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Research Master Pre-Defense

How Do ESG Investors and Environmental Regulation Affect Sustainable Investments?

  • Series
    Research Master Defense
  • Speaker
    Walter Verwer
  • Location
    Erasmus University, Mandeville Building, room T18-25b
    Rotterdam
  • Date and time

    August 30, 2022
    13:30 - 14:30

I analyse the relationship between environmental regulation and investors’ preference for sustainability and its implications for firms’ sustainable investments. In my model a firm has access to a green and a brown technology to generate cash flows, and the firm can adjust to which degree the cash flows are coming from both technologies. There exists an ambiguous complementarity between regulation and sustainability preferences for inducing the firm to become more sustainable. Regulation and preferences strengthen each other for brown firms. For green firms they weaken each other. Moral hazard is found to have an overall dampening effect on investment into sustainability. This dampening effect is strongest for firms in the middle of transitioning.