Can firms with low ESG score also be key green innovators?
As of 2019, sustainable investing represents more than 20 percent of the $46 trillion in the U.S. assets under management. Compared to 2015, sustainable and impact investing has increased by more than 40%. Yet, there is limited systematic evidence that firms receiving disproportional amounts of capital from ESG funds have outperformed in any measurable way. In this paper, Cohen and al. analyze two large datasets, that capture the complete universe of patents from 2008 through 2017, to determine whether investors who desire to allocate capital toward ESG objectives actually do end up investing in firms that are green innovators. Their analysis focuses on publicly traded firms. They find that:
- A sizable percentage of the recent green patenting is driven not by
highly rated ESG firms, which are commonly favored by ESG funds, but instead by firms that are explicitly excluded from ESG funds investment universe. - Energy producing firms, which are excluded from many ESG funds, are significantly more likely to produce “blockbuster” green patents than other firms.
The ESG-Innovation Disconnect: Evidence from Green Patenting
Authors: Lauren Cohen, Umit Gurun, Quoc Nguyen
From: Harvard University, University of Texas at Dallas, DePaul University
Can environmental activism bring about changes to corporate environmental behaviors?
This is the question that Naaraayanan et al. are trying to answer in this paper. They look at how the Boardroom Accountability Project (BAP), initiated by the New York City Pension System, affected the behavior of firms as far as their environmental impact is concerned. In particular, BAP provided pensioners with a stronger voice in the long-term oversight of portfolio companies. Among their findings:
- Environmental activist investing can affect the environmental performance of targeted firms. Targeted firms respond to campaigns by reducing their total toxic chemical releases, on average, by 13%;
- Firms achieve carbon emissions reductions by focusing on abatement initiatives, rather than changing their production activities;
- BAP targeted firms tend to respond only in cases where the activist investor has a firm-specific environmental mandate.
The Real Effects of Environmental Activist Investing
Authors: S. Lakshmi Naaraayanan, Kunal Sachdeva, Varun Sharma
From: London Business School, Rice University
