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:
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
Corporate Disclosures for Green Supply Chains: Evidence from Scope 3 Emissions Disclosure
The paper sought to understand the role of corporate disclosures in greening supply chains – specifically, whether Scope 3 emissions disclosures can be used to reduce an organisation’s carbon emissions. Scope 3 emissions are those that are not produced by the organisation directly and are not the result of activities from assets that are either owned or controlled by them.
The results of Prof Yang’s study suggest that mandating the disclosure of Scope 3 emissions information will help to reduce the emissions of greenhouse gases.
Author(s): Holly Yang, Associate Professor of Accounting , Cho Young Jun, Associate Professor of Accounting , Kim Jungbae, Assistant Professor of Accounting , Yang Mengjie, Lecturer, Monash University
Published in/Presented at: MIT Asia Conference in Accounting 2023
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
When Do Corporate Good Deeds Become a Burden? The Role of Corporate Social Responsibility Following Negative Events
This study investigates the differential roles of corporate social responsibility (CSR) in the context of negative events. By categorizing CSR and negative events by their respective stakeholder groups, primary and secondary stakeholders, the authors theorize and test differential impacts of CSR and their interaction effects with different types of negative events.
Author(s): Yoonseok Zang, Associate Professor of Accounting, Singapore Management University, Changhyun Kim, China Europe International Business School (CEIBS), Heli Wang, Lee Kong Chian School of Business, Singapore Management University, Kate Niu, China Europe International Business School (CEIBS)
Published in/Presented at: Journal of Business Ethics, Volume 192, pages 285–306, (2024)
The uneven benefits of CSR efforts
To determine the effect of sustainability-related activities on firm value, academics from SMU and INSEAD have embarked on a research project that effectively narrows the scope of CSR efforts to concrete and measurable environmental and social (E&S) activities; for example, redesigning factory processes to reuse water. By zooming in on observable improvements in future operating performance and stock returns, the researchers were able to quantify how E&S activities led to benefits for some – but not all – firms. Interestingly, the impact of E&S activities on future operating performance was largely dependent on company-specific factors such as the nature of assets owned by the business.
Author(s): Grace Fan, Assistant Professor of Accounting
Published in/Presented at: Research@SMU, SMU/NUS/NTU Accounting Research Conference 2021
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
