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.

Presented At: NBER Climate Finance PhD Workshop


Incident-Driven ESG Engagement

with Hao Liang and Mandy Tham

Abstract: We examine when and why institutional investors engage portfolio firms on ESG issues using proprietary engagement records from a European asset manager. Salient negative incidents emerge as a powerful trigger—second only to firm size—because they heighten reputational accountability for investors and reveal new information about hidden ESG weaknesses, particularly at firms perceived as ESG leaders. Monitoring also extends along the supply chain: incidents at key suppliers prompt investor engagement with focal firms. Finally, engagement is associated with higher firm value, stronger ESG performance, and increased cash flows. Together, the findings illuminate the drivers and mechanisms of ESG engagement and underscore its role as an effective channel of external corporate governance.