Deqiu Chen, University of International Business and Economics
Haoyuan Li, University of International Business and Economics
Yujing Ma, Hong Kong Polytechnic University
Roni Michaely, University of Hong Kong
Abstract: Understanding how financial markets interpret and value corporate environmental practices is critical for effective climate policy and capital allocation. We examine this through sell-side analysts, key information intermediaries whose views shape market behavior, using survey responses from 505 analysts and textual analysis of 273,664 reports. Analysts devote substantial attention to environmental issues. The majority of analysts cover such topics for their value-relevance, while a non-trivial portion also consider non-financial values. Critically, they view environmental factors as prominent business opportunities rather than merely risks and incorporate these perceptions into earnings forecasts and stock recommendations. These assessments also predict subsequent firm performance. When evaluating drivers of corporate environmental improvement, analysts rank government regulations and media pressure as most influential, while rating institutional investors and employees substantially lower. Overall, the consistent survey and textual evidence underscore value-driven analysis, financial materiality of environmental opportunities, and suggest that meaningful environmental progress may be most effectively achieved through robust regulatory frameworks and public accountability mechanisms rather than relying primarily on market-based investor pressure.
Discussant: Paul Décaire, Arizona State University
Abstract: We develop a dynamic model of socially responsible investment where large householdstrade firm equity and vote on production decisions involving the depletion ofa nonrenewable resource. Although accumulating wealth and exercising voice areintratemporal substitutes, they are dynamic complements because influence is tiedto wealth. Socially responsible households delay implementing resource-preservingpolicies that reduce firm productivity to amass wealth for future influence, whilefinancially-motivated households may accumulate wealth to block conservation efforts.The constrained efficient technological choice balances higher productivity withsociety’s willingness to pay for conservation, and can be implemented through a votingprotocol that assigns voice based on how depletion impacts welfare rather thanshareholdings.
Abstract: This paper builds a general equilibrium model of ethical investing and coordinated externality mitigation. Ethical behavior often departs from Nash rationality by relying on normative principles rather than belief-based best responses. I introduce the Kant equilibrium as a complement to Nash, and show that reasoning heterogeneity and coordination technology, rather than preferences alone, select unique coordination equilibria, explain minority catalysis in activism and predict when one-share-one-vote regimes aid or impede externality correction. I test model predictions on a global panel of mutual funds and ETFs. Using the staggered rollout of the Climate Action 100+ initiative as a positive coordination shock, I find that engagement-oriented funds increase ownership in targeted high-externality firms relative to other firms and non-engagement funds, and causally improve firm-level externality outcomes through coordinated engagement channels.
Discussant: Jan Schneemeier, Michigan State University
