Responsible Investment

Firms can ‘follow the money’ by internalizing ESG concerns

March 21, 2012
Image “Migration ” by David Fielding (CC BY-NC-ND 2.0)

In the introduction to the paper, Chava points to the steady increase of money devoted to SRI. The Social Investing Forum (US) reports that“$1 in every $8 ($3.07 trillion out of $25.1 trillion under management in the United States, as of 2010) is under SRI guidelines,” he says.“In addition to screening out undesirable stocks, investors can attempt to influence the environmental policies of firms through shareholder proposals and lobbying…. If SRI can make a difference to the cost of capital of affected firms, it has the potential to complement laws, regulations, and taxes in promoting environmentally responsible corporate behavior”he adds.

“I provide evidence that… firms with ….[negative] environmental concerns have lower institutional ownership and fewer banks participate in their loan syndicate than firms without such environmental concerns,” says Chava. “These results suggest that exclusionary socially responsible investing and environmentally sensitive lending and the consequent increase in the cost of equity and debt capital has the potential to prompt firms to internalize their environmental externalities.”

This study received an Honorable Mention in the 2011 Moskowitz Prize competition (awarded by the Center for Responsible Business at the Haas School of Business, in cooperation with the Social Investment Forum, the Moskowitz Prize promotes the concept, practice, and growth of socially responsible investing).


This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Firms can ‘follow the money’ by internalizing ESG concerns”, Sudheer Chava,, March 21, 2012.

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