Talk or Walk the Talk? The Real Impact of ESG Investing

48 Pages Posted: 8 Nov 2023 Last revised: 9 Nov 2023

See all articles by Huiyao Chen

Huiyao Chen

University of Pennsylvania - The Wharton School

Date Written: May 19, 2023

Abstract

I propose a model to study how environmental, social, and governance (ESG) investors influence firms' ESG-related investments and disclosures. Paradoxically, when the firm manager can easily manipulate ESG disclosures, stronger investor ESG preference can decrease green investment: though investors attach a higher value to green outcomes, more greenwashing is induced, making ESG disclosures less reliable. Investors therefore give less reward to firms that claim to be green. Moreover, firms with poor business performance are particularly likely to greenwash and reap benefits from investors. My analysis raises concerns that the rise of ESG investing may have unintended consequences, especially when ESG-disclosure regulations are weak.

Keywords: Greenwashing, ESG, real effects, socially responsible investing, ESG reporting, externality

JEL Classification: G11, G23, G32, M14

Suggested Citation

Chen, Huiyao, Talk or Walk the Talk? The Real Impact of ESG Investing (May 19, 2023). Available at SSRN: https://ssrn.com/abstract=4612077 or http://dx.doi.org/10.2139/ssrn.4612077

Huiyao Chen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
405
Abstract Views
1,204
Rank
143,888
PlumX Metrics