Research Insights

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.

Climate change demands regulatory action from governments, yet most countries’ climate efforts are insufficient. A common concern is that firms’ lobbying activities partly hinder more aggressive climate actions, as they seek to influence politicians or policymakers to undermine, delay, or avoid pro-climate regulations or policies. Despite this fact, our understanding of the scope, motivation, and impact of firms’ climate lobbying activities is limited. Leippold et al. (2024) address this gap with a comprehensive analysis, offering insights into the following aspects.

The complexity of financial products has led to widespread recognition of the need to protect financial consumers. Many countries have systems in place that allow consumers to file complaints against financial service providers with regulators. Whereas some jurisdictions keep this information private for internal regulatory purposes, others have begun to disclose it publicly. Proponents of public disclosure argue it educates consumers and helps them make informed decisions. A notable example is the U.S. Consumer Financial Protection Bureau’s (CFPB) initiative to disclose consumer complaints against banks. However, this approach can potentially harm the reputation of financial institutions if the complaints are not presented with adequate context, leading to misleading perceptions.

Environmental protection is traditionally seen as a state responsibility, and the private market is meant to focus on creating shareholder value rather than preserving nature. Still, market-based solutions such as green investing have emerged. The research addresses whether green investment funds can influence firm-level environmental performance in relation to the presence of state environmental- and shareholder protection policies.

Over the last decade, researchers and practitioners have become increasingly interested in how firms can leverage managerial responses (MRs) to capitalize on positive reviews and mitigate the potential harm caused by negative reviews. Intuitively, companies should respond to negative reviews (MR-N) to mitigate the damage they cause, while offering more general responses to positive reviews (MR-P). However, the proportion of MR-P on TripAdvisor has consistently increased since 2006 and has surpassed the percentage of MR-N since 2013. Two key questions remain: Given the constraints of limited resources, should managers prioritize soothing unsatisfied customers or pleasing satisfied ones? What are the effects of MRs on customer review ratings and financial outcomes?