Thematic Tags: Policy effectiveness

The Effects of Mandatory Environmental, Social and Governance (ESG) Disclosure Around the World

In recent years, due to the dramatic increase in demand for ESG information to prompt sustainable growth, many countries and jurisdictions have issued regulations that mandate firms and financial institutions disclose their ESG situations and activities. But what are the real impacts of such mandatory ESG disclosure regulations on financial markets? We address this question by examining the financial stability of firms in 44 countries around the world over a sample period of 2000 to 2017.

To assess the stability of a firm, we measure the volatility of equity return and the likelihood of stock price crashes. Using multivariate regressions, we find equity return volatility is lower after mandatory ESG disclosure, and within this, systematic and idiosyncratic volatility are also significantly lower. We find stock price crash risk declines after the enforcement of mandatory ESG disclosure.

Our findings support calls for mandatory introduction of ESG disclosure requirements. In particular, stock exchanges should increase their ESG disclosure policies, as we show that mandatory disclosure improves the information environment. Moreover, our findings on financial stability are of interest to central banks and the enactment of mandatory ESG disclosure enhances the stability of the financial market by improving the ESG informational environment.

Cities as Fossil Fuel Investment Brokers

Using a global dataset of over 840,000 equity, bond and syndicated loan investment banking deals, we build the fossil fuel investment brokerage profile of financial centres worldwide between 2000 and 2018. We also study whether city-level fossil fuel divestment commitments and country level green banking policies impact the profile of fossil fuel financial centres over our study time period. We find that several financial centres shift their fossil fuel investment brokerage profiles substantially, including the asset classes which they are active in. However, we do not find any evidence that this is driven by city-level divestment commitments. We do find however that fossil fuel investment banking brokers situated in financial centres exposed to voluntary green banking policies reduce their fossil fuel financing. This is driven by foreign brokers whose behaviour signals an anticipation of forthcoming mandatory green finance policies.

In the Name of COVID-19: Is the ECB Fuelling the Climate Crisis?

We offer preliminary evidence drawing on a novel dataset of corporate bonds issued in the European energy sector since January 2020 in combination with the European Central Bank’s (ECB) purchases under the Pandemic Emergency Purchase Programme (PEPP) in response to COVID-19. We show that the likelihood of an European energy company bond to be bought as part of the ECB’s programme increases with the greenhouse gas (GHG) intensity of the bond issuing firm. We also find weaker evidence that the ECB’s PEPP portfolio during the pandemic is likely to become tilted towards companies with anti-climate lobbying activities and companies with less transparent greenhouse gas (GHG) emissions disclosure. Our findings imply that, at later stages of the COVID-19 recovery, an in-depth analysis maybe necessary to understand if and if yes, why the ECB fuelled the climate crisis.