Toxic CEOs, ESG Funds as Watchdogs, and the Labor Market Outcomes

I examine changes in CEO labor market outcomes following corporate environmental failures. CEOs of firms subject to Environmental Protection Agency (EPA) enforcements experience a decline in labor market opportunities as outside directors and a higher likelihood of dismissal as CEOs. They also receive less shareholder support in directorial elections. These effects are mostly visible in recent years and in firms with significant socially responsible investments (SRIs). Results are robust to using state environmental regulations for identification. Overall, these results point to significant reputational repercussions of environmental failures to CEOs and the disciplinary role of SRIs.