Academic Publications

We provide a synthesis of four decades of empirical research regarding the reaction of shareholders to environmental events. This literature is at the crossroads of finance, environmental economics, management and corporate social responsibility (CSR). To set the stage, we first provide an account of the Brumadinho ecological disaster that occurred in Brazil on January 25th, 2019. Second, we provide a critical review of more than 100 event studies. These papers cover a diverse set of events, such as industrial accidents, public disclosure programs, legal actions following environmental violations, changes in environmental regulation, environmental news, and corporate initiatives. This review makes four contributions. First is the synthesis of a large strand of literature in a structured setting, so as to be readily handled by both experts and non-experts. Second is the observation that stock market penalties in the event of environmental concerns are likely to be quite low: on average there is a (temporary) drop in the excess stock market return to events that are harmful to the environment of about 2% and the median is −0.6%. Third is to highlight the limits of CSR as a business strategy towards a sustainable society. Fourth is to provide an open access bibliographic database. 

By matching socially responsible (SR) stock indexes worldwide with their conventional benchmarks, the authors study the resilience of SR investment strategies during the COVID-19 crisis. Overall, SR indexes exhibited dynamics very similar to their benchmarks. The sample is composed of 573 SR stock indexes from MSCI, STOXX, and FTSE. In the first half of 2020, the average daily return was –0.11% for SR indexes and their benchmarks, with annualized volatility of 40% for each. SR indexes remained very close to their benchmarks during both the fever period (February 24–March 20) and the rebound period (March 23–May 29). The financial performance of SR strategies shows substantial heterogeneity, however, with SR impact strategies slightly outperforming their benchmarks. In addition, the resilience of SR strategies was a little stronger in countries and during periods in which the number of COVID-19 cases was increasing. In robustness checks, the authors control for public attention to the COVID-19 pandemic, as well as the economic effects of new policies implemented during the crisis, including lockdowns, and fiscal and monetary policy changes. Their findings call for careful SR investment selection because not all such investments have provided equal returns in the face of the COVID pandemic.

French : L’ISR est aujourd’hui bien implanté auprès des professionnels de la finance (gestionnaires de fonds ou investisseurs institutionnels) chez lesquels il rencontre un large succès. Toutefois, il peine à susciter le même engouement auprès du grand public, mis à part quelques particuliers au profil bien précis. Dans cet article, les auteurs1 essaient de comprendre les réticences des épargnants et proposent deux types d’explications : l’une renvoie à la défiance du public vis-à-vis des banques et des marchés financiers en général ; l’autre est liée à la façon dont les professionnels communiquent en particulier sur l’ISR en vantant ses performances financières ou sa résilience et en se gardant bien, le plus souvent, de s’engager sur les aspects extra-financiers.

English : SRI is now well established among financial professionals (fund managers or institutional investors), where it has met with widespread success. However, it is struggling to generate the same enthusiasm among the general public, apart from a few individuals with a very specific profile. In this article, we try to understand the reluctance of savers and propose two types of explanation: the first relates to the public's distrust of banks and financial markets in general; the second is linked to the way in which professionals communicate about SRI in particular, praising its financial performance or resilience and generally refraining from committing themselves to extra-financial aspects.

4. ESG Reputation Risk Matters: An Event Study Based on Social Media Data, with Nicolas, G., Caccioli, F., & Aste, T. Finance Research Letters

We investigate the response of shareholders to Environmental, Social, and Governance-related reputational risk (ESG-risk), focusing exclusively on the impact of social media. Using a dataset of 114 million tweets about firms listed on the S&P100 index between 2016 and 2022, we extract conversations discussing ESG matters. In an event study design, we define events as unusual spikes in message posting activity linked to ESG-risk, and we then examine the corresponding changes in the returns of related assets. By focusing on social media, we gain insight into public opinion and investor sentiment, an aspect not captured through ESG controversies news alone. To the best of our knowledge, our approach is the first to distinctly separate the reputational impact on social media from the physical costs associated with negative ESG controversy news. Our results show that the occurrence of an ESG-risk event leads to a statistically significant average reduction of 0.29% in abnormal returns. Furthermore, our study suggests this effect is predominantly driven by Social and Governance categories, along with the "Environmental Opportunities" subcategory. Our research highlights the considerable impact of social media on financial markets, particularly in shaping shareholders' perception of ESG reputation. We formulate several policy implications based on our findings. 

Policy Papers

During the COVID-19 pandemic, while the world economy suffered the worst crisis since the Great Depression, the response of stock markets has raised concerns. Several economists (including some Nobel laureates) have seen these reactions as evidence that stock markets are not fully efficient, while others have emphasized the difficulty of assessing the dramatic flow of information about the pandemic and its economic consequences. In this paper, we assess how stock markets have integrated public information about the COVID-19, the subsequent lockdowns and the policy reactions. Although the COVID-19 shock has been global, not all countries have been impacted in the same way, and they have not reacted in the same way. We take advantage of this strong heterogeneity. We consider a panel of 74 countries with daily information about the health and economic crisis, from January to April 2020. Stock market reaction can be summarized as follows. 1) Stock markets initially ignored the pandemic (until Feb. 21), before reacted strongly to the growing number of infected people (Feb. 23 to Mar. 20), while volatility surged and concerns about the pandemic arose; following the intervention of central banks (Mar. 23 to Apr. 30), however, shareholders no longer seemed troubled by news of the health crisis, and prices rebound all around the world. 2) Country-specific characteristics appear to have had no influence on stock market response. 3) Investors were sensitive to the number of COVID-19 cases in neighbouring but mostly wealthy countries. 4) Credit facilities and government guarantees, lower policy interest rates, and lockdown measures mitigated the decline in domestic stock prices. Overall, these results suggest that stock markets have been less sensitive to each country’ macroeconomic fundamentals prior the crisis, than to their short-term reaction during the crisis. However, our selected variables explain only a small part of the stock market variations, so it is hard to deny that the link between stock price movements and fundamentals have been anything other than loose. 

Working Papers

1. Carbon Curse: As you extract so you will burn, with Kirat, Y., & Reisinezhad, A., submitted Energy Economics

The 'Carbon Curse' theory suggests that fossil fuel richness leads countries to have more carbon-intensive development trajectories than they would otherwise. Using causal inference for cross-country panel data spanning 1950-2018, we globally estimate the effect of giant oil and gas discoveries on carbon emissions. Our findings show the effect is sizable and persistent. Countries that discovered giant fossil fuel fields emit roughly 30% more pollution post-discovery than countries without these discoveries. This effect is stronger in developing countries and is substantial from the date of the first giant discovery. By exploiting the randomness of the timing of discoveries, we provide the first plausibly causal evidence in support of the 'Carbon Curse'. 

2. Shareholders and the Environment: A Meta-analysis, with Capelle-Blancard, G. & Scholtens, B., submitted Journal of Economic Surveys

Despite the growing interest in sustainable finance, concerns remain regarding investors' responsiveness to environmental issues. This paper aims to examine the reaction of shareholders to news concerning environmental events. Through a comprehensive meta-analysis of 132 empirical studies encompassing the period from 1959 to 2020, we extract and analyze 6,135 estimates of changes in market value following eco-harmful and eco-friendly events. Our findings reveal small and asymmetric responses from shareholders. Specifically, we observe a statistically significant yet modest decrease in market value following negative news, while positive news fails to have a significant impact. Moreover, our analysis highlights that investor response is triggered by accidents, environmental regulation, or corporate environmental practices. These results contribute to our understanding of the dynamics between shareholders and environmental events, shedding light on the need for further examination of investor behavior in sustainable finance. 

3.  Towards Greener Economies (Job Market Paper)

Work in Progress