Does ESG Investing Force Dirty Companies to Change?
- By Sam van de Schootbrugge
- 6 min read
Summary
• A Journal of Banking and Finance paper examines whether mutual fund decarbonisation affects the stock prices of divested firms and helps reduce these firms’ carbon emissions.
• Consistent with theory, greater decarbonisation selling pressure decreases stock prices and encourages divested firms to reduce their carbon emissions.
• However, high-emitting firms that escape divestment have increased emissions throughout the sample period, highlighting the importance of a critical mass of investors in influencing behaviour.
Introduction
One of the most debated issues in ESG is whether to divest from certain assets. As of 2021, over 1,300 institutions representing approximately $14.5tn in assets have publicly pledged to divest from the fossil fuel industries. Yet surprisingly, little empirical evidence exists that divestment strategies reduce the carbon emissions of high-polluting firms. That is, until now.
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