Involuntarily green? Corporate donations to politicians and their votes on environmental legislation

Abstract

Involuntarily green firms—those whose environmental score increases after mandatory environmental regulations pass—try to lessen their compliance burden by donating to “traditionalist” politicians who frequently vote against recommendations by the League of Conservation Voters (LCV). To achieve this goal, involuntarily green firms target legislators staffing congressional committees that oversee the EPA or politicians with influence over local environmental agencies. Involuntarily green firms exhibit significantly higher market-adjusted abnormal stock returns when their supported politicians narrowly win congressional races. Moreover, a $1 gift by green firms to traditionalist politicians is associated with a $900 market capitalization increase when LCV-opposed bills pass.

Keywords: ESG, Political Donations, Environmental Cost-Cutting, Environmental Laws

JEL Classification: D72; G38; P48; Q58