We investigate the impact of a firm's credible commitment to ESG on rm value. Using closed-end funds as an empirical laboratory, we find that a fund signing the U.N. Principles for Responsible Investment (PRI) is traded at a higher price compared to its fundamental value only when the fund actually increases the ESG scores of its portfolio. The result is more pronounced for funds facing higher hurdles to make their ESG commitment more credible. Importantly, the positive impact is stronger when ESG-related regulations become more stringent. Overall, our analysis suggests that a firm's commitment to ESG can lead to higher firm value when it can credibly 'walk their talk' and this benefit is related to the direction of ESG regulations.

JEL classification: G12, G23, Q20

Keywords: ESG, firm value, closed-end funds, commitment, socially responsible investment