Time

December 10, 2025

10:00-11:30 am

Place

Mingde Main Building 801

Language

Chinese/English

Speaker

Huiyao Chen

He is currently an Assistant Professor of Finance at the School of Economics and Management, Tsinghua University. He earned his Ph.D. from the Wharton School at the University of Pennsylvania. His research areas include corporate finance, sustainable investing, and information economics, focusing on the interaction between financial markets and the real economy. His research has received awards such as the First Place Award at FIASI and the Fordham Sustainable Finance Research Competition.

Abstract

A common critique of ESG divestment is that traditional investors can buy divested stocks, thus neutralizing the intended impact. We propose a novel mechanism showing how ESG divestment can incentivize firms to adopt ESG practices, even when the fraction of ESG capital is limited. The key condition for impact is that ESG investors maintain a balanced emphasis on both ESG and financial fundamentals, coupled with private information on both. When ESG investors sell stocks, their trading motives remain uncertain to traditional investors. Traditional investors interpret selling as a potential bad signal about financial value, driving down stock prices. Therefore, firms may adopt ESG practices to avoid this negative price impact. We also show that this disciplining effect on firms’ ESG practices is non-monotonic in investor ESG preferences. Particularly, when investor ESG preferences are too strong, the uncertainty about their trading motives vanishes, reducing the impact of divestment. Our findings provide novel empirical implications and offer important guidance for impact investors.