Corporate Environmental Responsibility

A Survey Paper on Corporate Environmental Responsibility

Student’s Name:

Instructor’s Name:

Course:

Date:

Table of Contents

1.0 INTRODUCTION.. 3

2.0 DO INVESTORS CARE ABOUT FIRMS’ ENVIRONMENTAL PERFORMANCE?. 7

2.1 Environmental risks and Investment decisions. 7

2.2 Institutional Investors and Environmental Performance. 8

2.3 The Impact of the ”Big Three”. 10

2.4 Corporate Green Bond and Green Signal 12

2.5 Environment Consciousness or Marketing Strategy?. 14

2.6 Index Funds and Monitoring Inefficiency. 16

3.0 ESG CRITERIA AND “GREENWASHING”. 17

3.1 Divestment and ESG rating. 18

3.2 Green Innovation and ESG rating. 24

3.3 Environmental Policy and Limited Liability Protection. 26

3.4 Climate Change and Financial Markets. 27

4.0 SHAREHOLDER WELFARE MAXIMIZATION OR SHAREHOLDER VALUE MAXIMIZATION?. 28

4.1 The Limitation of Market Value Maximization. 29

4.2 The Limitation of Welfare Maximization. 32

4.3 Social Impact of Investors’ Decisions. 33

4.4 Corporate Externalities and Ownership Structure. 34

5.0 NEW RESEARCH DIRECTION.. 35

5.1 Research Question and Motivation. 35

5.2 Theoretical Framework for an Incumbent Firm: Innovation versus Obsolescence. 37

5.3 Literature. 38

5.3.1 Sustainable investment equilibrium.. 38

5.3.2 The product market outcome of ESG investment. 39

5.3.3 ESG-innovation studies. 39