Not too long ago, academics in finance would have said sustainability was not a suitable research topic.
Liang Hao discovered this firsthand as he sought an academic career six years ago, after he had obtained his PhD in Finance at Tilburg University.
“I was often asked why I was looking for a job in Finance departments [of research universities], because they didn’t do this type of research”, said the 35-year-old.
Having since conducted much research on sustainable finance, Liang is now Associate Professor of Finance at the Lee Kong Chian School of Business. And today, sustainable or green finance has global investments valued in the tens of trillions of dollars.
“I felt a little bit frustrated at that time [in 2015],” reflected Associate Professor Liang, “But I also felt lucky to be among the first researchers in this area of finance.”
The financial world was in turmoil when he was an undergraduate pursuing his degree in business administration at Nankai University in China, and the Global Financial Crisis and its aftermath ended up steering him towards academia.
“The Crisis, when many people were criticising big financial institutions for being too greedy, made me think deeper about the role of finance,” he said. “I began considering how finance could be a tool to serve society and how it actually plays a role in promoting sustainability.”
Sustainability has rapidly become a buzzword in finance, according to Associate Professor Liang, due in part to the 2015 Paris Agreement on climate change and the United Nations Sustainable Development Goals set up that same year.
“Everybody began talking about sustainability, including some people who used to think that it was a ‘terrible’ research topic for finance,” he said.
“They started to approach me to ask if I could co-author some publications with them, after seeing my papers in this area.”
Some of his notable papers include “Socially Responsible Firms”, published in the Journal of Financial Economics in 2016, and “On the Foundations of Corporate Social Responsibility”, published in 2017 in the Journal of Finance, which was rooted in the work he had done for his doctoral thesis at Tilburg.
“One of the first big research questions I wanted to answer was the purpose of the corporation,” he said. “People usually believe they only serve shareholders in maximising profit and value. But then we observed companies engaging in corporate social responsibility (CSR), focusing more on their stakeholders [and society].”
“So I wanted to find out why some companies prioritised shareholders or stakeholders, the factors in the trade-off between the two, and if doing CSR actually hurt or benefit shareholders.”
To be clear, CSR should not be confused with philanthropy, said Associate Professor Liang, who is also on the management committee of the Singapore Green Finance Centre, an initiative of Imperial College Business School and SMU.
“[Being involved with CSR] is still about corporations making money. But if, at the same time, they can also contribute to society, that’s even better.”
Associate Professor Liang, who has also done research on state-owned enterprises and humanitarian investing, has through his research found that CSR practices could enhance a firm’s reputation and, in so doing, accrue greater shareholder value.
The business environment and legal framework for companies, such as those in the European Union compared with those in the United States, could also influence CSR adoption differently.
“If the corporate law defines what companies can do, or who they should serve, then [the level of CSR adoption] is already built into the companies’ DNA,” he said, noting that EU firms, and their counterparts from other civil law societies, tended to be more stakeholder-focused.
Furthermore, he has documented a “spillover” CSR effect as noted in his paper “Socially Responsible Corporate Customers” published in 2020 in the Journal of Financial Economics, that could carry over from one company to another, from one industry to another, and from one country to another.
For instance, companies that gain a competitive edge from good CSR practices could inspire their rivals to adopt CSR similarly. Meanwhile, suppliers could be highly motivated to do CSR if their corporate customers, such as major retailers like Amazon or Walmart, insist on high CSR standards.
Yet another form of spillover effect is “greenwashing”, a practice whereby a firm, for example, complies with emission standards in their own country, but does so only by outsourcing its production – and hence outsourcing emissions – to their suppliers further down the global supply chain.
Associate Professor Liang, who has also researched firms such as Ant Group, and its CSR practices that include a tree planting programme to promote environmentally friendly consumer behaviour, believes that academic research should be impactful on both policy-making and industry practices.
“I have heard that many companies in Singapore and China, especially their CSR/sustainability departments, have read my papers,” he said.
“I’m also not only doing research but having more industry engagement,” he added, pointing to a recent project with a bank to provide a framework for measuring the environmental social impact of their loans. The project had arisen via the Sim Kee Boon Institute for Financial Economics at SMU.
“It’s my hope that my research has a lot of practical value,” he said. “I believe we are not stuck in our ivory towers and that our key role as researchers is to influence business practices and economic policies [for the better].”
Associate Professor Liang, whose wife, a fellow academic, and toddler currently live in his native China, is enjoying his work at LKCSB for the “luxury” it affords him to come up with his own research topics and to do what he really enjoys in exploring those topics.
He also keeps busy teaching both undergraduates and Master’s degree students, as well as professional doctoral candidates.
In addition, he conducts executive training in sustainability and finance, and at times also teaches in Chinese to China-based doctoral candidates, in collaboration with some Chinese universities.
Associate Professor Liang works assiduously to update his materials so that they are always in step with the times and relevant to his students.
“I don’t want to only talk about things that had already been discussed five years ago,” he said.
