a higher green-revenue share, with effects concentrated in high-emission (brown) sectors. The association is stronger for smaller firms and for firms with richer ex-ante green technologies. Exploiting policy-induced reductions in borrowing costs, we document a plausibly causal effect of cheaper debt on increases in green revenue. We corroborate these patterns in a global sample. Taken together, the results indicate that financing the transition of brown sectors—by lowering the marginal cost of capital for credible investments—can materially accelerate corporate decarbonization. We discuss implications for emerging transition-finance frameworks.


Incident-Driven ESG Engagement

with Hao Liang and Mandy Tham

Abstract: Using proprietary engagement records from a large European asset management company, we study how ESG shocks shape institutional monitoring. We find that salient negative incidents are a powerful trigger for engagement, as they deteriorate public sentiment, heighten investors’ reputational concerns, and reveal new information about previously hidden ESG weaknesses. Investors respond not only to incidents involving focal firms but also to incidents at peer firms, consistent with both reactive monitoring of revealed ESG risks and preemptive monitoring based on shared risk signals within the competitive environment. Incident-driven engagement is more informed and consequential: it mitigates subsequent sentiment deterioration, reduces future ESG incidents, attenuates declines in institutional ownership, and contributes to higher firm value. Finally, more intensive engagement is significantly more likely to succeed. Overall, our research speaks to the fundamental question of how engagement is initiated and underscores its role as an effective channel of external corporate governance.