Fabiola Schneider

Abstract

This thesis contributes to research in the field of sustainable finance. Sustainable finance encompasses a broad field, yet to be narrowly defined. Commonly, sustainable finance refers to issues revolving around environmental, social or governance factors. Recently, the field received widespread public attention from around the globe as it continues to experience steep growth both in academia and in the financial markets.

This thesis focuses on the environmental aspect of sustainable finance by offering insights on corporate decarbonisation strategy across asset classes - equity, fixed income, and private capital – and provides an analysis of mechanisms for investor impact across them.

After providing insight into the motivation for and contribution of this thesis in the first chapter, the second chapter links corporate sustainability disclosure to equity performance. I provide first evidence of the influence of Scope 3 emission reporting, and specifically downstream Use-of-Product emissions, in a sector without a clear transition plan: oil and gas. Framing the mobility crisis induced by Covid-19 restrictions as a natural experiment, which resembles potential future shocks related to the transition to a net zero economy, I use a difference in differences analysis to investigate the impact of Scope 3 emission reporting on share price returns for companies in the oil and gas sector. I find that reporting firms underperformed. This can indicate that, investors perceive reporting devoid of remediating actions as a false signal and penalise pointing to a problem without a solution rather than as a credible signal of awareness of transition risk.

The third chapter sheds light on the sustainability of the European Central Bank’s (ECB) corporate bond purchases as part of the Covid-19 rescue measures. I show that the likelihood of buying a European corporate energy bond as part of the ECB’s programme increases with the greenhouse gas intensity of the bond issuing firm. Moreover, the central bank’s purchases are titled toward companies with anti-climate lobbying activities and companies with less transparent emissions disclosure.
The fourth chapter looks at the legitimacy claims of impact investing firms. Impact investors pursue both the achievement of positive impact on the planet and the delivery of financial returns. They are thus distinct from investment firms that only follow commercial objectives and consider environmental, social and governance (ESG) factors from the perspective of financial risks and opportunities. While ESG investing has become mainstream, impact investment and the underlying double materiality has yet to be institutionalised and legitimised. Given that impact investment is still a nascent field it suffers from a heavier burden of proof. Relatedly, legitimacy has been recognised as a strategy to overcome the liability of newness. I demonstrate that impact investment firms distinguish themselves from philanthropy and additionally that impact investment firms are more likely to claim to be involved in partnerships, with academia and corporations. Moreover, I find that impact investment firms lay more emphasis on expertise and being data-driven than ESG firms. Lastly, they seek legitimacy by claiming investment in certain fields such as biodiversity or green technology.

The final chapter adds to the ongoing Voice versus Exit debate by introducing a new mechanism: Denial of (Re)Entry. By assessing the newly introduced and existing investor impact mechanisms in terms of the power of Voice, influence on cash flow, and influence on security price across the two asset classes - debt and equity - I demonstrate the critical role debt capital can play. Debt Denial has a direct cash flow effect which is particularly strong when the company needs to repay existing debt coming towards the end of its maturity. I suggest investors strategically use of this key moment to influence by threatening to deny fresh cash unless Paris Alignment is ensured. This can for example take the form of a sustainability linked covenant with a significant step up penalty in coupon rate if failing to meet the set target.