Confucian culture, as a traditional culture with profound influence in East Asia, has drawn increasing attention due to its impact on corporate governance. Investigating how Confucian culture influences corporate ESG (Environmental, Social, and Governance) greenwashing is significant. Using data from 9,356 company-year observations between 2012 and 2022, this paper examines the impact mechanism of Confucian culture on ESG greenwashing from the perspective of non-financial information greenwashing. The results show that Confucian culture deters corporate ESG greenwashing. It influences ESG reporting through its effect on corporate behavior and the broader social environment. In privately-owned enterprises, Confucian culture significantly inhibits ESG greenwashing. Additionally, it plays a larger role in non-coastal regions. Mechanism analysis reveals that Confucian culture negatively influences ESG greenwashing by promoting environmental certifications and reducing earnings management. These findings highlight the importance of inheriting and promoting Confucian culture in contemporary society.
This study examines how China's Green Finance Reform and Innovation Pilot Zones affect urban biodiversity using city-level bird observation data from 2012 to 2020. Adopting a quasi-natural experiment and difference-in-differences method, we assess the policy's impacts. The results show that green finance policies notably raise overall bird species richness. Such ecological gains mainly stem from sustainable agriculture development, industrial green upgrading and rising public environmental awareness.Policy effects differ across bird species: common and migratory birds benefit greatly, whereas endangered species see no significant changes. This reveals general green finance policies have limited effects on protecting vulnerable wildlife, calling for targeted financial tools. Overall, the study proves financial policies incorporating biodiversity goals bring tangible ecological benefits, offering references for balancing economic growth and biodiversity conservation.
Following the 2015 Paris Agreement, global efforts to address climate change have intensified, targeting carbon net neutrality by 2050. As a consequence of this transition toward a low-carbon economy, carbon-related risks have become increasingly relevant for asset pricing. This study investigates the existence of a carbon risk premium in the Brazilian stock market using a capital market-based carbon risk factor in standard asset-pricing models. Analyzing data from 1282 publicly traded firms over the 2000-2022 period, the study estimates a negative and statistically significant premium for the Brown-Minus-Green (BMG) factor in two of three BMG specifications, indicating that the market rewards green assets with lower expected returns and, conversely, penalizes brown exposure in expected returns. Sector-level results show that several industries exhibit positive and significant loadings on the BMG factor, suggesting that carbon-transition exposure is pervasive in Brazil. These findings have practical implications for investors and policymakers, emphasizing the importance of integrating carbon-transition risks into portfolio construction and regulatory frameworks.
Greenwashing is becoming an increasingly important topic with the growing popularity of ESG and sustainable mutual funds. The greenwashing of a few funds can damage trust in the entire sustainable investment industry. This article aims to measure the prevalence of greenwashing among US-domiciled ESG funds by analyzing the difference in the ESG implementation between 261 ESG and 261 propensity score matched conventional funds from 2012 to 2022 in two ways. First, panel regression analysis shows that ESG funds have between 1.1 and 6.7 percentage points higher ESG scores on a normalized scale after controls. For funds with environmental and social focuses, the difference in the respective ESG pillar score is as high as 13.8 percentage points. The differences are statistically and economically significant depending on the ESG rating provider. Second, the holdings of ESG funds have lower ex-ante ESG rating momentum. Thus, the ESG ratings of ESG funds and conventional funds converge. The convergence is driven by stronger rating momentum for conventional funds. The finding holds for active and passive funds. Overall, the article finds that ESG funds are not greenwashing as they buy and hold firms with higher ESG ratings. However, ESG funds appear no better at improving the ESG characteristics of their holdings than conventional funds. These findings have implications for investors, fund managers, and regulators.
The Paris Agreement's goal has driven trillion-dollar climate investment, prompting firms to assess its impact on portfolios. Our study employs three methods: regression, fuzzy-set analysis, and necessary condition analysis. It reveals that no single business factor is crucial for climate finance success. Instead, laws and regulations are key, driving climate finance progress. Despite the business ecosystem's ostensible lack of substantive impact on climate finance, the ecosystem of laws and regulations emerges as a pivotal force in catalyzing the progression of climate finance. Specifically, when climate finance attains the 50% milestone, it assumes the status of an access threshold; within the range of 60% to 70%, it transitions into a lever fulcrum; and ultimately, once the 80% threshold is surpassed, it ignites a synergistic interplay within the broader business ecosystem. We offer new climate finance insights, guiding policymakers, helping firms manage projects, and providing an analytical tool for future research.
This research explores the impact of integrating sustainability into corporate strategies on investment efficiency. Using Simon's (1994, 1995) levers of control framework, we analyze 15,136 firm-year observations from multinational firms across 11 countries (2007-2021). We construct a sustainability control system (SCS) index from Bloomberg data and company reports, and estimate investment efficiency following Biddle et al. (2009). Panel regressions with fixed effects and instrumental variable (IV) estimations show a positive link between integrating social sustainability into management control systems and investment efficiency. This link depends on cultural factors: in societies with higher power distance, the impact is diminished, while in contexts with greater uncertainty avoidance, it is strengthened. These findings indicate that cultural variations shape sustainable control systems' outcome.
We develop a climate-aware total portfolio framework incorporating climate risk across a broad universe of asset classes - stocks, bonds, and alternatives, including corporate bonds, commodities, listed real estate, and hedge funds - alongside a comprehensive set of low-carbon assets. The framework captures dynamic interactions between asset prices and global warming risks through a vector autoregression (VAR) model, embedding forward-looking climate scenarios into portfolio returns via a stylized return-generation model that explicitly accounts for uncertainty in future climate pathways. Our results reveal that low-carbon assets exhibit a resilient - and in some cases positive - relationship with temperature change, while most traditional assets are adversely affected by warming risk. Examining an optimistic trajectory implied by the VAR model and a pessimistic trajectory derived from the DICE model, we find that under the pessimistic scenario, a substantial reallocation toward low-carbon assets emerges - suggesting that for long-horizon investors, sustainable investing is not merely an ethical choice, but an optimal portfolio strategy.
We analyze the impact of biodiversity loss on sector profits and losses, as well as financial system losses, using a CoVaR approach based on quantile regression. We introduce a world biodiversity index and a measure called CoBiodiversity to capture the dependence of extreme sector losses and profits on changes in biodiversity, and vice versa. Furthermore, Delta CoBiodiversity and ExposureCoBiodiversity measures assess the response of the sector tail risk to biodiversity degradation and the vulnerability of biodiversity loss to deteriorating or improving sector returns, respectively. Our results show a biodiversity loss risk premium, particularly for losses in the Energy sector, and profits in the Financials and Information Technology sectors. We also find a high system's market risk conditional on biodiversity loss, particularly during periods of distress such as the 2008 global financial crisis and COVID-19. Finally, the Energy, Materials, and Industrials sectors contribute the most to biodiversity loss, while the Consumer Staples sector contributes the least. These findings are important for academics, regulators, and investors to understand the relationship between biodiversity and the financial system.
Carbon emissions are growing priority for policy makers, investors, and financial institutions. This study examines their impact on credit risk, as measured by distance to default, for listed financial institutions in emerging markets over 2013-2020, and distinguishing between Scope 1 (operational) and Scope 3 (financed) emissions. Our methodology uses quantile regression to analyze the impact of CO2 emissions on distance to default, which is estimated under the structural model using the maximum likelihood method proposed by Duan and Wang (2012). We find that financial institutions have reduced emissions, particularly after the 2015 Paris Agreement and UN Sustainable Development Goals. While CO2 emissions generally increase credit risk, their effect varies by institutional risk, financial development, and governance quality. In less developed regions, higher emissions are associated with financial stability, particularly for riskier financial institutions prioritizing growth and cost efficiency. Conversely, for healthier institutions under strong financial systems, regulatory pressures and investor scrutiny amplify the credit risk implication of both Scope 1 and Scope 3. Governance quality further shapes this relationship, with stronger enhancing environmental accountability in credit assessments. Our findings highlight the need for clear policies that incorporate sustainability into financial risk management.
Using a sample of 9,798 firms from 91 countries during the period from 2007 to 2018, this study investigates the relationship between greenwashing and investment efficiency. We argue that firms engaging in greenwashing exhibit higher information asymmetry by misrepresenting their environmental actions, which distorts investor perceptions and weakens managerial oversight, leading to opportunistic behavior and inefficient investment decisions. Moreover, greenwashing erodes trust among diverse stakeholders, raising financial risks and constraining resource access, thereby further impairing investment efficiency. Employing robust panel data regressions, we find consistent evidence that greenwashing significantly decreases investment efficiency, primarily by fostering underinvestment. These results remain robust to various sensitivity tests and endogeneity controls. Furthermore, the negative impact of greenwashing is more pronounced during economic crises and for firms facing severe financial constraints or operating in countries with weak legal frameworks. These findings underscore the significant role of greenwashing in influencing firm risk management and investment decision-making.
This paper aims to provide a novel framework for incorporating investor preferences that integrate sustainability criteria as a third objective in portfolio optimization problems. The approach is based on the concept of preference directions, changing the geometric properties of the objective space and guiding the direction of the multi-objective optimization. This reinterpretation of the dominance concept aids in obtaining the Pareto front solutions. Investors' preferences can be integrated before the optimization process without modifying the algorithm, or at the decision-making stage after obtaining the efficient frontier. We empirically test our approach's performance on actual socially responsible funds and on the S&P 500 index. Our findings suggest that this approach provides a better understanding of ESG preference integration by refocusing the region of interest, facilitating more effective investor decision-making. The benefits of our approach include improved portfolio sustainable construction and a more comprehensive understanding of investor preferences in sustainable investing.
This study examines how climate change affects foreign direct investment (FDI) in China using panel data for 287 prefecture-level cities from 2009 to 2024. Based on an integrated people-finance-infrastructure framework, we apply fixed-effects, instrumental-variable and propensity-score-matching methods to identify the impact and transmission mechanisms of climate risk. The results show that extreme weather significantly reduces FDI inflows. This effect mainly operates through weaker human capital and disruptions to digital infrastructure. Heterogeneity analysis indicates that northern and lower-tier cities are more vulnerable because of lower adaptive capacity and fewer administrative resources. Inclusive finance and financial liberalization help mitigate these adverse effects. The study provides city-level evidence on climate risk and FDI, with implications for regional adaptation and investment resilience.
In recent years, the presence of Chief Sustainability Officers (CSOs) and directors with NGO experience in S&P 500 firms has evolved significantly, yet limited research examines which firms are most likely to appoint them or how these profiles influence biodiversity reporting. Drawing on resource dependence theory, we investigate whether the presence and characteristics of CSOs, as well as directors with NGO backgrounds, affect subsequent biodiversity disclosure. We construct three variables capturing CSO presence and expertise (CSO, CSOExpert, CSONonExpert) and two variables measuring NGO-related board expers, NGO Dir Number). Analyzing S&P 500 firms from 2011 to 2022, we find that neither CSOs nor NGO-experienced directors are associated with immediate improvements in biodiversity reporting. Interestingly, non-expert CSOs correlate with an initial decline in reporting quality among firms with weak sustainability commitments. Our findings highlight a distinction between symbolic and substantive motivations behind CSO appointments.
Based on provincial-level panel data from China spanning 2010 to 2022, this study employs mediation effect models and spatial econometric models to investigate the intrinsic mechanisms through which green finance drives green innovation efficiency in high-tech manufacturing. Findings reveal that green finance effectively enhances green innovation efficiency in high-tech manufacturing, with results passing robustness tests. Mechanism analysis indicates that innovation factor mobility and industrial agglomeration levels partially mediate this relationship. Heterogeneity analysis shows that green finance's impact on green innovation efficiency is more pronounced in regions with low financial technology, low economic development, and low industrial agglomeration, while regions with stringent environmental regulations exhibit stronger driving effects. Spatial correlation analysis indicates that green finance development effectively enhances the green innovation efficiency of high-tech manufacturing within the region, while generating positive spillover effects on green technological innovation and negative spillover effects on scientific and technological achievement transformation in neighbouring regions.
A transformation of the financial system is needed, as investments in climate mitigation remain insufficient to achieve the goals of the Paris Agreement and fossil investments persist. Research on climate finance has focused on policy tools and actors, but lacks a holistic system perspective. Drawing on three Group Model Building (GMB) workshops with Dutch financial actors, this participatory study develops a qualitative system dynamics model that reveals mechanisms driving (un)sustainable investment behaviour, and, guided by Meadows' leverage point framework, identifies interventions and policies for transformative change. Findings suggest that reinforcing feedbacks (including learning, lock-in, passive investment, and system culture) can accelerate investment in sustainable assets. However, additional short-term coordinated action is needed. To this end, seventeen interventions for asset managers, asset owners, finance educators, supervisors, policymakers, civil society and researchers are proposed. The study advances system-level understanding of sustainable finance and supports policy design and coordination across the financial sector.
Based on the upper echelon's theory, the given study analyzes the relationship between managerial ability and green innovation by employing a sample of A-listed Chinese firms from 2003-2018. We find that there is a positive relationship between managerial ability and green innovation. The interaction terms finding suggest that board gender diversity weakens, while corporate governance quality strengthens this relationship. The outcomes signify the importance of strong governance mechanisms in creating an environment where management ability drives proactive environmental projects. Our study contribute to the growing body of knowledge by identifying managerial ability as a key determinant of green innovation. Our study findings have theoretical and practical implications for enterprises, policymakers, regulators, and key stakeholders eager to promote sustainability performance.
This study examines the dynamic, asymmetric, and regime-dependent interactions between green cryptocurrencies and ESG indices under external uncertainty. Using an integrated framework combining Time-Varying Parameter Vector Autoregression (TVP-VAR), Multivariate Quantile-on-Quantile Regression (M-QQR), Markov-Switching models, and Two-Stage Least Squares (2SLS), we show that ESG-crypto co-movements are highly conditional. Connectedness intensifies during periods of elevated market volatility, while remaining weaker in tranquil regimes. Financial uncertainty, proxied by the VIX, consistently amplifies ESG-crypto linkages, whereas geopolitical risk (GPR) exerts weaker and more heterogeneous effects. Green cryptocurrencies (ADA, XLM, XNO, XRP, and IOTA) exhibit limited static integration with ESG indices but display strong procyclical alignment in lower return quantiles, challenging their safe-haven role during systemic stress. Regime-switching and 2SLS results confirm robustness and rule out endogeneity. These findings offer important implications for ESG-oriented investors, policymakers, and risk managers integrating digital assets into sustainable portfolios.
This study investigates the effect of Corporate Social Responsibility (CSR) on Earnings Management (EM) and how the politically connected CEOs, an underexplored governance dynamic, moderate this relationship. While CSR is often perceived as a mechanism that promotes ethical behavior and transparency, its effectiveness may be compromised in firms with political connections. Using 2,444 firm-year observations from French-listed companies between 2010 and 2022, the results reveal that although CSR constrains earnings manipulation, its effectiveness is weakened in the presence of politically connected CEOs, who may benefit from reduced regulatory scrutiny and use CSR more as a reputational tool than as a genuine governance mechanism. These findings remain robust across alternative econometric specifications that address endogeneity, including two-stage least squares (2SLS) and two-step system GMM estimators. Furthermore, when CSR is disaggregated into its Environmental, Social, and Governance (ESG) pillars, the moderating effect of political connections appears to be heterogeneous across these dimensions.HighlightsOur study highlights how corporate social responsibility interacts with politically connected CEOs to affect earnings management practices in the French context.We focus on the French context due to the country's long-standing historical ties between business and politics and the influence of the 'grande & eacute;cole' system in training many leaders in both fields.To the best of our knowledge, our paper is the first to investigate how politically connected CEOs moderate the relationship between CSR and EM.The results of this study provide a new understanding of how the governance role of CSR is weakened in the presence of politically connected CEOs.
