Risk Mitigation of Corporate Social Performance in US Class Action                     Lawsuits

Fauser, Daniel V.; Utz, Sebastian

doi:10.1080/0015198x.2020.1861896

Cited by 28 publications

(16 citation statements)

References 59 publications

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“…Based on these positive effects among UN PRI signatories, management pursues an approach to incorporate ESG aspects in risk and asset management profitably (financialized ESG approach). A growing stream of literature (e.g., Fauser & Utz, 2021;Khan et al, 2016) documents clear indications that the integration of ESG criteria is financially important since it allows better-informed risk management and trading on otherwise unobserved underpriced assets. This financialized ESG approach-perspective argues that firms can act proactively to possible regulatory changes to ESG (strategies).…”

Section: Potential Benefits Of the Un Pri And Implicationsmentioning

confidence: 99%

Active First Movers vs. Late Free-Riders? An Empirical Analysis of UN PRI Signatories’ Commitment

et al. 2021

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Joining voluntary thematic initiatives can be a means for firms to legitimate their business activities. However, a lack of review mechanisms could create incentives for free-riding. This might lead to a lower commitment to the initiative’s principles, and endanger its credibility and its members’ legitimacy benefits. Whether members of voluntary initiatives take advantage of the opportunity to free-ride has not been analyzed empirically so far. To fill this research gap, we investigate from an institutional theory perspective the actual implementation behavior of publicly listed signatories of the United Nations Principles for Responsible Investment (UN PRI) in a difference-in-differences and an event study setting. Our empirical results show that, after signing, UN PRI signatories integrate environmental, social, and governance (ESG) criteria in their business activities significantly more than matched non-signatories from the financial sector, indicating the commitment of the signatories to the UN PRI in general. However, while the initial members show a high commitment to the initiative’s principles by increasing their ESG integration performance substantially, new members signing at a later stage of the initiative perform considerably less, and thus undermine the UN PRI’s credibility. We derive implications for voluntary thematic initiatives to avoid such a development.

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Section: Potential Benefits Of the Un Pri And Implicationsmentioning

confidence: 99%

Active First Movers vs. Late Free-Riders? An Empirical Analysis of UN PRI Signatories’ Commitment

et al. 2021

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“…Shakil (2021) finds that investors penalise the firms that have low ESG scores and high ESG controversies. Fauser and Utz (2021) find that an improvement in the ESG controversies reduces company litigation risk. Finally, Arribas et al (2021) indicate that ESG controversies affect the probability of being included in the Dow Jones Sustainability Indices World; although controversy-implicated companies listed in the index are penalised, companies that have not yet been selected for a listing do not improve their probability of being included by acting responsibly.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 90%

“…Indeed, prior research outlined that an aggregate measure of CSP is open to criticism, because positive and negative social actions are both empirically and conceptually distinct constructs and should not be combined (Lee et al , 2013). Thus, separating ESG performance and ESG controversies is an accurate approach to examine the explanatory power of positive and negative CSP (Fauser and Utz, 2021).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Because firm’s involvement in controversial activities disproves firms’ legitimacy, ESG controversies are expected to impact negatively on corporate financial results. Investors informed about ESG controversies may infer company misconduct as a sign of bad risk-taking behaviour and weak ESG risk management (Fauser and Utz, 2021).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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ESG controversies and the cost of equity capital of European listed companies: the moderating effects of ESG performance and market securities regulation

Rosa

Bernini

2022

IJAIM

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Purpose This paper aims to investigate the effect of environmental, social and governance (ESG) controversies on the cost of equity (COE) capital, exploring the moderating role of both positive ESG performance and market securities regulation. Design/methodology/approach This paper adopts a sample of 2,599 time observations related to European listed companies for which the authors examine a set of 30 negative ESG scores across the three pillars in terms of controversies, compliance and other negative issues. This study uses the average of seven implied COE estimates. Findings The results show that negative ESG performance, particularly environmental controversies, increases the COE, although this impact is mitigated when associated with company efforts to improve environmental performance. Besides, environmental controversies are likely to increase the COE in countries where the market regulation is stronger, as a consequence of higher investors’ expectations towards the scrutiny role of more efficient markets against companies’ controversies. Practical implications Companies should take care seriously of environmental issues such as biodiversity, product impact and resource impact, because investors do react accordingly. As despite no direct effects of positive ESG performance are observed in terms of COE reduction, the mitigating role on the ESG controversies–COE relationship makes ESG practices still significant for European investors. Social implications The effects of ESG performance on company financial performance should be investigated under the assumption that bad events weight more than positive ESG performance. Originality/value Because no prior studies have specifically assessed the effect of the European listed companies’ ESG controversies on their COE, this paper delivers insights into the relationship between positive and negative ESG performance and their effects on capital market financing.

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“…Analyzing this research question adds to the findings of Breitenstein et al (2020) that conclude that financial institutions can reduce their risk exposure by highly committing to environmental responsibility and performance. In this context, several other academic papers in the area of sustainable finance show that the consideration of environmental and social aspects in business activities reduces firm risk (e.g., Bouslah et al, 2013;Cai et al, 2016;Cui et al, 2018;Dorfleitner et al, 2020;Fauser & Utz, 2020;Godfrey, 2005;Godfrey et al, 2009;Gougler & Utz, 2020;Harjoto & Laksmana, 2018;Koh et al, 2014;Lins et al, 2017;McWilliams et al, 2006).…”

Section: Introductionmentioning

confidence: 99%

Values-Based and Global Systemically Important Banks: Their Stability and the Impact of Regulatory Changes After the Financial Crisis on it

Schäfer

Utz

2021

Asia-Pac Financ Markets

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We study the financial stability of Values-Based Banks (VBBs) and Global Systemically Important Banks (GSIBs), and how regulatory changes in the aftermath of the financial crisis affected bank stability. These two types of banks allow contrasting an environmental and social impact banking approach to a conventional one. VBBs exhibit significantly higher financial stability before and during the financial crisis. However, regulatory changes in the aftermath of the financial crisis requiring higher capital buffer, have significantly affected GSIBs and rendered the difference in stability levels insignificant.

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Risk Mitigation of Corporate Social Performance in US Class Action Lawsuits

Cited by 28 publications

References 59 publications

Active First Movers vs. Late Free-Riders? An Empirical Analysis of UN PRI Signatories’ Commitment

Active First Movers vs. Late Free-Riders? An Empirical Analysis of UN PRI Signatories’ Commitment

ESG controversies and the cost of equity capital of European listed companies: the moderating effects of ESG performance and market securities regulation

Values-Based and Global Systemically Important Banks: Their Stability and the Impact of Regulatory Changes After the Financial Crisis on it

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