Research Insights

Key Takeaways Net-zero portfolios (NZPs), managing over $130 trillion USD in assets, align financial performance with climate goals. These portfolios reward firms that actively reduce emissions while excluding those lagging behind, driving market incentives for decarbonization. The study introduces distance to exit (DTE), a forward-looking metric that measures a firm’s risk of exclusion from NZPs based on its carbon footprint and decarbonization efforts. Firms with higher DTEs—seen as safer from exclusion—tend to have higher valuations but lower expected returns, highlighting the market’s pricing of carbon-transition risks. DTE serves as both a risk measure and a catalyst for action, incentivizing firms to accelerate decarbonization to remain in NZPs, while enabling portfolios to achieve up to 95% reductions in carbon intensity without sacrificing sector diversification. Source Publication: 

Key Takeaways The agricultural export value of Brazil has quadrupled over the last two decades due to rising global demand. Brazil’s agricultural export boom drives deforestation: between 1997 and 2019, trade-induced agricultural expansion led to the loss of 3.6 million hectares of forest. Trade-induced deforestation causes severe health consequences: it results in over 700,000 premature deaths, primarily from cardio-respiratory diseases linked to pollution from deforestation in upwind areas. The economic cost of these deaths is estimated at $513 billion USD—about 18% of Brazil’s total agricultural export value during the same period. These findings highlight the negative health impacts of trade-induced deforestation and the resulting regional inequality, because mortality costs and economic benefits are not always shared by the same populations. Source Publication: 

Key Takeaways This study develops a theoretical framework to explore how carbon taxes and financial market tools (e.g., sustainability-linked loans and bonds) interact in reducing carbon emissions. Carbon taxes remain the most effective tool for achieving emission reductions and increasing welfare but are often politically constrained. Carbon-contingent financing provides an alternative incentive for standard agents to adopt green technologies, but its effectiveness depends on the financial resources of environmentally motivated agents who are funding the transition. Although carbon taxes and market-based solutions can coexist, carbon-contingent financing may undermine political support for taxes, potentially reducing their overall effectiveness in addressing emissions. The model’s predictions emphasize the need for a balanced climate strategy, whereby carbon taxes and financial market solutions complement each other by targeting different regions or sectors with distinct characteristics. Source Publication: 

Executive agencies play a pivotal role in shaping the regulatory environment by crafting rules, enforcing regulations, and overseeing government contracts—all of which can have a profound impact on businesses. For firms, this potential impact creates a clear incentive for firms to influence these agencies, particularly during the critical stages of rulemaking and enforcement. In this context, lobbying emerges as a key tool that companies use to mold the regulatory landscape to their advantage. Unlike politicians, whose decisions are often swayed by electoral cycles and campaign contributions, agency officials are not elected, serve longer terms, and are less susceptible to direct political pressures. As a result, engaging in lobbying efforts with executive agencies is both more complicated and strategically crucial for firms operating within heavily regulated industries. However, the dynamics of such lobbying remain underexplored in the literature.

Climate change presents huge challenges for financial markets. How should firm-level exposure to climate change be measured? Does a risk premium for climate change exposure exist? If so, how does it evolve over time? Which underlying climate-related economic variables drive this risk premium? In light of these challenging questions, significant resources have been allocated to develop the area of climate finance to better grasp how the transition to a low-carbon economy affects financial markets. This paper provides additional evidence to understand more fully how climate-related risks and opportunities affect stock returns.

This paper explores green activist investing, whereby environmentally driven activists launch campaigns to promote green shareholder proposals aimed at reducing firms’ environmental impacts. Before 2017, such proposals were rare and seldom supported by large institutional investors. However, since 2020, their number has surged, averaging 55 per year, ranging from 30 in 2020 to 96 in 2023, with a variable success rate averaging 17%. The success of green proposals hinges on proxy votes by pivotal voters, mainly large institutional shareholders, who hold significant stakes across many firms. Together, BlackRock, State Street, and Vanguard alone own the largest shares in 75% of S&P 500 firms and cast 25% of proxy votes. These votes are publicly observable. Hence, this paper models green activism and proxy voting by strategic institutional blockholders who have heterogeneous reputational concerns and varying levels of commitment to green values.

Technological and organizational change (T&O) is widely regarded as a key driver behind the decreasing employment share of routine jobs, which typically involve repetitive and prescribed tasks. However, the disappearance of routine jobs does not automatically mean workers in these roles will exit employment and suffer earnings losses—although this scenario often dominates the popular public debate. Even if their current positions are eliminated due to T&O, they may transition to other roles that align with and complement the changes brought about by T&O, either within the same company or at different organizations. Michele Battisti, Christian Dustmann, and Uta Schönberg (2023) (BDS hereafter) provide an in-depth investigation of how firms and workers adapt to T&O in the context of Germany.

Many governments around the world are struggling with below-replacement fertility rates. Recent efforts to increase birth rates have produced disappointing outcomes, which contrast sharply with the success of anti-fertility policies implemented in the past. Is it systematically more difficult to raise fertility than to reduce it? If so, what are the micro foundations and the macro implications of this phenomenon? Zhou A, Pang C, Engle S. (2024) provides a comprehensive analysis of this issue.

In recent years, the appeal of socially responsible investing (SRI) has grown significantly among investors who are not only seeking financial returns but might also be motivated by a desire to support positive social and environmental outcomes. SRI funds position themselves as instruments of driving ESG change, claiming to invest in companies with strong ESG practices. Some funds further assert that they actively work to improve the ESG behaviors of firms within their portfolios. However, a key question remains: Do these funds genuinely influence corporate behavior, or are they merely curating portfolios of companies that already demonstrate stronger ESG credentials? Heath et al. (2023) offer an in-depth examination of this issue.