Do Woke Firms Go Broke? Part 1

Questions in Finance

Do Woke Firms Go Broke? Part 1

In this episode of 'Questions in Finance,' university professors Kate Holland and Veljko Fotak explore the intersection of corporate profitability and social responsibility. They examine whether companies prioritizing ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) practices can also deliver strong financial returns. Using historical financial perspectives and empirical evidence, they analyze corporate earnings, stock returns, and the effects of governance on firm performance. The episode delves into various aspects of ESG, including environmental impact and 'greenium'—the premium returns of environmentally conscious firms—highlighting the positive correlation between good ESG practices and financial success. Featuring studies and case examples, this comprehensive discussion addresses the financial and ethical dynamics of socially responsible investing in modern markets.

Timeline:

00:00 Introduction and Allbirds

03:42 Exploring the Concept of 'Woke' Firms

08:30 A Narrow View of Corporate Performance

14:05 Governance and Its Impact on Returns

21:13 Environmental Policies and Firm Returns

27:19 Correlation vs. Causation in ESG Performance

28:45 Historical Context of ESG Concerns

30:24 Back from Break: Discussing Corporate Responsibility

35:52 Green Firms in Brown Industries

44:31 Summarizing ESG Performance

45:49 Wrapping Up and Looking Ahead

Bibliography:

Bolton, Patrick, and Marcin Kacperczyk. "Do investors care about carbon risk?." Journal of Financial Economics 142, no. 2 (2021): 517-549.

Chan, Pak To, and Terry Walter. "Investment performance of “environmentally-friendly” firms and their initial public offers and seasoned equity offers." Journal of Banking & Finance 44 (2014): 177-188.

Griffin, Dale, Omrane Guedhami, Kai Li, and Guangli Lu. "National culture and the value implications of corporate environmental and social performance." Journal of Corporate Finance 71 (2021): 102123.

Derwall, Jeroen, Nadja Guenster, Rob Bauer, and Kees Koedijk. "The eco-efficiency premium puzzle." Financial Analysts Journal 61, no. 2 (2005): 51-63.

Friede, Gunnar, Timo Busch, and Alexander Bassen. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies." Journal of Sustainable Finance & Investment 5, no. 4 (2015): 210-233.

Gompers, Paul, Joy Ishii, and Andrew Metrick. "Corporate governance and equity prices." The Quarterly Journal of Economics 118, no. 1 (2003): 107-156.

Houston, Joel F., Sehoon Kim, and Boyuan Li. "One Hundred and Thirty Years of Corporate Responsibility." Working Paper (2024).

Pastor, Lubos, Robert F. Stambaugh, and Lucian A. Taylor. "Dissecting green returns." Journal of Financial Economics 146, no. 2 (2022): 403-424.

Soundtrack:

The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.