The Clash between “E” and “S”: Evidence from Chinese firms

Description

Environmental, social, and governance (ESG) issues have emerged as key considerations for corporate managers, stakeholders, and policymakers. With the escalating climate crisis, the environmental facet of ESG has taken center stage in recent years. Governments worldwide have progressively introduced emission control regulations to address the urgent environmental challenge. However, these environmental regulations often come with significant costs for corporations. In this project, we aim to examine the potential conflict between the "E" (environmental) and "S" (social) aspects when firms face environmental regulatory pressure. Environmental regulations are anticipated to significantly enhance human well-being. However, their impact on corporate workforce is less understood. Previous studies have found that environmental policies affect industry employment and productivity. Yet, due to data limitations, less is known about how the additional costs imposed by these policies affect social sustainability in the workplace. This project will focus on the most stringent environmental regulations in China's history ─ The Air Pollution Prevention and Control Action Plan (APPCAP) launched in 2013 ─ and examine how this policy impacts the social and, in particular, the employee aspects of corporate ESG. In this project, we plan to utilize recently available emission data to analyze the impact of the APPCAP on Chinese firms' environmental performance. Subsequently, we will use firm-level data on social sustainability to explore the policy's effect on employee wellbeing. More importantly, we will investigate firms' internal resource allocation responses by analyzing their investments in environmental protection, employee welfare, and other stakeholder benefits. We also aim to examine how financial constraints influence firms' reactions to tightened environmental regulations. Finally, we will investigate the heterogeneous effects of the APPCAP on firms facing local officials with varying promotion incentives and firms with different business sectors, ownership types, and labor structures. Our study will contribute to understanding the interplay between environmental regulations and firm behavior in China, a country with the largest greenhouse gas emissions and a strong commitment to climate action. The study will underscore the importance of understanding the connections among different ESG components and shed light on the potential inequality consequences of environmental policies.