Skip to main content

Yale Initiative on Sustainable Finance (YISF)

Our Publications

Virtues of impact financing: Do financial institutions benefit from considering the environmental impact on financing decisions?

Journal of Environmental Management

The impact investing literature largely focuses on private equity investing and overlooks the investments made through debt financing that actually dominate the market. To address this research gap, this paper investigates whether impact financing is associated with financial benefits. By using COVID-19 as an exogenous shock to China's stock market, this paper applies fixed effects panel data analysis with a difference-in-differences research design to provide robust empirical outcomes. The results reveal those financial institutions that better integrated environmental impacts into their financing process experienced positive stock return changes in response to the shock. This study answers the question of how well an impact scales. The findings suggest that impact financing is an effective model, as the impacts incorporated in the debt can be scaled up compared to impact investing funds with low volumes. Impact financing has enormous potential for financial institutions to engage in the green transition since they can derive pecuniary utility while delivering environmental impacts. The revelation of financial benefits also contributes to overcoming the lack of knowledge about impact financing and helps to remove the barriers that advance industry growth.

Fiduciary Duty and Climate Change: Thinking Beyond Short-Term Profit

I by IMD

Moldovan, T. Cort, M. Goldberg, J. Marlon, A. Leiserowitz.

Proposed SEC Climate Rules: Implications for the US Health Care Sector

NEJM Catalyst Innovations in Care Delivery 4, no. 6

Senay, I Liu, G. Mickel, J. Bialowitz, T. Cort, J.D. Sherman

Creating Shareholder Value by Improving Training and Health and Safety

Journal of Impact & ESG Investing

Escoffier, B. Herbert, T. Cort, L. Melin

The Sustainable Corporation: A Legal and Business Centric Approach to (ESG)

American Bar Association

Miller and T. Cort.

The Pragmatist’s Guide to ESG

Environment: Science and Policy for Sustainable Development 65, no. 4

T. Cort.

Zeroing in on Net-Zero: Marching Hard Law to Soft Law Commitments

University of Colorado Law Review

197 nations endorsed a target of net-zero greenhouse gas emissions (GHG) by the mid-twenty first century in the 2021 Glasgow Climate Pact. As countries around the world have begun to develop their deep decarbonization plans, it has become evident that the private sector will need to deliver much of what is required for the transition to an environmentally sustainable economy. The commitment to net-zero emissions by 2050 has therefore cascaded to the corporate world, leading hundreds of major companies to make their own net-zero GHG pledges. What constitutes a meaningful net-zero corporate pledge remains, however, rather unclear—and the appropriate contours of strategies to implement these commitments remain similarly opaque. In the absence of regulatory mandates, these company pledges could become little more than happy talk and may even be seen as greenwashing. But while governments have long dithered, other stakeholders —notably investors, consumers, NGOs, and the media—are scrutinizing the commitments put forward and pressing companies to explain their climate change strategies, business transformation intentions, investment plans, and reporting schedules including metrics, methodologies, and interim targets. This article explains why the scramble to make sense of corporate net-zero emissions targets matters—arguing that these pledges may emerge as a critical point of leverage in the effort to move society toward a sustainable economy, especially in the absence of comprehensive government climate change policies. It provides an analytical framework to highlight what net-zero pledges could mean—and should mean. It identifies key considerations and challenges that must be addressed in corporate GHG reduction strategies. And it documents how stakeholder demands for more robust disclosure regarding corporate net-zero pledges as part of a broader push for more rigorous Environmental, Social, and Governance (ESG) performance reporting could establish de facto global climate change rules for major companies—creating a self-regulatory soft law structure of emissions reduction guidelines and incentives ahead of governments specifying legal obligations.

The International Regulation and Coordination of Sustainable Finance

Netherlands Yearbook of International Law

Sustainable finance regulation, a new type of regulation, preoccupied by ad hoc concerns and pursued by novel instruments is emerging around the world. Sustainable finance regulation itself closely follows the rise of Environmental, Social and Governance (ESG) markets, which gained momentum after the conclusion of the Paris Agreement and due to growing investor pressures. While ESG markets have first operated under self-regulatory regimes, greenwashing controversies, growing climate-related risks, and environmental policy objectives have motivated regulatory responses at both national and international levels. Remarkably, the international coordination of these regulatory responses occurs largely outside the sphere of traditional standard-setters. This contribution explores the singularity and extent of the international regulation and coordination of sustainable finance, showing significant differences in the content and process of the international regulation and coordination of sustainable finance.

Disclosure of Corporate Risk from Socio-Economic Inequality

Growing socio-economic inequality poses one of the greatest challenges to society, thereby raising new questions about the responsibility of corporations to address its effects. Inequality also poses material risks on business performance, including inefficient production, reduced innovation, diminished human capital, shrunken market size, and greater financial frictions that can lead to instability. Growing inequality threatens to render ineffective existing sustainability and corporate social responsibility (CSR) strategies in the face of these societal challenges. Like climate risk, inequality can impact business across a broad set of sectors and economies on a global scale. To mitigate risks and leverage opportunities to generate positive outcomes from corporate sustainability investments, managers and investors need better data on the business risks posed by inequality and the impact of corporate conduct on it. However, as this article shows, the current transparency infrastructure is inadequate to meet this need. This article reviews the current state of corporate disclosure on inequality and assesses its utility to companies as well as investors and other stakeholders. Drawing on recent evolutions in climate change disclosure, we suggest a path forward for companies and investors to drive improved disclosure from companies on the risks presented by socio-economic inequality to their business.

What Can Hospitals Learn from The Coca-Cola Company? Health Care Sustainability Reporting

NEJM Catalyst

The climate crisis and the Covid-19 pandemic are revealing limits to the economic, environmental, and social resources and systems on which society depends. These dual crises are driving increased demand for transparent, equitable, and sustainable enterprise and, consequently, a significant change in business strategy and operations. Corporations of all kinds are undertaking a new form of accounting that not only captures financial performance, but also measures efforts to mitigate the destructive impacts that business operations have on the environment and society. Many corporations, such as The Coca-Cola Company, now publish regular reports using standardized frameworks to communicate progress in sustainability initiatives. In contrast, the U.S. health care delivery system — a financial behemoth that generates substantial adverse environmental and social impacts — has yet to engage in this important practice. In this article, the authors discuss the numerous benefits to the U.S. health care sector from mandated participation in cutting-edge sustainability management and accounting.

Mastering the Labyrinth of Sustainability: Toward a New Foundation for the Market Economy

Revue Européenne du Droit

Debate over how to transform capitalism and deliver a better functioning market economy has broken out on a number of fronts. In this regard, environmental sustainability has emerged as one of the areas of greatest focus as current business practices and our economic system more generally produce enormous amounts of pollution and waste – and threaten to transgress critical planetary boundaries. Most notably, the build-up of greenhouse gases (GHGs) in the atmosphere creates a risk of climate change as global warming leads to sea level rise, increased intensity of windstorms, as well as changed rainfall patterns that disrupt agriculture, displace people, and unleash more floods, droughts, and wildfires. This article challenges the prevailing economic framework, which permits – indeed, authorizes through the issuance of regulatory permits – levels of pollution, including GHG emissions, that now threaten life on Planet Earth. It calls for a restructuring of our market economy to create a sustainable capitalism based on a reinvigorated commitment to the polluter pays principle, operationalized through a framework of rules (environmental laws) that prohibit uninternalized externalities, thereby forbidding any spillover of environmental harm from private parties onto others or into the shared spaces of the commons at any scale (local, regional, national, or global) without full compensation being paid.

Busting the myths around public investment in clean energy

Nature Energy

Critics have opposed clean energy public investment by claiming that governments must not pick winners, green subsidies enable rent-seeking behaviour, and failed companies means failed policy. These arguments are problematic and should not determine the direction of energy investment policies.

Toward Enhanced Corporate Sustainability Disclosure: Making ESG Reporting Serve Investor Needs

Virginia Law & Business Review

Interest in metrics that track corporate sustainability performance has risen dramatically in recent years. Driven in part by sustainability-minded investors who want to better align their porfolios with their values and in part by corporations that seek to show how they have folded a focus on sustainability into their business models, the growth of corporate Environmental, Social, and Governance (ESG) reporting has become a topic of focus and concern in the finance world. Notably, in the absence of widely applicable and consistent ESG reporting requirements, those aspiring to make sustainable investments face a dizzying array of corporate ESG disclosures as well as sustainability metrics produced by third-party data firms. And they have come to recognize that the available ESG data are both incomplete and inconsistent--and sometimes even outright misleading. With the demand for firmer foundations for sustainable investing in mind, this article maps the ESG terrain--laying out the critical issues, highlighting the shortcomings of existing ESG reporting, and identifying what investors want in the way of sustainability data. Building on this analysis and a survey undertaken by the Yale Initiative on Sustainable Finance, the Article concludes with a set of recommendations for improved corporate ESG metrics and methodologies.

Values at Work

Sustainable Investing and ESG Reporting

Sustainable investing is a rapidly growing and evolving field. With investors expressing ever greater interest in environmental, social, and governance (ESG) metrics and reporting, companies face a sustainability imperative and the need to remake their business models to respond to an array of pressing issues including climate change, air and water pollution, racial justice, workplace diversity, economic inequality, privacy, corporate integrity, and good governance. From equities to fixed income and from private equity to impact-investing, investors of all kinds now want to understand which companies will be marketplace leaders in a business future redefined by sustainability. Thus, investment strategies, risk models, financial vehicles, applications, data, metrics, standards, and regulations are all changing rapidly around the world. In an effort to better understand the current status and movement of this dynamic field and to provide a practical reference for the growing pool of investors, financial advisors, companies, and academics seeking information on sustainable investing and ESG reporting, this edited book covers the latest trends, tools, and thinking. It showcases the work of authors from leading companies and academic institutions across a range of vital topics such as financial disclosure, portfolio assessment, ESG metrics construction, and law as well as regulation. Readers of the book will be better able to identify and address the hurdles to moving mainstream capital toward more sustainable companies, investments, and projects.

Toward Enhanced Sustainability Disclosure: Identifying Obstacles to Broader and More Actionable ESG Reporting

YISF White Paper

As a growing number of investors place increasing importance on corporate performance regarding Environmental/Social/Governance (ESG) issues, the calls to bring order and consistency to corporate sustainability data and disclosure grow louder and more frequent. At present, ESG reporting is marked by significant inconsistency in when, how, and what companies disclose. More specifically, some companies make deep, meaningful disclosures, while others provide little or no disclosure at all. Likewise, some companies follow established ESG methodological protocols, and others report on a self-defined (and often self-serving) basis. The ESG data and information made public are collected, moreover, by private data companies – including MSCI, Sustainalytics, Bloomberg, ISS/Oekom, Refinitiv and others – and then redistributed (in wide-ranging and often fundamentally inconsistent ways) as sustainability metrics that are sold to the investor marketplace. In light of the manifest inconsistencies and resulting doubt created about the quality and integrity of ESG data, many investors have expressed a need for better corporate sustainability disclosures and are frustrated with the lack of comparability and usefulness of the metrics and information presently available. In the face of this disclosure disorder, the U.S. Securities and Exchange Commission has been largely silent, leaving it to companies to determine which ESG information to disclose, on what basis, and in what format. In the absence of prescriptive guidance from the SEC, a host of “voluntary” disclosure regimes has emerged – sometimes referred to as an “alphabet soup” of ESG standards. Companies lack meaningful guidance as to which reporting frameworks and standards to follow – and investors are getting no closer to having the carefully structured, consistent, and decision-useful information that they want. Third-party rating firms (including those listed above and now dozens of others) have taken advantage of this void, sending companies extensive (many would say “burdensome”) questionnaires to complete. Their surveys often solicit information that is not material to the targeted companies or their industries. Companies spend significant time and money responding to these external sustainability surveys, but the data collected and metrics generated by the rating companies are of widely varying quality and aggregated in such disparate ways that investors have little confidence in their comparability, integrity, and utility. As a result, companies are overwhelmed with questionnaires – and investors still do not have the methodologically consistent and investment-grade information they need to properly integrate sustainability risks and opportunities into their portfolio analyses. This White Paper builds on a survey undertaken by the Yale Initiative on Sustainable Finance of executives from more than 100 public companies – supplemented with extensive interviews with dozens of corporate leaders and outside advisors – aimed at deepening the understanding of corporate ESG reporting practices, challenges, and thinking about how best to track and scorecard corporate sustainability performance. The study and interviews demonstrate the range of reporting practices followed by different companies. They also reveal the desire of many companies for greater clarity and guidance as to which ESG information to disclose and in what formats. In light of the problems identified, this White Paper proposes the creation of a standardized ESG reporting framework building on the work of the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Taskforce on Climate-related Financial Disclosures (TCFD), and the World Economic Forum (WEF). The proposal calls for mandatory disclosure by all public companies of: (1) a core set of ESG metrics under uniform data collection and indicator construction methodologies, and (2) an additional set of industry-specific disclosure obligations, along with (3) a framework for further reporting on a company-determined basis. The recommendations also advance a set of four procedural mechanisms to help ensure the quality of the ESG data reported and a commitment to continuous improvement in the information available to investors on corporate sustainability performance. Specifically, the White Paper calls for: (1) processes to validate the ESG data using assurance mechanisms designed to improve data quality and reliability; (2) an initiative to harmonize disclosure requirements across jurisdictional borders; (3) creation of sectoral working groups to refine industry-specific ESG reporting standards – building on the work of the TCFD, CFTC, and SASB; and (4) training programs for the key people within companies responsible for the production, review, and verification of ESG information as well as their legal and accounting advisors. In surveying the “state of play” regarding ESG reporting, highlighting the shortcomings that plague the existing patchwork of sustainability metrics, and suggesting a pathway toward a more robust framework for gauging corporate sustainability performance, this White Paper seeks to make it easier for investors to identify corporate sustainability leaders and laggards. Better data and methodologies should increase investor confidence in ESG scorecards and thus help steer capital toward those companies that are constructively responding to society’s profound sustainability challenges – including climate change, water and waste issues, structural inequality, and systemic racial injustice – and away from those enterprises that are not.

ESG Standards: Looming Challenges and Pathways Forward

Organization & Environment

We are pleased to serve as guest editors of this special issue of the journal Organization & Environment on the State of ESG (environmental, social, and governance) Standards. Calls for standardization of corporate sustainability data continue to mount as a growing segment of the mainstream investor community seeks greater clarity and comparability regarding relative company performance on ESG issues. While ESG reporting standards have driven greater transparency over the years, there remains a great deal of work to undertake in order to better understand and formulate the standards for ESG data that will underlie decision-useful information in future disclosures

Corporate Sustainability Disclosures in American Case Law: Purposeful Or Mere “Puffery”?

Berkeley Ecology Law Quartely

Recent years have shown an uptick in lawsuits involving sustainability disclosures, or lack thereof, by companies. In the United States,there seems to be a difference in the latitude given to plaintiffs with respect to “materiality” and “reliance” based on one, or a combination of, three factors: (1) the statutory scheme and the type of plaintiff interest being protected (i.e., investors versus consumers); (2) the location in which sustainability-related disclosure occurs or should have occurred (i.e., formal financial filing versus less formal sustainability statement), or; (3) the form in which the sustainability disclosure is presented to the public, for example, whether information looks more like an affirmative statement of fact, or an aspirational, vague promise to engage in sustainable practices. Based on a close examination of existing case law in the United-States, this paper takes the position that the third factor seems most important to judges when deciding if liability may be imposed in a sustainability case. As sustainability disclosure liability seem to stem from the form in which disclosures are presented, meaningful criteria will be needed to distinguish a “concrete” or “affirmative” sustainability disclosure from one that is merely “prospective” and “aspirational”.

Data-Driven Green Bond Ratings: A Market Catalyst

Journal of Investing

The authors diagnose the problems with the current green bonds market, and propose a solution: data-driven environmental performance ratings. Green bonds should be understood as an eco-label for a credence good. The current lack of a premium for green labeled bonds is due to a lack of investor confidence ('credence') in the environmental attributes of bonds. To solve this dilemma, the market should shift its mindset from verifying the type of bond to assessing the environmental performance of the bond. The authors provide a framework to help investors or rating agencies do so feasibly.

Incentivizing the Direction of Multi-capital Toward Inclusive Capitalism

Journal of Sustainable Finance & Investment

The financial system has been extraordinarily successful at moving capital to where it can create more financial value. But it has not been successful at moving capital to create social or environmental value. The result is large swaths of society and the environment that continue to need capital even as our global economy grows year over year. The resulting tension between those that have and those that need capital is leading to new frameworks for how capital can be conceived, measured and balanced. These multi-capital approaches bear the potential to create more responsible and sustainable companies. However, too frequently, multi-capital approaches are presumed to lead to inclusive or equitable distribution. This is a problematic presumption as one does not necessarily lead to the other and unless mechanisms are put into place to guide the development of multi-capital frameworks, the potential exists to exacerbate the disproportionate concentration of social and natural resources toward more wealthy groups of people. This paper explores the link between evolving multi-capital (financial, manufactured, social, intellectual, environmental and human capital) approaches and our ability to create more inclusive and equitable distribution of wealth and argues that in order to link multi-capital and inclusive capitalism, a series of fundamental reforms in shareholder agency will need to be adopted.

State of ESG Data and Metrics

The Journal of Environmental Investing, volume 8, no. 1

It is with great pride that we bring you this special issue of the Journal of Environmental Investing, looking for the first time at the State of ESG Data and Metrics, marking our 8th year of publication, and hosted for the first time by two leading academics at Yale, Professors Dan Esty and Todd Cort.
Guest Editors

Corporate Sustainability Metrics: What Investors Need and Don’t Get

The Journal of Environmental Investing, volume 8, no. 1

Traditional socially responsible investors use environment, social, and governance (ESG) metrics to exclude “bad actor” companies from their portfolios with little regard to the impact on returns. But new interest in sustainable investing has emerged from mainstream investors who hope to match or beat market results. The prevailing wisdom among mainstream investors suggests, however, that corporate sustainability leadership only rarely translates into financial success. This article challenges that conclusion. It argues that a “next generation” ESG framework could provide the rigor, integrity, and flexibility needed to meet diverse investor needs and might well demonstrate that some aspects of sustainability (but not all) deliver business gains.

The State of Corporate Disclosure on Well-being: A Review of Corporate Reporting Practices in the Food and Agriculture Sector in 2018

Presented at the 6th OECD World Forum on Statistics, Knowledge and Policy

Our paper reviewed the current state of corporate disclosure on well being. To do so, we mapped the information and metrics disclosed by forty-eight agricultural companies by stakeholder impacted, Sustainable Development Goal fulfilled, and the seven categories of the Sen, Fitoussi and Stiglitz definition of"quality of life". The current reporting framework appears to lack rigor and to leave many well-being issues uncovered. We observe that companies disclose mostly "effort-driven narratives" and metrics, informing about actions and strategies. Little information is provided on corporate impact on stakeholders’ well-being and no rigorous set of indicators emerges from the analysis. We identify critical disclosure gaps for the well-being of all stakeholder groups. Local communities disclosure, in particular, suffers from major limitations. First, the disclosure on corporate influence over national communities, through lobbying and tax payment (SDG16, Peace, Justice and Strong Institutions) is weak in coverage and in depth. Second, corporate measures of local communities’ environmental protection (and therefore health) just emerged. Disclosure on employees’ well-being, on the other hand, benefits from a more robust disclosure, as most of the information lay in the human resources department. Few best-practices are presented in this paper, along with discussions on emerging metrics. We argue that corporate reporting would benefit from a more rigorous reporting framework assessing the various dimensions of well-being.