Abstract: We study how a representative sample of the U.S. population evaluates the morality
of a broad range of corporate actions. The corporate actions we consider include
classic textbook decisions related to maximizing firm value, as well as decisions related
to environmental, social, and governance (ESG) concerns. Our core findings
are that: (i) all corporate actions we consider are perceived to be not just financial
but also moral issues; (ii) classic finance textbook issues, such as CEO pay, labor
cost reductions, corporate taxes, and financial leverage, are perceived to be significantly
more of a moral issue than more recently emphasized ESG issues, such as
renewable energy usage and workforce diversity; (iii) participants trade off moral
concerns against monetary costs; (iv) shareholders have a greater willingness to pay
for morally desirable corporate actions than customers or employees. Although we
observe significant and plausible heterogeneity across participants in the absolute
importance given to moral considerations, the relative ranking of the morality of different
corporate actions is surprisingly stable across participants. Our results have
broad implications for theoretical and empirical work in financial economics, as well
as for finance practitioners.
Discussant: Sascha Füllbrunn, Radboud University Nijmegen
Aymeric Bellon, University of North Carolina-Chapel Hill
Yasser Boualam, University of Pennsylvania
Abstract: Polluting practices can reduce costs in the short-term at the expense of exposing firms to significant environmental liability risk. This paper examines whether firms increase their pollution intensity as they become more financially distressed, akin to a risk-taking motive. We construct granular pollution measures for the oil and gas industry and empirically confirm the prominence of this channel therein. We then calibrate a rich dynamic model featuring endogenous default, clean and dirty capital, and financing frictions to study and quantify the relationship between financial distress and pollution. Our counterfactuals point to the limited impact of blanket divestment campaigns, as firms may scale down and pollution-shift their assets simultaneously. Tilting strategies are more effective at taming overall pollution.
Abstract: This paper leverages a large-scale field experiment with an online supermarket (N=255,000) where consumers are offered carbon offsets that compensate for emissions. Consumers are price-elastic but fully inelastic to the environmental impact of the offsets---consistent with ``warm glow" utility. When the firm offers to share the offsetting costs, consumers become both more price- and impact-responsive and exhibit an implicit willingness to pay for carbon mitigation of 16 EUR/tCO2. This result highlights an important role of sustainable firm investments in encouraging consumers to lower their carbon footprint. If the firm offers carbon offsets but charges consumers the full price, cash flows fall by 2%. This negative effect can be fully compensated if the firm shares the costs with the consumer. This finding challenges the common view that corporate sustainable investment sacrifices cashflows.
Discussant: Florian Heeb, Massachusetts Institute of Technology
Abstract: This paper studies capital reallocation in the fossil fuel industry by investigating who
owns coal power plants – the largest single source of global greenhouse gas emissions.
We build a bottom-up measure of the ownership of these brown assets by merging asset-
level data on firms’ plant ownership (real capital) in Europe with firms’ shareholder data
(financial capital). We document a sharp increase in private firms’ coal ownership since
2015, accompanied by a large decline in public equity ownership. A formal decomposition
shows that the large decline in public equity ownership was however not due to capital
reallocation (“exit”) but to capital utilization: these investors scaled down plants, not
sold them. Instead, state investors played a crucial role: they sold to private firms, while
being the slowest at scaling down their plants. We illustrate the economics of brown
capital allocation by calibrating a model in which asset owners vary in how they value
externalities. The possibility of nationalization of coal plants by state investors that
value social factors (e.g. jobs, “energy security”) is an important limit to the ability of
“green finance” to decrease aggregate emissions, in line with recent episodes in Germany
and Poland.
