Two essays on ESG

Abstract

This dissertation consists of two essays on ESG (Environment, Social, and Governance), exploring how personal experiences and financial market dynamics influence sustainable investment and financial inclusion.

The first essay investigates the impact of personal experiences with climate extremes on sustainable investment behavior. Utilizing unique data from Alipay’s green fund platform in China, the study finds that exposure to abnormally hot temperatures significantly increases retail investors’ engagement with green financial products. Specifically, temperature shocks lead to substantial growth in both the frequency and volume of green fund investments, driven primarily by social motivations rather than financial returns. Moreover, the effect is more pronounced among traditionally less environmentally concerned groups, such as male and lower-income investors, and is complemented by increased participation in other eco-friendly activities. These findings highlight the potential of personal climate experiences to enhance environmentally sustainable financial decisions.

The second essay addresses the social dimension of ESG by examining how financial development through increased bank competition can mitigate gender inequality in credit markets. Leveraging India’s 2005 branching reform and employing a regression discontinuity design, this research demonstrates that greater bank competition significantly enhances credit access for female-led small businesses. Notably, improved credit conditions for women are concentrated in areas with prevailing discriminatory norms and branches staffed predominantly by males, aligning with theories of market-driven reductions in discrimination. Furthermore, the reform promotes female entrepreneurship, signaling broader positive implications for women’s economic empowerment.

Collectively, these essays contribute to understanding the interplay between financial mechanisms, individual beliefs and behaviors, and ESG outcomes, emphasizing the role of finance in promoting environmental sustainability and social inclusion.