Climate change shocks and socially responsible investments

Climate change's impact on investor behavior is a scantly investigated area in finance. This paper examines the performance of socially responsible exchange trade funds (ETFs) concerning conventional ETFs, in response to climate change events. We proxy climate change signals with a list of natural disaster events that NASA scientists relate to climate change. We contribute to existing literature, by using a very extensive information set of ETF strategies, not influenced by rating agencies' subjective evaluation policies, and covering almost 90% of the universe of worldwide sustainability thematic-oriented ETFs. This sample allows us to identify the socially responsible investment behavior in response to unpredictable climate change shocks. Our identification strategy accounts for endogeneity concerns and relies on two-stage least square (2SLS) approach finding that responsible investors react to climate change events by purchasing socially responsible investments. The relationship between climate change signals and return of investment in themes linked to the development of sustainability is positive. Interestingly enough, the sign of this relationship is different, when we disentangle the empirical results according to the asset type, confirming that investors shift their investments from equity funds to bond funds when market sentiment worsens. Our results indicate that policymakers should increase the support of firms adopting environmentally conscious business practices, while managers should boost a sustainable business strategy

People and investor attention to climate change

The paper analyses whether people’s attention to climate change emergency contributes to the stock market returns by accounting for the mitigation role of the corporate social performance proxied by ESG score. We address one research question: how does climate change attention affect the investors’ trading behavior and, consequently, the stock price returns of local firms? The Google Search Volume Index (GSVI) is used to evaluate the attention parameter. In a global setting, made by 2941 stocks in both advanced and emerging economies between 2006 and 2019, we revealed that attention to climate change helps investors to have a significantly positive effect on returns of stocks with high ESG scores compared to low sustainable stocks. Moreover, we observe an interesting changing in the relationship between corporate social performance and people attention, when deepening the analysis from the perspective of sectorial distribution. Our results are robust to different risk factor models, environmental policy stringency framework, sin industries focus, and when changing people’s attention indicator

The role of sustainability performance after merger and acquisition deals in short and long-term

A modern view of stakeholder theory considers that ethical behaviour and profit are not contradictory. Under this framework and in the Merger and Acquisitions context we would like to investigate whether companies with well-developed Corporate Social Responsibility engage stakeholders in a better manner and, thus, benefit from more effective acquisition processes and, as a result, better financial performance in the post-deal periods. Within this context, our paper aims to investigate the effect of Corporate Social Responsibility measured in terms of popular Environmental, Social and Governance scores on Mergers and Acquisitions performance. Based on more than 6500 initial deals, we disentangle the short- and long-term effects related to post-merger performance, by considering several econometric approaches, including event study and pooled regression. Our results indicate that sustainability factors in Mergers and Acquisitions are significantly correlated with long-term performance, and we observe evident improvements of financial ratios in the long run. Given the complexity of Mergers and Acquisitions operations and the challenges of Corporate Social Responsibility integration into the corporate culture of the acquirer, we realise that the short-term effects related to Corporate Social Responsibility component are irrelevant. After the completion of Mergers and Acquisitions deals, we also confirm improvement in terms of Environmental, Social and Governance scores for companies involved in the deal. In terms of policy implications, we assess that to obtain the best final outcome of the acquisition, managers should consider that the value for shareholders in terms both of financial and sustainability performance in the post-merger period is higher if the bidder company starts with a high sustainability level

Climate threats to bank default risk and financial stability: Any market concern about the ECB 2022 climate risk stress test?

This paper examines the market reaction to the 2022 publication of the first-ever ECB climate risk stress test results, revealing whether there is any concern about climate change threats to European financial stability. Bank default risk is measured through the CDS spreads from banks that the ECB tested on their climate risk resilience. Our findings reveal a significant increase in the risk premium required by market participants, specifically for short and medium CDS maturities. Interestingly, we also did not find evidence that ESG considerations can serve as a protective shield against risk premium, on the contrary.</div