Abstract This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: Kinder, Lydenberg, Domini (KLD), Sustainalytics, Moody’s (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), MSCI. We document map different methodologies onto a common taxonomy categories. Using this taxonomy, we decompose into contributions scope, measurement, weight. Measurement contributes 56% divergence, scope 38%, weight...

This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: KLD, Sustainalytics, Moody's (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), MSCI. We document map different methodologies onto a common taxonomy categories. Using this taxonomy, we decompose into contributions scope, measurement, weight. Measurement contributes 56% divergence, scope 38%, weight 6%. Further analyzing reasons for...

Research summary: This article explores the relationship between corporate social irresponsibility (CSI) and financial risk. We posit that media coverage of CSI generates risk by providing conditions increase potential for stakeholder sanctions. Through analyzing an international panel 539 firms during 2008–2013, we find receiving higher face show reach reporting outlet is a critical condition this relationship. Once has high reach, severity boundary further reinforces effect. Our findings...

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, indirect impacts, concluding that of engagement is well supported literature, allocation only partially, impacts lack empirical support. Our results suggest who seek should pursue throughout their...

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 substantial WTP they do not pay significantly more impact. This also holds dedicated investors. When compare several their relative, but absolute, levels Regardless investments’ impact, experience positive emotions when choosing investments. Our findings suggest that is primarily driven by an...

Abstract We use BERT, an AI-based algorithm for language understanding, to quantify regulatory climate risk disclosures and analyze their impact on the term structure in credit default swap (CDS) market. Risk can either increase or decrease CDS spreads, depending whether disclosure reveals new risks reduces uncertainty. Training BERT differentiate between transition physical risks, we find that disclosing increases spreads after Paris Climate Agreement of 2015, while decreases spreads. In...

This study examines the impact of ESG ratings on mutual fund holdings, stock returns, corporate investment, and practices, using panel event studies. Looking specifically at changes in MSCI rating, we document that rating downgrades reduce ownership by funds with a dedicated strategy, while upgrades increase it. We find negative long-term response returns to slower weaker positive upgrades. Regarding firm responses, no significant effect up- or capital expenditure. firms adjust their...

Investors and regulators require reliable estimates of physical climate risks for decision-making. While assessing these is challenging, several commercial data providers academics have started to develop firm-level risk scores. We compare six find a substantial divergence between scores, also among those based on similar methodologies. show how this could cause problems when testing whether financial markets are pricing risks. Hence, may not adequately account the exposure corporations...

We examine the novel phenomenon of sustainability-linked bonds (SLBs). These bonds' coupon is contingent on issuer achieving a predetermined sustainability performance target. estimate yield differential between SLBs and non-sustainable counter-factuals by matching from same issuer. Our results suggest that issuing an SLB yields average premium -9 basis points at issue compared to conventional bond, although this decreased over time. On average, savings reduction in cost debt exceed maximum...

Abstract Research Summary Good corporate social responsibility (CSR) ratings can increase a firm's legitimacy and reduce its default risk. Yet, the interpretation of CSR varies between different countries. We investigate whether have risk‐mitigating effect across institutional contexts. find that good general effect. we also decreases when rating agency is embedded in context home country rated firm operates with culture or regulatory system. This suggests agency's origin embeddedness...

We use BERT, an AI-based algorithm for language understanding, to quantify regulatory climate risk disclosures and analyze their impact on the term structure in credit default swap (CDS) market. Risk can either increase or decrease CDS spreads, depending whether disclosure reveals new risks reduces uncertainty. Training BERT differentiate between transition physical risks, we find that disclosing increases spreads after Paris Climate Agreement of 2015, while decreases spreads. In addition,...

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

How strongly does ESG (environmental, social and governance) performance affect stock returns? Answering this question is difficult because existing measures of performance, ratings, are noisy. To tackle the bias, we propose a noise-correction procedure, in which instrument ratings with other rating agencies, as classical errors-in-variables problem. The corrected estimates demonstrate that effect on returns stronger than previously estimated; standard regression ratings' impact biased...

One of the effects climate change is on freshwater availability. The widespread drought in summer 2022 impeded access to freshwater, putting into question reliability current and future energy generation evoking concerns competition different industries for water. In response change, transition scenarios represent pathways a more sustainable system, but often overlook water footprint sector. Therefore, this study uses machine learning identification thermal power plants' cooling systems...

A first-order concern regarding sustainable finance is that it may crowd out individual support for more effective, policy-driven approaches to address societal challenges. We test the validity of this in a pre-registered experiment context real referendum on climate law with representative sample Swiss population (N=2,051). find opportunity invest climate-conscious fund does not erode individuals' regulation. While resembles placebo sense participants seem overestimate its impact, dangerous...

Abstract Demand for information about physical climate risk is growing, particularly the power generation sector, given its size and pronounced exposure to hazards. However, quantifying risks a large number of assets remains challenging. Here we introduce scalable transparent methodology that enables multi-hazard assessments any thermal or hydro project. The relies on basic plant type geolocation data inputs, publicly-available datasets, hazard- technology-specific vulnerability factors,...

We report results from a pre-registered field experiment about the impact of index provider engagement on corporate climate policy. A randomly chosen group 300 out 1227 international companies received letter an provider, encouraging company to commit setting science-based target remain included in its transition benchmark indices. After one year, we observed significant effect: 21.0% treated have committed, vs. 15.7% control group. This suggests that by financial institutions can affect...

This article asks how sustainable investing (SI) 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, indirect impacts, concluding that of engagement is well supported literature, allocation only partially, impacts lack empirical support. Our results suggest who seek should pursue throughout their...

The six-sentence argument (6SA) is an exercise to train critical thinking skills. Faced with a decision situation, students argue for their preferred course of action using logical structure exactly six sentences. Through guided peer review, engage critically other students’ arguments and receive detailed feedback on own arguments. This helps craft convincing reflect reasoning in format that can be applied real-world situations. A key strength the it administered online scalable large...

Climate change may have a detrimental effect on firm's financial performance. Using forward-looking measure of climate risk exposure based textual analysis firms' 10-K reports, we assess whether risks---as disclosed to the regulator---are priced in credit default swap (CDS) market. We construct this novel BERT, an advanced language understanding algorithm, and adapt it for our purpose. differentiate between physical transition risks find that increases CDS spreads, especially after Paris...