Corporate Sustainability
Our scholars in this research cluster are committed to investigating the measurement and disclosure of corporate environmental and social performance. Our researchers delve into various aspects of this topic, including the factors that determine the quality of ESG ratings and sustainability reporting and disclosure. Our experts also explore the tangible impact that corporate sustainability disclosure can have on both financial and real outcomes. Through our research, we aim to advance understanding of the role that businesses can play in creating a more sustainable future and to support the development of effective policies and practices to promote sustainable business practices.
We highlight a selection of our faculty’s research into corporate sustainability below:
Does Regulatory Disclosure Improve Environmental Justice Outcomes? Evidence from EJScreen
We study how information provision by regulators via mapping tools shapes regulatory oversight, public scrutiny, and firm behavior in the context of environmental justice (EJ). Our setting is the sequential private and public releases of EJScreen, the U.S. Environmental Protection Agency (EPA)’s mapping tool that consolidates dispersed demographic and environmental data into accessible, intuitive maps. Using difference-in-differences analyses, we show that the tool’s internal launch increased EPA monitoring of facilities in vulnerable communities identified by the map, followed by reductions in targeted pollutants, while its public release spurred non-governmental organizations (NGOs) campaigns and broader civic attention. Importantly, we also document spillover effects following the tool’s public launch: reductions in greenhouse gas (GHG) emissions, which are not directly targeted by EJScreen but are of broader concern. The effects on GHG are stronger in areas with greater media presence and public engagement, and are robust to complementary analyses using a comparable California screening tool. Overall, our findings highlight how regulator-produced EJ disclosure through an integrated mapping tool can empower scrutiny by both regulators and the public to advance EJ initiatives.
Author(s): Grace Fan, Assistant Professor of Accounting, Trung Nguyen, Harvard University - Business School (HBS), Xi Wu, University of California, Berkeley - Haas School of Business
Published in/Presented at: The RayBall JAR Conference
Shifting the Spotlight: Do Firms Change Their Advertising Strategies after ESG Reputational-Damaging Events?
This study uses granular advertising exposure data to examine how firms adjust observable advertising visibility following ESG incidents across local markets. We find that firms, on average, reduce advertising visibility immediately after ESG incidents, consistent with a visibility-reduction strategy aimed at limiting stakeholder exposure during periods of heightened reputational risk. These reductions are concentrated in environmental and social (E&S) incidents and are stronger in regions with higher E&S sensitivity. Further analyses show that reductions are not driven by efforts to address underlying E&S issues but instead reflect a tactical reallocation of advertising visibility away from high-sensitivity regions to low-sensitivity regions. The negative valuation effects of E&S incidents are significantly mitigated when firms reduce advertising exposure in the month following the incidents. We also find spillover effects, as firms cut advertising when their suppliers or product-market peers experience E&S incidents. Our findings uncover a complex corporate visibility strategy varying across geographic market and over time.
Author(s): Wang Rencheng, Associate Professor of Accounting, Singapore Management University, Wang Yin, Assistant Professor of Accounting, Singapore Management University, Tinghua Duan, Associate Professor of Finance, EDHEC Business School. , Frank Weikai Li, Associate Professor, City University of Hong Kong
Published in/Presented at: AFAANZ Annual Conference 2026; ARCS Annual Research Conference 2026; EAA Annual Congress 2026; 2025 Dishui Lake International Conference in Finance; Accounting Research Summer Camp 2025
Green Innovation and Firms’ Financial and Environmental Performance: The Roles of Pollution Prevention versus Control
This study examines the effects of firms' green innovation on their future financial and environmental performance. If pollution is primarily a manifestation of wasted resources, then investments in pollution prevention technologies can both reduce the environmental impact of production and improve financial performance. In contrast, investments in pollution control technologies likely reduce the environmental impact of production without improving financial performance. Using green patents to capture firms' investments in these two types of technologies, we find that the value of a firm's pollution prevention patents is positively associated with its future financial and environmental performance, and that the positive impact on future financial performance is achieved through improvements in sales growth and cost efficiency. In contrast, the value of a firm's pollution control patents is not associated with its future financial or environmental performance. Overall, these findings shed light on the future implications of green innovation.
Author(s): Cheng Qiang, Lee Kong Chian Chair Professor of Accounting and Dean of the School of Accountancy, Lin An-Ping, Associate Professor of Accounting, Yang Mengjie, Monash University
Published in/Presented at: Journal of Accounting and Economics, Volume 79, Issue 1, February 2025, 101706
Do Commercial Ties Influence ESG Ratings? Evidence from Moody’s and S&P
We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long-term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.
Author(s): Liandong Zhang, Deputy Dean and Lee Kong Chian Professor of Accounting, Yun Lou, Associate Professor of Accounting, Xuanbo Li, City University of Hong Kong
Published in/Presented at: Journal of Accounting Research., Volume 62, Issue 5, November 2024, Honourable Mention at the 2024 Moskowitz Prize
Beyond the Disaster Zone: How Disruptive Climate Events Shape EPA Oversight and Firm Behavior
We examine how experiences with disruptive climate events impact the Environmental Protection Agency’s (EPA) monitoring activities and subsequent firm behaviors. Using plausibly exogenous variation in the exposure of EPA regional offices to major hurricanes, we find that exposed EPA regulators increase their monitoring efforts, measured by both inspection frequency and length, at facilities located in their jurisdictions but outside the disaster zone. This effect diminishes over time and is stronger for regulators located closer to the disaster area or experiencing the disaster for the first time. Importantly, the heightened regulatory monitoring following disasters has real effects on regulated facilities–they face more enforcement charges, reduce pollution, and increase voluntary environmental disclosure. Moreover, affected firms shift pollution from facilities overseen by disaster-exposed EPA regional offices to other facilities. Our findings highlight the role of personal experience in shaping regulators’ monitoring activities and their subsequent effects on firms.
Author(s): Grace Fan, Assistant Professor of Accounting, Singapore Management University, Trung Nguyen, Harvard University - Business School (HBS), Xi Wu, University of California, Berkeley - Haas School of Business
Published in/Presented at: Accountability in a Sustainable World Quarterly, December 2024 - Volume 3, Issue 1
ESG Reporting Divergence
With the array of different reporting frameworks that are in use, there can be inconsistencies in certain reported information – for example, carbon-monoxide emissions are not reported under certain frameworks. Where certain disclosures are not mandated, companies can also choose what they want to disclose, which makes it difficult for users to compare these firms with their peers.
The study found that ESG reporting divergence results in more ESG-rating disagreements between rating providers like Sustainalytics, MSCI and Bloomberg. Additionally, this divergence increases the costs associated with processing ESG information and makes the information less useful to ESG-rating providers and fund managers.
Author(s): Cheng Qiang, Lee Kong Chian Chair Professor of Accounting, Lou Yun, Associate Professor of Accounting, Ms Yang Mengjie, Lecturer, Monash University
Published in/Presented at: MIT Asia Conference in Accounting 2023
Going Green: The Governance Role of Environmental Regulations on Firm Innovation and Value
We study the governance role of EPA regulations in disciplining and incentivizing firms' environmental strategies by examining their overall effect on corporate innovation and valuation. Using the universe of EPA enacted rules and a difference-in-differences approach exploiting large changes in the restrictions of EPA regulations at the industry level, we find that stricter EPA regulations not only reduce pollution but also increase firm innovation, especially green innovation. Moreover, stricter EPA regulations, especially innovation-related ones, are associated with an improvement in firm value, and the positive valuation effect is stronger for firms subject to higher threats of weak corporate governance and managerial myopia. Our results suggest that properly designed environmental regulations can serve as an external governance mechanism and benefit firms by overcoming inefficiencies in internal governance.
Author(s): Grace Fan, Assistant Professor of Accounting, Singapore Management University, Xi Wu, Assistant Professor, University of California, Berkeley
Published in/Presented at: MIT Asia Conference in Accounting 2023
Can High Quality Financial Audit Assurance Substitute for CSR Assurance? Evidence from Spillover Effects of Engaging Big N Auditors
We investigate the spillover effect of Big N financial auditors on client firms’ CSR disclosure quality. Using an international sample of firms from 34 countries over the period 2008-2018 and using a measure of CSR disclosure quality from Sustainalytics, an independent CSR research firm, we find strong evidence that Big N auditors are positively associated with CSR disclosure quality. In cross-sectional analysis, we find that the relation between Big N auditors and CSR disclosure quality is accentuated when the information environment is poorer and when the financial reporting environment and legal institutions are weaker. Finally, we document that firms with Big N auditors also exhibit better CSR performance. Our study extends the literature by showing that engaging Big N auditors has positive spillover effects that enhance both CSR disclosure quality and CSR performance.
Author(s): Jimmy Lee, Associate Professor of Accounting, Singapore Management University, Chee Yeow Lim, Associate Professor of Accounting, Singapore Management University, Gerald J. Lobo C.T. Bauer College of Business University of Houston, Yanping Xu Management School Jinan University
Published in/Presented at: Accounting Research Summer Camp