Abstract:
Does environmental pollution liability insurance (EPLI), as a green financial instrument, improve corporate environmental, social, and governance (ESG) performance or backfire? Based on the name list of companies purchasing EPLI and data of A-share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2009 to 2022, the paper examines the relationship between corporate purchasing EPLI and its ESG performance. The results show that moral hazard exists when companies purchase EPLI. After transferring potential environmental pollution compensation risks to insurance companies, companies tend to weaken their environmental governance motivation and increase "greenwashing" behavior, leading to a decline in ESG performance. The heterogeneity analysis shows that external governance oversight can constrain the moral hazard of insured companies, while internal alignment with environmental protection objectives and sufficient green investment serve as guarantees for companies to carry out effective environmental governance. Therefore, the negative effect of EPLI on ESG performance is weaker in regions with higher public attention to the environment, higher levels of environmental regulation, and stronger environmental law enforcement. It is also weaker in heavily polluting industries, less competitive industries, state-owned enterprises, and companies with higher levels of external attention. Further analysis finds that the negative effect of EPLI on ESG performance is mainly concentrated in the environmental and corporate governance dimensions of ESG. In addition, investors' short-term market reaction to companies purchasing environmental liability insurance is significantly negative. Based on the above findings, the paper recommends further improving the legal and regulatory framework in the environmental protection field, enhancing the level of environmental regulation and enforcement. Additionally, it suggests optimizing the design of EPLI products by implementing differentiated premium rates and compensation standards based on factors such as the incidence of accidents.
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