Archiv der Kategorie: Aktien

Regeländerungen: Grafik zeigt die 3 Basis Investmentphilosophien

Regeländerungen: Nachhaltig aktiv oder passiv?

Regeländerungen: Viele Untersuchungen zeigen, dass aktiv gemanagte Portfolios typischerweise schlechter rentieren als passive (z.B. ETFs). Bei der Gründung meines Unternehmens im Jahr 2016 wollte ich deshalb nur ETFs nutzen. Allerdings habe ich weder 2016 noch heute genug ETFs gefunden, die mir persönlich nachhaltig genug sind. Deswegen habe ich besonders nachhaltige Aktien-Modellportfolios entwickelt und biete inzwischen auch einen darauf aufbauenden Investmentfonds an. Die Portfolios und der Fonds sind regelbasiert, aber nicht passiv.

Man kann jede Regel diskutieren. Vor allem mein Postulat, dass ich Regeln verändern können möchte, wird manchmal kritisch hinterfragt. In diesem Beitrag erkläre ich, warum und wie ich meine Regeln seit dem Start meiner ersten Environmental-, Social-, Governance- (ESG) und Sustainable Development Goal (SDG) Portfolios verändert habe (detaillierte Dokumentationen dazu siehe Das Soehnholz ESG und SDG Portfoliobuch und ältere Versionen im Archiv – Soehnholz ESG).

Transparent- oder intransparent regelbasiert?

Ich bin schon lange ein Fan regelbasierter Investments (vgl. z.B. Investmentfondsselektion: Regeltransparenz nach Vorne (prof-soehnholz.com)). Anders als bei diskretionär aktiv gemanagten Portfolios kann man anhand von Regeln viel besser verstehen, wie sich Portfolios verhalten. Dafür müssen die Regeln und – für die Nachvollziehbarkeit auch die Informationen, die den Regeln zugrunde liegen -transparent und einfach zugänglich sein. Eine Regel kann beispielsweise lauten, dass eine Aktie bei einem schlechten unternehmensinternen ESG-Rating verkauft werden muss. Für Unternehmensexterne ist das wenig transparent.

Ähnliches gilt für die Nutzung von Prognosen, die sich oft schon bei kleinen Inputänderungen stark verändern können und die meistens von Externen nur schwer nachvollziehbar sind.

Wenn die Regel aber lautet, dass immer die 30 Aktien von den Unternehmen mit der monatlich gemessenen höchsten Marktkapitalisierung im Portfolio sind, dann ist das ziemlich transparent.

Weder aktiv noch passiv?

Zwischen aktiv und passiv gibt es viele Zwischenformen. So sind aktiv gemanagte Fonds, die sich eng an Indizes orientieren, in Bezug auf ihre Portfolios oft kaum von passiven Indextrackern zu unterscheiden. Und manche quantitativ orientierten aktiven Investmentmanager vermarkten sich als regelbasiert. Deren Regeln werden aber meistens nicht transparent offengelegt. Vielfach sind auch die für die Regeln genutzten Daten nicht einfach durch Externe prüfbar (Blackboxes).

Selbst wenn Regeln offengelegt werden, sind sie oft sehr komplex und wenig robust, wie das bei vielen sogenannten Optimierungsmodellen der Fall ist (vgl. z.B. Kann institutionelles Investment Consulting digitalisiert werden? Beispiele (prof-soehnholz.com).

3 mögliche Investmentphilosophien

Eine Investmentphilosophie definiere ich als ein umfassendes und kohärentes System von Investmentüberzeugungen (vgl. Investmentphilosophie: Prognosefans sollten prognosefreie Portfolios nutzen (prof-soehnholz.com). Dabei unterscheide ich drei Arten von Investmentphilosophien: Diskretionäre, regelbasiert-prognosebasierte und regelbasiert-prognosefreie.

Die meisten Investoren verfolgen diskretionäre Investmentphilosophien. Für die Umsetzungen nutzen sie aktive Fonds aber auch ETFs. Manche konsequenten „Quant“-Anleger können der regelbasiert-prognosebasierten Kategorie zugeordnet werden. Die regelbasiert-prognosefreie Philosophie-Variante ist sehr selten.

Meine regelbasiert-prognosefreie ganzheitliche (Multi-Asset) Investmentphilosophie ist dieser dritten Kategorie zuzuordnen. Ich nenne sie RETRO-Philosophie. RETRO steht dabei für regel- und evidenzbasiert, transparent, robust und optimierungsfrei (Details siehe 240110-Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com)).

Meine Regelbestandteile: Nur nachhaltig, nicht finanziell

Wissenschaftliches Research zum Beispiel zu aktiven und Faktorinvestments zeigt, dass es keine klaren dauerhaften Outperformancefaktoren gibt. Aber ich kann umso anspruchsvollere Nachhaltigkeitsregeln nutzen, je weniger nicht-nachhaltige (traditionelle) Kriterien ich für die Wertpapier-Selektion nutze. Deshalb verwende ich keine klassischen finanziellen sondern (fast) nur Nachhaltigkeits-Selektionskriterien (weitere Details siehe 240110-Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com)).

Meine Aktienselektionsregeln für ESG-Portfolios habe ich 2016 entwickelt und 2017 für ein „Impact“-Portfolio um SDG-Regeln ergänzt.

Statische oder dynamische Regeln?

Meine RETRO- und „so nachhaltig wie möglich“ Investmentphilosophie ist seit Jahren grundsätzlich unverändert. Weil sich die (Investment-)Welt aber ständig verändert und immer wieder neue (Nachhaltigkeits-)Informationen zur Verfügung stehen, bin ich skeptisch in Bezug auf völlig starre Umsetzungsregeln. Ich möchte die Möglichkeit haben, Regeln zu verändern.

Auch Regeln von einigen Indizes, wie dem DAX, werden von Zeit zu Zeit angepasst. Dafür gibt es Gremien, die – oft diskretionär – Regeländerungen bestimmen.

Statt Änderungen von Regeln von Bestandsprodukten können auch neue statisch-regelbasierte Produkte angeboten, wenn die alten Regeln nicht mehr adäquat erscheinen. Die Tatsache, dass es mehr als 3 Millionen Investmentindizes gibt (vgl. Home – Index Industry Association), deutet darauf hin, dass das sogar oft der Fall ist.

Für meine Investmentphilosophie ist ein strukturierter (regelbasierter) kontinuierlicher (Regel-) Verbesserungsprozess (KVP) am sinnvollsten.

Meine Regeländerungen von 2017 bis 2024

Bei regelbasierten Portfolios können schon kleine Änderungen zu relativ großen Portfolioveränderungen führen (vgl. Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (prof-soehnholz.com)). Um die Zahl von Transaktionen bzw. Kosten zu begrenzen versuche ich, meine Regeln nur graduell zu ändern.

Die Tabelle zeigt meine Selektionsregeln in den Zeilen 1 bis 7. In Zeile 8 ist meine einfache Allokationsregel aufgeführt und die letzten beiden Zeilen beinhalten meine Änderungsregeln (KVP).

Regeländerungen: Wenige Änderungsgründe

Im Rückblick habe ich vor allem deshalb Regeln geändert, weil immer mehr und bessere Nachhaltigkeitsdaten zur Verfügung standen. So habe ich meine Datenanbieter schon bei meiner ersten Auswahl im Jahr 2012 wegen eines möglichst guten Datenangebotes ausgesucht. In der Zeit vom Start meines Unternehmens im Jahr 2016 bis heute habe ich den Datenanbieter einmal gewechselt. Die Hauptgründe für den Wechsel waren mehr abgedeckte Aktien, also auch Small Caps, monatliche statt jährliche Datenaktualisierungen und die Möglichkeit der Nutzung von Best-in-Universe ESG-Ratings. Hinzu kamen im Laufe der Jahre zusätzliche Datenangebote des jeweiligen Anbieters, was vor allem für die SDG-Vereinbarkeit zu Regeländerungen geführt hat. Ein weiterer Grund für meine Regeländerungen waren (Prozess-)Vereinfachungen.

Für den von mir konzipierten und beratenen Investmentfonds wurden einige wenige zusätzliche Regelergänzungen vorgenommen, um schneller auf schlechtere Nachhaltigkeitsdaten reagieren zu können und um unterjährige Kapitalflüsse möglichst effizient managen zu können.

Resultat bisher: Marktübliche Performance und Small-Cap Fokus

Wenn man wie ich mit den nachhaltigsten Aktien startet, reduziert Diversifikation die durchschnittliche Nachhaltigkeit (vgl. 30 stocks, if responsible, are all I need (prof-soehnholz.com)). Mein bewusst nur 30 Aktien umfassendes (Fonds-)Portfolio enthält deshalb nur Aktien aus wenigen Ländern (aktuell 12) und Marktsegmenten (vor allem Gesundheit, Industrie und erneuerbare Energien). Weil kleine Unternehmen einfacher SDG-vereinbar sein können, lag mein Fokus Anfangs auf Mid.Caps, weil der damalige Ratinganbieter kaum Small-Caps abdeckte. Seit dem Ratinganbieterwechsel sind vor allem Small-Caps in meinen ESG SDG Portfolios enthalten.

Die Performance seit Auflage ist ähnlich wie die von aktiv gemanagten globalen Small- und Mid-Cap-Fonds (vgl. Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds? – Responsible Investment Research Blog (prof-soehnholz.com).

Regeländerungen: Ausblick

Weil ich meinen konsequenten Nachhaltigkeitsfokus beibehalten werde, erwarte ich, dass auch künftig vor allem Small-Caps im Portfolio vertreten sein werden. Da es keine typischen Allokationsregeln gibt, können Länder- und Branchenallokationen aber weiter schwanken. Sofern keine zu ausgeprägten Konzentrationen erkennbar sind, werde ich weiterhin auf Mindest- oder Maximalgrenzen für Länder und Branchen verzichten.

Interessant ist, dass es nur sehr wenige global investierende nachhaltige Small-Cap-Portfolios gibt. Ich habe deshalb bisher noch keinen Investmentfonds gefunden, mit dem mein Fonds mehr als 5 Investments gemein hat. Für nachhaltig orientierte Anleger, die nicht wie ich (fast) all ihr Vermögen in meinen Fonds anlegen möchten, ist mein Fonds deshalb eine attraktive potenzielle Portfolioergänzung.

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Werbung:

Der von mir beratene Fonds (SFDR Art. 9) ist auf soziale SDGs fokussiert. Ich nutze separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement bei aktuell 26 von 30 Unternehmen: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T oder Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds

Disclaimer

Diese Unterlage ist von der Soehnholz ESG GmbH erstellt worden. Die Erstellerin übernimmt keine Gewähr für die Richtigkeit, Vollständigkeit und/oder Aktualität der zur Verfügung gestellten Inhalte. Die Informationen unterliegen deutschem Recht und richten sich ausschließlich an Investoren, die ihren Wohnsitz in Deutschland haben. Sie sind nicht als Verkaufsangebot oder Aufforderung zur Abgabe eines Kauf- oder Zeichnungsangebots für Anteile des in dieser Unterlage dargestellten Fonds zu verstehen und ersetzen nicht eine anleger- und anlagegerechte Beratung. Anlageentscheidungen sollten nur auf der Grundlage der aktuellen gesetzlichen Verkaufsunterlagen (Wesentliche Anlegerinformationen, Verkaufsprospekt und – sofern verfügbar – Jahres- und Halbjahresbericht) getroffen werden, die auch die allein maßgeblichen Anlagebedingungen enthalten. Die Verkaufsunterlagen werden bei der Kapitalverwaltungsgesellschaft (Monega Kapitalanlagegesellschaft mbH), der Verwahrstelle (Kreissparkasse Köln) und den Vertriebspartnern zur kostenlosen Ausgabe bereitgehalten. Die Verkaufsunterlagen sind zudem im Internet unter www.monega.de erhältlich. Die in dieser Unterlage zur Verfügung gestellten Inhalte dienen lediglich der allgemeinen Information und stellen keine Beratung oder sonstige Empfehlung dar. Die Kapitalanlage ist stets mit Risiken verbunden und kann zum Verlust des eingesetzten Kapitals führen. Vor einer etwaigen Anlageentscheidung sollten Sie eingehend prüfen, ob die Anlage für Ihre individuelle Situation und Ihre persönlichen Ziele geeignet ist. Diese Unterlage enthält ggf. Informationen, die aus öffentlichen Quellen stammen, die die Erstellerin für verlässlich hält. Die dargestellten Inhalte, insbesondere die Darstellung von Strategien sowie deren Chancen und Risiken, können sich im Zeitverlauf ändern. Einschätzungen und Bewertungen reflektieren die Meinung der Erstellerin zum Zeitpunkt der Erstellung und können sich jederzeit ändern. Es ist nicht beabsichtigt, diese Unterlage laufend oder überhaupt zu aktualisieren. Sie stellt nur eine unverbindliche Momentaufnahme dar. Die Unterlage ist ausschließlich zur Information und zum persönlichen Gebrauch bestimmt. Jegliche nicht autorisierte Vervielfältigung und Weiterverbreitung ist untersagt.

Small-Cap ESG illustration from Aöexa from Pixabay

Small-Cap ESG: Researchpost #167

Small-Cap ESG: 6x new research on (German) migration, climate education, ESG performance, distressed ESG, and biodiversity bond risk (# shows SSRN full paper downloads on March 14th, 2024)

Social and ecological research

East-West migration: Moving Out of the Comfort Zone: How Cultural Norms Affect Attitudes toward Immigration by Yvonne Giesing, Björn Kauder, Lukas Mergele, Niklas Potrafke, Panu Poutvaara as of March 12th, 2024 (#17): “Our causal identification relies on comparing students who moved across the East-West border after German reunification with students who moved within former East Germany. Students who moved from East to West became more positive toward immigration. … the difference between East-West movers and East-East movers increases over time and is driven by East German students who often interacted with fellow students. Effects are stronger in less xenophobic West German regions“ (abstract).

Climate education limits: Climate Change Education Effects on Climate Risk Attitudes and Financial Investment: Experimental Evidence by Bin Chang, Nelson Borges Amaral as of Oct. 5th, 2023 (#44): “… we educate undergraduate finance students about climate change … Students in the course were assigned to manage a simulated investment portfolio which provided us with an opportunity to measure the share of climate-friendly, and climate-damaging exchange-traded funds, as well as the underlying reasons for their investment decisions through a trading journal that each student submitted. Our results reveal that while education influences personal attitudes about the importance of climate risks in investment decisions, those attitudes are not reflected in their investment behavior” (abstract).

Responsible investment research (in: Small-Cap ESG)

Responsible performance: The Risk-Adjusted Performance of Conventional, Socially Responsible, and Islamic Investment Funds by Ezzedine Ghlamallah, Sami Ben Larbi, and Laurence Gialdini as of Feb. 1st, 2024 (#31): “… our study shows that the risk-adjusted performance of SRI funds (Sö: Socially Responsible) does not differ significantly from that of conventional funds, and that both outperform SCI funds (Sö: Shari’ah Compliant). … the underperformance of SCI funds compared to SRI funds can be explained by structural factors such as the limitation of eligible assets (interest rate products and hedging instruments) … our study shows that SCI investment funds have lower systematic risk than SRI funds and are more resilient in times of economic recession” (p. 17).

Distressed ESG? On the Relationship between Financial Distress and ESG Scores by Christian Lohmann, Steffen Möllenhoff, and Sebastian Lehner as of March 8th, 2024 (#32): “This empirical study introduces the financial distress level obtained from a bankruptcy prediction model as a new explanatory variable for ESG scores. … data of listed US companies for 2003– 2022 reveals a pronounced and statistically significant U-shaped relationship between financial distress and ESG scores. A substantial increase in financial distress is associated with increased ESG scores … this empirical study concludes that financially distressed companies distort their ESG scores upward, a robust finding for the applied ESG scores from Refinitiv, MSCI, ESG Book, and Moody’s ESG” (abstract).

Small-Cap ESG performance: Is sustainable entrepreneurship profitable? ESG disclosure and the financial performance of SMEs by Paul P. Momtaz and Isabel M. Parra as of March 7th, 2024 (#22): “… we examine the role of ESG-related information disclosure in a longitudinal sample of Spanish SMEs (Sö: Small and medium enterprises) over the 2012-2022 period. Our results suggests that ESG is positively related to SMEs’ performance, the positive relation is amplified by institutional pressures, and sustainability may protect SMEs against failure, supporting the “doing well by doing good” view in the SME context” (p. 28). My comment: My experience with SME investing is comparable, especially regarding SMEs with a renewable energy focus

Bio credit risk: Biodiversity Risk in the Corporate Bond Market by Sevgi Soylemezgil and Cihan Uzmanoglu as of Feb. 26th, 2024 (#58): “… we find that longer term bonds issued by firms with higher biodiversity risk exposure have higher yield spreads, consistent with biodiversity being perceived as a long-run risk. This effect is stronger among firms with marginal credit quality and those that mention biodiversity regulation in their financial statements. … we find that the impact of biodiversity exposure on yield spreads is more pronounced when biodiversity-related awareness and regulatory risks rise” (abstract).

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Advert for German investors (Small-Cap ESG):

Sponsor my research by investing in and/or recommending my global small cap mutual fund (SFDR Art. 9). The fund focuses on the Sustainable Development Goals and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 25 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or My fund (prof-soehnholz.com).

Healthcare IT: Illustration from Gordon Johnson from Pixabay

Healthcare IT and more new research: Researchpost #166

Healthcare IT: 17x new research on climate profits, biodiversity, carbon policy, noisiness, brown subsidies, child marriages, diversity returns, ESG ratings, climate measures, index pollution, impact funds, engagement returns, green research, green real estate, green ECB (# shows number of SSRN full paper downloads as of March 7th, 2024).

Ecological research (in: Healthcare IT)

Climate adaption profits? Fiscal Implications of Global Decarbonization by Simon Black, Ruud de Mooij, Vitor Gaspar, Ian Parry, and Karlygash Zhunussova from the International Monetary Fund as of March 7th, 2024 (#2): “The quantitative impact on fiscal revenues for countries depends on the balance between rising carbon revenue and a gradual erosion of existing carbon and fuel tax bases. Public spending rises during the transition to build green public infrastructure, promote innovation, support clean technology deployment, and compensate households and firms. Assumptions about the size of these spending needs are speculative and estimates vary with country characteristics (especially the emissions intensity of the energy sector) and policy choices (whether investments are funded through user fees or taxes for the sector or by the general budget). On balance, the paper finds that the global decarbonization scenario will likely have moderately negative implications for fiscal balances in advanced European countries. Effects are more likely to be positive for the US and Japan if public spending is contained. For middle and low-income countries, net fiscal impacts are generally positive and sometimes significantly so—mostly due to relatively buoyant revenue effects from carbon pricing that exceed spending increases. For low-income countries, these effects are reinforced if a portion of the global revenue from carbon pricing is shared across countries on a per-capita basis. Thus, a global agreement on mitigation policy has the potential to support the global development agenda” (p. 26).

Green productivity? The impact of climate change and policies on productivity by Gert Bijnens and many more from the European Central Bank as of Feb. 28th, 2024 (#26): “The impact of rising temperatures on labour productivity is likely to be positive for Northern European countries but negative for Southern European countries. Meanwhile, extreme weather events, having an almost entirely negative impact on output and productivity, are likely to have a relatively higher impact on Southern Europe. … The impact of climate policies on resource reallocation across sectors is likely negative, as the more carbon-intensive sectors are currently more productive than the sectors that are expected to grow due to the green transition. … Smaller firms that have a harder time in securing finance and less experience in creating or adapting new innovations may initially face challenges and see a decline in their productivity growth. However, their productivity outlook improves as they gradually adjust and gain access to support mechanisms, such as financial assistance and technological expertise. … Market-based instruments, like carbon taxes, are not enough in themselves to spur investment in green innovation and productivity growth. As others have found, the green transition also calls for an increase in green R&D efforts and non-market policies such as standards and regulations, where carbon pricing is less adequate. … In conclusion, while shifting towards a greener economy can lead to temporary declines in labour productivity in the shorter term, it could yield several long-term productivity benefits“ (p. 60/61).

Biodiversity degrowth: Biodiversity Risks and Corporate Investment by Hai Hong Trinh as of Oct. 1st, 2023 (#188): “I document a strong adverse association between corporate investment and biodiversity risks (BDR) …. More importantly, in line with the life-cycle theory, the relation is pronounced for larger and more mature firms, suggesting that firms with less growth opportunities care more about climate-induced risks, BDR exposures in this case. When environmental policies become more stringer for climate actions, the study empirically supports the rationale that climate-induced uncertainty can depress capital expenditure due to investment irreversibility, causing precautionary delays for firms”.

“Good” carbon policies: Carbon Policy Design and Distributional Impacts: What does the research tell us? by Lynn Riggs as of Sept. 21st, 2023 (#15): “There are two main veins of literature examining the distributional effects of carbon policy: the effects on households and the effects on production sectors (i.e., employment). These literatures have generally arisen from two common arguments against carbon policies – that these polices disproportionately affect lower income households and that the overall effect on jobs and businesses will be negative. However, existing research finds that well-designed carbon policies are consistent with growth, development, and poverty reduction, and both literatures provide guidance for policy design in this regard” (abstract).

Social research (in: Healthcare IT)

Costly noise: The Price of Quietness: How a Pandemic Affects City Dwellers’ Response to Road Traffic Noise by Yao-pei Wang, Yong Tu, and Yi Fan as of July 15th, 2023 (#44): “We find that housing units with more exposure to road traffic noise have an additional rent discount of 8.3% and that tenants are willing to pay an additional rent premium for quieter housing units after the pandemic. We demonstrate that the policies implemented to keep social distance like WFH (Sö: working from home) and digitalization during the COVID-19 pandemic have enhanced people’s requirement for quietness. We expect these changes to persist and have long-lasting implications on residents’ health and well-being …” (p. 25/26).

Ungreen inequality subsidies? Do Commuting Subsidies Drive Workers to Better Firms? by David R. Agrawal, Elke J. Jahn, Eckhard Janeba as of March 5th, 2024 (#5): „Increases in the generosity of commuting subsidies induce workers to switch to higher-paying jobs with longer commutes. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality” (abstract).

Polluted marriages: Marriages in the shadow of climate vulnerability by Jaykumar Bhongale and Oishik Bhattacharya as of May 15th, 2023 (#26): “We discover that girls and women are more likely to get married in the year of or the year after the heat waves. The relationship is highest for women between the ages of 18 and 23, and weakest for those between the ages of 11 and 14. We also investigate the idea that severe weather influences families to accept less suitable daughter marriage proposals. We discover that people who get married in extremely hot weather typically end up with less educated men and poorer families. Similarly to this, men with less education who married during unusually dry years are supportive of partner violence more than other married men married in normal seasons of the year. These findings collectively imply that families who experience environmental shocks adapt by hastening the marriage of daughters or by settling for less ideal marriage offers “ (abstract).

Diversity returns: Diversity and Stock Market Outcomes: Thank you Different! by Yosef Bonaparte as of Feb. 9th, 2024 (#30): “… we gather data from 68 countries on key financial results and their level of diversity. We define diversity via four dimensions: ethnicity, language, religion, and gender. … our results demonstrate that the impact of diversity components on the stock market varies, yet overall, the greater the level of diversity the greater the stock market performance, and there is no volatility associated with this high return. In fact, we present some evidence that the overall volatility declines as diversity increases. To sum up, diverse culture is better equipped to understand and serve diverse consumer markets, thereby expanding the potential customer base. This inclusive approach not only reflects social responsibility but also aligns with economic advantages, as it results in improved corporate governance, risk management, and overall corporate performance“ (p. 15).

ESG investment research

ESG rating issues: Unpacking the ESG Ratings: Does One Size Fit All? by Monica Billio, Aoife Claire Fitzpatrick, Carmelo Latino, and Loriana Pelizzon as of March 1st, 2024 (#70): “In this study, we unpack the ESG ratings of four prominent agencies in Europe …” (abstract) … “First, using correlation analysis we show that each E, S, and G pillar contributes differently to the overall ESG rating. … the Environmental pillar consistently plays a significant role in explaining ESG ratings across all agencies … When analysing the intra-correlations of the E, S and G pillar we find a low correlation between the three E, S, and G pillars. An interesting accounting methodology emerges from RobecoSAM which exhibits notably high intra-correlations. This prompts us to raise questions about the validity of relying exclusively on survey data for calculating ESG ratings as RobecoSAM does. … the Governance pillar displayed the highest divergence across all years, followed by Social, Environmental and finally ESG. … Finally, our study on the main drivers of ESG ratings reveals that having an external auditor, an environmental supply chain policy, climate change commercial risks opportunities and target emissions improves ratings across all agencies, further emphasizing the importance of firms’ environmental strategies“ (p. 12/13). My comment: Unterschiedliche ESG-Ratings: Tipps für Anleger | CAPinside

Pro intensity measures: Greenness and its Discontents: Operational Implications of Investor Pressure by Nilsu Uzunlar, Alan Scheller-Wolf, and Sridhar Tayur as of Feb. 28th, 2024 (#23): “… We explore two prominent environmental metrics that have been proposed for carbon emissions: an absolute-based target for absolute emissions and an intensity-based target for emission intensity. … we observe that, for high-emission companies, an intensity-based target increases the producer’s expected profit, leading to less divestment compared to the absolute-based target. We also find that the intensity-based target is more likely to facilitate investments in increased efficiency than the absolute-based target“ (abstract).

Index-hugging pollution? Reducing the Carbon Footprint of an Index: How Low Can You Go? by Paul Bouchey, Martin de Leon, Zeeshan Jawaid, and Vassilii Nemtchinov as of Feb. 13th, 2024 (#31): “… The authors find that an investor may be able to reduce the carbon footprint of a typical index-based portfolio by more than 50%, while keeping active risk low, near 1% tracking error volatility. … We study the effects of constraints on the optimization problem and find that loosening sector and industry constraints enables a greater reduction in carbon emissions, without a significant increase in overall active risk. Specifically, underweights to Utilities, Energy, and Materials allow for a greater reduction in carbon emissions” (abstract). My comment: The Carbon footprint can be reduced much more by avoiding significant emitters altogether. Index deviation will increase in that case, but not necessarily relevant risk indicators such as drawdowns or volatility, see also 30 stocks, if responsible, are all I need (prof-soehnholz.com)

SDG and impact investment research (in: Healthcare IT)

Better sustainability measure: Methodology for Eurosif Market Studies on Sustainability-related Investments by Timo Busch, Eric Pruessner, Will Oulton, Aleksandra Palinska, and Pierre Garrault from University Hamburg, Eurosif, and AIR as of February 2024: “Past market studies on sustainability-related investments typically gathered data on a range of different sustainability-related investment approaches and aggregated them to one of a number of “sustainable investments”. However, these statistics did not differentiate between investments based on their investment strategy and/or objectives to actively support the transition towards a more sustainable economy. The methodology presented in this paper aims to reflect current approaches to sustainability-related investment across Europe more accurately. It introduces four distinct categories of sustainability-related investments that reflect the investments’ ambition level to actively contribute to the transition towards a more just and sustainable economy … Two core features of the proposed approach are that it applies to all asset classes and that investments only qualify as one of the four categories if they implement binding ESG- or impact related criteria in their investment process. The methodology will serve as a basis for future market studies conducted by Eurosif in cooperation with its members“ (p. 2). My comment: I like the four categories Basic ESG, Advanced ESG, Impact-Aligned and Impact-Generating. For further details regarding impact generation see also DVFA-Leifaden_Impact_2023-10.pdf. The “Leitfaden” is now also available in English (not online yet, though)

Engagement returns: Value of Shareholder Environmental Activism: Case Engine No. 1 by Jennifer Brodmann, Ashrafee T Hossain, Abdullah-Al Masum, and Meghna Singhvi as of Feb. 13th, 2024 (#20): “We observe short-term market reactions to S&P100 index constituents around two subsequent events involving Engine No. 1 – an environment activist investment firm: first, they won board seats at ExxonMobil (the top non-renewable energy producer) on May 26, 2021; and second, on June 2, 2021, they announced their plan to float Transform-500-ETF (an ETF targeting to ensure green corporate policies) in the market. We find that the market reacts significantly positively towards the stocks of the firms with more serious environmental (and emission) concerns around each of these two events. Overall, our findings suggest that a positive move by the environment activist shareholders results in an incremental favorable equity market reaction benefitting the polluting firms. … we posit that this reaction may be a product of market anticipation of a future reduction in environmental (and emission) concerns following the involvement of green investors” (abstract).

Bundled green knowledge: Wissensplattform Nachhaltige Finanzwirtschaft by Patrick Weltin vom VfU as of February 2024: “The final report summarizes the key findings of the Knowledge Platform for Sustainable Finance project. The research project is helping to increase understanding of sustainable finance among various key stakeholders. In addition to policymakers, financial market players, the real economy and civil society, these include employees in the financial sector, in particular trainees, young professionals and students. The final report summarizes and presents the key results of the work packages and possible overarching findings” (p. 5). My comment: I offered the VfU to discuss about a potential inclusion of my research summaries, but I did not get a reply.

Greener real estate: Finanzierung von energetischen Gebäudesanierungen Eine kritische Analyse unter besonderer Berücksichtigung der Sustainable Finance-Regulierung der Europäischen Union von Tobias Popovic und Jessica Reichard-Chahine vom Februar 2024: “Financing of energy-efficient building renovations: … At 1 percent per year, the renovation rates in the building stock in Germany are significantly below the 2-4 percent that would be necessary to achieve the climate targets of the Paris Agreement as well as those of the EU and the German government. The too low renovation rates, the insufficient renovation quality and the associated sluggish standardisation are due to various obstacles, such as a lack of data on the energy status of buildings, a lack of renovation and financial knowledge on the part of building owners and users, a lack of renovation incentives and, last but not least, the lack of availability of appropriate financing and insurance products. … On the market side .. there is still a need for the development of innovative financing instruments …” (p. 5).

Healthcare-IT potential: Next Health – a new way to navigate the healthcare ecosystem by Karin Frick, David Bosshart and Stefan Brei as of Nov. 7th, 2023 (Deutsch; Francais #27): “Human and artificial intelligence working together have the potential to significantly increase quality in both medicine and productivity, thereby reducing costs. … The more cooperative the approach to data sharing, the greater the amount and quality of data available in the system, and the better the results. These developments will also change the position of patients in the healthcare system and how they see their role. The more frequently they come into contact with the healthcare system while they are healthy, the more their behaviour will come to resemble that of consumers. Even the hierarchical distance between doctor and patient will shrink or perhaps even disappear completely, for the simple reason that both parties will be taking advice from smart assistants when making decisions“ (p. 2). My comment: About a third of my small cap SDG fund is now invested in healthcare companies. With Nexus from Germany and Pro Medicus from Australia there are two healthcare IT companies in my mutual fund. For further information on Medtech also see What to expect from medtech in 2024 by Karsten Dalgaard, Gerti Pellumbi, Peter Pfeiffer, and Tommy Reid from McKinsey.

Other investment research (in: Healthcare IT)

ECB for green? Legitimising green monetary policies: market liberalism, layered central banking, and the ECB’s ongoing discursive shift from environmental risks to price stability by Nicolás Aguila and Joscha Wullweber as of Feb. 17th, 2024: “Through the analysis of ECB Executive Board member speeches, we have identified three main narratives about the consequences of the environmental crisis in the monetary authority’s spheres of influence: The first emphasises environmental phenomena as financial risks; the second highlights the green investment or financing gap; and the third focuses on the impacts of climate change on price stability. … We show that the third narrative is displacing the first as the dominant discourse around ECB climate policy. The shift in focus from the central bank’s duties to maintain financial stability to its responsibilities regarding price stability under the primary mandate could lead to far-reaching green monetary policies” (abstract).

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Advert for German investors:

Sponsor my research by investing in and/or recommending my global small cap mutual fund (SFDR Art. 9). The fund focuses on the Sustainable Development Goals and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or My fund (prof-soehnholz.com).

Biodiversity Diversgence illustration with seed toto by Claudenil Moraes from Pixaby

Biodiversity diversion: Researchpost #165

Biodiversity diversion: 14x new research on donations, brown indices, ESG ETFs, ESG investing fees, greenwashing, labeled bonds, climate engagement, framing, female finance, and risk measurement (“’#” shows full paper SSRN downloads as of Feb. 29th, 2024).

Social and ecological research

Facebook donations: Does Online Fundraising Increase Charitable Giving? A Nationwide Field Experiment on Facebook by Maja Adena and Anselm Hager as of Feb. 27th, 2024 (#4): “Using the Facebook advertising tool, we implemented a natural field experiment across Germany, randomly assigning almost 8,000 postal codes to Save the Children fundraising videos or to a pure control. … We found that (i) video fundraising increased donation revenue and frequency to Save the Children during the campaign and in the subsequent five weeks; (ii) the campaign was profitable for the fundraiser; and (iii) the effects were similar independent of video content and impression assignment strategy. However, we also found some crowding out of donations to other similar charities or projects.” (abstract).

Biodiversity diversion (1)? The 30 by 30 biodiversity commitment and financial disclosure: Metrics matter by Daniele Silvestro, Stefano Goria, Ben Groom, Thomas Sterner, and Alexandre Antonelli as of Nov. 23rd, 2023 (#93): “The recent adoption of the Kunming-Montreal Global Biodiversity Framework commits nearly 200 nations to protect 30% of their land by 2030 – a substantial increase from the current global average of c. 17%. … the easiest approach to reach compliance would be to protect the cheapest areas. … Here we explore biological and financial consequences of area protection … We find substantial differences in performance, with the cheapest solution always being the worst for biodiversity. Corporate disclosure provides a powerful mechanism for supporting conservation but is often dependent on simplistic and underperforming metrics. We show that conservation solutions optimized through artificial intelligence are likely to outperform commonly used biodiversity metrics“ (abstract).

ESG investment research (in: „Biodiversity diversion“)

Biodiversity diversion (2): A Bibliometric and Systemic Literature Review of Biodiversity Finance by Mark C. Hutchinson and Brian Lucey as of Feb. 19th, 2024 (#140): “This study presents a short bibliometric analysis of biodiversity finance …. Six focal areas emerge, with Conservation, Conservation Finance, and Ecosystem Finance prominent. Thematic emphasis revolves around biodiversity challenges and the inefficiency of financial mechanisms in addressing them. Our analysis reveals an exploitable gap in the lack of finance-led solutions” (abstract).

Brown stock indices: International trade in brown shares and economic development by Harald Benink, Harry Huizinga, Louis Raes, and Lishu Zhang as of Feb. 22nd, 2024 (#9): “Using global stock ownership data, we find a robust negative relation between the tendency by investors to hold brown assets and economic development as measured by log GDP per capita. … First, at the country level, economic development is likely to lead to a greening of the national stock portfolio. Second, cross-sectionally, richer countries will tend to hold greener portfolios. … Finally, we find that investors in richer countries have a lower propensity to divest from browner firms that are included in the MSCI World index, which does not consider firms’ carbon intensities” (p. 31/32). My comment: Most (institutional) investors use benchmarks. Green benchmarks should be used more often to foster transition (regarding benchmark selection compare Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds? (prof-soehnholz.com).

ESG ETF dispersion: From ESG Confusion to Return Dispersion: Fund Selection Risk is a Material Issue for ESG Investors by Giovanni Bruno and Felix Goltz from Scientific Beta as of Feb. 22nd, 2024: “… we construct a dataset of Sustainable ETFs – passive ETFs that have explicit ESG objectives. … Overall, our results indicate that ESG investors face a large fund selection risk. Over the full sample dispersion is 6.5% (4.9%) in terms of annualised CAPM Alpha (Industry Adjusted Returns), and it can reach 22.5% (25.3%) over single calendar years. We also show that past performance and tracking error do not contain useful information on future performance. … dispersion in performance allows ETF providers to always present investors some strategy that has recently outperformed“ (p. 31). My comment: It would be nice to have more details in the research article regarding conceptual differences e.g. between ESG Leader, Transition and SRI indics/ETFs, see e.g. Verantwortungsvolle Investments im Vergleich: SRI ETFs sind besser als ESG ETFs (prof-soehnholz.com) from 2018

Good ESG ETFs: Unraveling the Potential: A Comprehensive Analysis of ESG ETFs in Diversified Portfolios across European and U.S. Markets by Andrea Martínez-Salgueiro as of Feb. 15th, 2024 (#10): “… results indicate substantial benefits of ESG ETFs in Europe and notable hedge, diversification, and safe-haven potential in the U.S. Simulated data further demonstrate ESG portfolios‘ outperformance, especially in Europe, highlighting the risk-return tradeoff” (abstract).

Responsible fees: Responsible Investment Funds Build Consistent Market Presence by Jordan Doyle as of Feb. 21st, 2024: “… during the study period from 31 December 2012 to 31 December 2022. Total net assets for “responsible investments” as defined by Lipper increased by a factor of 2.7×, from $2,215.6 billion in 2012 to $5,974.6 billion in 2022. The market share of responsible investment funds remained relatively constant during the same period, increasing from 14.2% in 2012 to 15.4% in 2022. … Retail ownership dominates institutional ownership of responsible investment funds globally. In the United States, however, institutional assets surpassed retail assets in 2018, indicating a relative shift in demand preferences. … they both invest more assets into negative screening funds than any other type of responsible investment strategy …fund fees of responsible investing funds are largely in line with those of non-responsible investment fund fees in the United States. In Europe, however, responsible investment fund fees tend to be lower than non-responsible investment fund fees“ ( p. 3).

Unsustainable institutions? Sustainable Finance Disclosure Regulation: voluntary signaling or mandatory disclosure? by Lara Spaans, Jeroen Derwall, Joop Huij, and Kees Koedijk as of Feb. 19th, 2024 (#38): “… we point out that (i) the SFDR similarly to voluntary disclosure enables funds to signal their sustainability commitments to the market, while (ii) like mandatory disclosure, requires these funds to be transparent about the sustainability outcomes of their underlying portfolio … we show that investors indeed respond to the Article signals, but that this effect is driven by retail investors. … we see that mutual funds that take on an Article 8(/9) label after the SFDR announcement improve their sustainability outcomes compared to Article 6 funds. Specifically, we note that retail funds behave in accordance with their signal, while for institutional funds we do not find that Article 8(/9) funds behave differently from Article 6 funds. We disregard the hypothesis that these institutional funds partake in ‘window-dressing’, instead we find evidence that mandatory disclosure induces European institutional funds to significantly improve their sustainability outcomes compared to untreated, US-domiciled institutional funds“ (p. 32). My comment: For my Article 9 (global smallcap fund) see www.futurevest.fund and My fund (prof-soehnholz.com).

Less greenwashing: Do US Active Mutual Funds Make Good of Their ESG Promises? Evidence from Portfolio Holdings by Massimo Guidolin and Monia Magnani as of Feb. 23rd, 2024 (#22): “… our findings indicate a distinct shift towards greater sustainability within the mutual equity fund industry. Notably, this trend is not exclusive to self-labelled ESG funds; all types of funds have enhanced their ESG ratings and reduced their investments in sin stocks. The number of self-labelled ESG funds has continued to rise in recent years, and importantly, most of these ESG funds, on average, appear to genuinely adhere to their claims of prioritizing sustainable investing. Consequently, they demonstrate significantly higher actual ESG scores in their portfolio holdings. Moreover, we are witnessing a noticeable reduction in sin stocks within their portfolios“ (p. 34).

SDG- aligned and impact investment research

Sustainable returns: Labeled Bonds: Quarterly Market Overview Q4 2023 by Jakub Malich and Anett Husi from MSCI Research as of Feb. 21st, 2024:  Green, social, sustainability and sustainability-linked “Labeled-bond issuance reached a similar level in 2023 as in 2022, which was notably below the peak issuance of 2021. … The market continued to grow both in size and diversity, as hundreds of new and recurring corporate and government-related issuers brought labeled bonds to the market. … Most newly issued and outstanding labeled bonds were investment-grade and issued by ESG leaders … the performance of labeled bonds, despite their distinctions from conventional bonds, was primarily driven by key fixed-income risk and return drivers, such as interest-rate sensitivity, currency fluctuations and credit risk“ (p. 18). … “Corporate issuers led issuance in the fourth quarter, with USD 75 billion worth of labeled bonds (63% of the total), while supranational, sovereign and agency (SSA) entities issued USD 44 billion (37%). This continues a shift in the labeled-bond market, with corporate issuers taking a more central role” (p. 4).

Index impact: The Impact of Climate Engagement: A Field Experiment by Florian Heeb and  Julian F. Kölbel as of Feb. 6th, 2024 (#361): “A randomly chosen group of 300 out of 1227 international companies received a letter from an index provider, encouraging the company to commit to setting a science-based climate target to remain included in its climate transition benchmark indices. After one year, we observed a significant effect: 21.0% of treated companies have committed, vs. 15.7% in the control group. This suggests that engagement by financial institutions can affect corporate policies when a feasible request is combined with a credible threat of exit” (abstract). My comment: It would be interesting to know the assets of the funds threatening to divest (index funds are often large). Hopefully, this type of shareholder engagement also works for active (and small) asset managers. Further shareholder engagement research see e.g. Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

ESG nudging: Optimistic framing increases responsible investment of investment professionals by Dan Daugaard, Danielle Kent, Maroš Servátka, and Lyla Zhang as of Jan. 1zh, 2024 (#33): “… we report insights from an incentivized online experiment with investment professionals … The analyzed sample consists of individuals who stated their intention to increase their investment in ESG within the next 10 years … We demonstrate that framing divestment decisions in a more optimistic orientation, with an emphasis on the transitory nature of costs and the permanency of future benefits, significantly increases responsible investment by 3.6%. With total professionally managed assets valued at USD $98.4 trillion globally, a comparable effect size would represent a USD $3.6 trillion shift in asset allocations” (p. 12).

Other investment research (in: „Biodiversity diversion“)

Gender differences: The Gender Investment Gap: Reasons and Consequences by Alexandra Niessen-Ruenzi and Leah Zimmerer as of Jan. 27th, 2024 (#31): „ Women, compared to men, report larger financial constraints, higher risk aversion, perceived stress in financial matters, and lower trust in financial institutions. As a result, women save and invest less consistently than men. Conditional on investing, women use fewer financial products, particularly in equity investments. We find a significant gender gap in stock market participation, with 17.6% of women and 32.3% of men investing. The motives and barriers influencing stock market participation also diverge, with men leaning towards short-term gains and the thrill of investing, while women commonly cite unfamiliarity with stocks and fear of potential losses as primary reasons for non-participation” (abstract).

New performance indicator: Maximum Cumulative Underperformance: A New Metric for Active Performance Management by Kevin Khang and Marvin Ertl from The Vanguard Group as of Jan. 18th, 2024 (#29): “… we define maximum cumulative underperformance (MaxCU)—the maximum underperformance of an active fund relative to the benchmark … The greater the benchmark return environment and the longer the investment horizon, the greater MaxCU investors should expect … Ex-ante, our framework can be used to articulate the investor’s tolerance for underperformance relative to the benchmark and inform the final active allocation decision at the outset. Ex-post, our framework can be used to set the base rate for terminating a manager who has suffered a sizeable underperformance“ (p. 19/20). My comment: Useful concept, but benchmark selection is very important for this approach. For the latter problem see e.g. Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds? (prof-soehnholz.com)

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Advert for German investors:

Sponsor my research by investing in and/or recommending my global small cap mutual fund (SFDR Art. 9). The fund focuses on the Sustainable Development Goals and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or My fund (prof-soehnholz.com).

Small-Caps Illustration durch Benchmark meines Fonds mit einer Peergroup

Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds?

Small-Caps: Ich möchte möglichst nachhaltig und transparent, d.h. regelbasiert investieren. Die nachhaltigsten regelbasierten ETFs- bzw. Publikumsfonds erreichen aber nur ungefähr die Hälfte der Nachhaltigkeit meiner nachhaltigsten Aktienportfolios (Details dazu vgl. Nachhaltigkeitsinvestmentpolitik auf www.futurevest.fund). Interessenten sind neben der absoluten auch an der relativen Performance dieser Portfolios interessiert. Dafür ist eine faire Benchmark nötig. Es ist schwer, eine solche zu finden.

Keine diversifizierte SDG-Benchmark?

Meine Regeln beinhalten vor allem Länder- und Aktivitätsausschlüsse, ESG-Anforderungen und solche an Vereinbarkeit mit den Nachhaltigen Entwicklungszielen der Vereinten Nationen (SDG). Außerdem versuche ich, ein breites und tiefes Shareholder Engagement umzusetzen.

Die Aktien für meinen Fonds werden Bottom-Up selektiert. Es gibt also keine Allokationsvorgaben z.B. für Länder oder Branchen oder Unternehmensgrößen. Bisher hatten die USA einen Anteil von etwa 40 bis 60 Prozent, danach folgt Australien mit ca. 10% sowie diverse europäische Länder.

Bei den Branchen lag das Gewicht je nach Definition bei 30 bis 60 Prozent Gesundheit und bis zu 40% Industrie.

Ein ESG- plus SDG-Index bzw. eine derartige Fonds-Vergleichsgruppe (Peergroup) wären als Benchmark geeignet. Fonds mit Fokus auf Cleantech oder erneuerbarer Energieproduktion (SDG 7) performen ganz anders als Fonds mit Gesundheitsfokus (SDG 3). Deshalb ist eine SDG-diversifizierte Benchmark nötig. Ich kenne aber keine solche Benchmark bzw. Peergroup, deren Daten öffentlich zugänglich sind und die somit allen Interessenten für Vergleiche zur Verfügung stehen.

Allenfalls der Global Challenges Index der Börse Hannover (GCX) könnte als Benchmark dienen. Allerdings beinhaltet er vor allem ökologisch ausgerichtete Aktien und kaum welche mit Sozialfokus. Außerdem ist er Europalastig und beinhaltet überwiegend höher kapitalisierte Unternehmen als mein Fonds. Ein Vergleich der Positionen von GCX und meinem Fonds ergibt nur sehr wenige Gemeinsamkeiten. Deshalb ist die Korrelation zu meinem Fonds mit ca. 0,6 (seit Fondsauflage im August 2021) auch relativ gering.

Small-Caps Benchmark adäquat?

Eine hohe SDG-Vereinbarkeit ist für branchenfokussierte Unternehmen einfacher erreichbar als für diversifizierte. In den letzten Jahren haben zudem immer mehr Small- und Mid-Cap-Unternehmen aussagekräftige ESG-Daten veröffentlicht. Deshalb gibt es zunehmend mehr SDG-kompatible Unternehmen mit guten ESG-Ratings. Aus diesen Gründen sind überwiegend kleine und wenige Großunternehmen in meinem Portfolio vertreten.

Die durchschnittliche Kapitalisierung der Unternehmen im Portfolio ist von anfangs ca. 15 Milliarden auf inzwischen unter 5 Milliarden gesunken. Je nach Zeitpunkt bzw. Definition war der Fonds also zu Beginn eher ein Mid-Cap- und ist jetzt eher ein Small-Cap-Fonds. Ich erwarte aus den oben genannten Gründen, dass der Fonds auch künftig Small-Cap-fokussiert bleibt.

Korrelationen seit Fondsauflage zeigen knapp 0,6 mit globalen Mid-Caps und etwas über 0,6 mit globalen Small-Caps. Einen kombinierten Small/Mid-Cap-Index bzw. ETF, der für Vergleiche genutzt werden kann, habe ich nicht gefunden. Datenanbieter wie Morningstar oder CAPInside stellen aber Fondspeergroups aus Small- und Mid-Cap-Fonds zusammen. Diese scheinen mir für Performancevergleiche meines Fonds für die Vergangenheit am ehesten geeignet. Bei der CAPInside Peergroup liegt die Korrelation seit Fondsauflage bei 0,7. Dabei ist allerdings zu beachten, dass solche Vergleichsgruppen aufgrund der relativ hohen Kosten aktiver Fonds typischerweise geringere Renditen erreichen als direkte Wertpapierindizes bzw. kostengünstige ETFs.

Der Vorteil einer Small- bzw. Small/Mid-Cap-Benchmark ist, dass mein Fonds mit sehr viel mehr anderen Fonds verglichen werden kann als mit der GCX-Benchmark. Außerdem sind viel mehr Anleger gewohnt, mit traditionellen (Small/Midcap) als mit nachhaltigen (GCX) Benchmarks zu arbeiten. Für künftige Vergleiche wäre eine reine Smallcap-Peergroup adäquater. Eine solche frei zugängliche Vergleichsgruppe gibt es jedoch weder bei Morningstar noch bei CAPInside.

Keine eigene Impact-Peergoup

Ich habe auch versucht, eine eigene Peergroup mit vergleichbaren Fonds zu erstellen. Ich habe aber keine Fonds gefunden, die konsequente ESG- und breite SDG-Kriterien nutzen und global vor allem in Small-Caps investieren. Es gibt zwar SDG- bzw. Impactfonds, aber die sind oft auf nachhaltige Energien fokussiert und/oder nur auf eine Region. Wenn es sich um globale Fonds handelt, enthalten sie typischerweise sehr viele (Technologie-) Mega-Caps, die meiner Meinung nach weder nach ESG- noch nach SDG-Kriterien nachhaltig genug sind (vgl. Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)).

Am ehesten können deshalb die Fonds genutzt werden, die dem Global Challenges Index folgen. Wie erwartet, haben diese erheblich geringere USA- und Sozialallokationen und aktuell eine etwa doppelt so hohe durchschnittliche Marktkapitalisierung wie mein Fonds.

Problematische Faktoranalysen

Ich könnte auch auf Faktoranalysen verweisen, um die Fondsperformance zu erklären. Für meinen Fonds ist aber aufgrund seiner Konzeption, außer in Bezug auf SDG, ESG und Small- und Mid-Caps, keine klare und dauerhafte Faktorabhängigkeit zu erwarten. Und die mir bekannten öffentlichen und damit einfach von Interessenten nachprüfbaren Faktoranalysen nutzen keine SDG- bzw. ESG-Faktoren.

Bei Morningstar wird für meinen Fonds z.B. eine unpassende „Aktien global All-Cap“ Benchmark genutzt und eine Flex-Cap- (inkl. Mega- und Large-Caps) anstatt einer Small/Mid-Cap-Peergruppe, die es ebenfalls gibt. Bei der Morningstar-Portfolioanalyse ist der Small-/Mid-Cap-Fokus dagegen deutlich erkennbar.

Der Fonds hat nach Morningstar-Klassifikation keinen klaren Value- oder Growth-Fokus und nur geringe Momentum-Komponenten. Für Interessenten problematisch ist, dass die Ergebnisse solcher Faktoranalysen stark von den jeweiligen Faktordefinitionen abhängen können (vgl. z.B. Kessler, Stephan and Scherer, Bernd and Harries, Jan Philipp, Value by Design? (November 14, 2019). The Journal of Portfolio Management Quantitative Special Issue, 46 (2) 25-43, 2020, DOI: https://doi.org/10.3905/jpm.2019.1.122, Available at SSRN: https://ssrn.com/abstract=3593557).

Fazit: Die für meinen Fonds am besten geeignete Benchmark über die bisherige Laufzeit ist eine Vergleichsgruppe aus globalen Small- und Mid-Cap-Fonds. Im Vergleich zu einer solchen Fondsgruppe von CAPInside hat mein Fonds eine ähnliche Performance seit Auflage und vor allem seit Mitte 2023 und seit Auflage eine Korrelation von ca. 0,7. Das ist nachvollziehbar, denn seit der letzten jährlichen regelbasierten Portfolioumstellung zu Mitte/Ende 2023 besteht der Fonds aus noch mehr Small- und Mid-Caps als vorher. Für künftige Analysen ist dagegen eine reine Small-Cap-Benchmark adäquater.

Besonders nachhaltige marktübliche Performance

Natürlich wäre es aus meiner Sicht gut, eine Outperformance gegenüber solchen Benchmark zu erreichen. Weil für meinen Fonds neben den oben genannten Branchen auch – relativ schlecht performende – nachhaltige Energien, Infrastruktur und Immobilien eine wichtige Rolle spielen, war das in den letzten Jahren aber schwierig. Die Rendite meines Fonds ist deshalb aus meiner Sicht OK. Mit ungefähr 13% Volatilität sind die Schwankungen zudem relativ gering (Interessenten können die Performance z.B. hier prüfen: Fonds-Portfolio: Mein Fonds | CAPInside).

Nachdem Small-Caps lange Zeit relativ schlecht rentiert haben, erwarten einige Marktbeobachter, dass sich die Renditen bald verbessern könnten. Weil ich prognosefrei arbeite, kann ich das nur hoffen. Zumindest gelten Small-Caps als Aktien, die grundsätzlich schnell und stark steigen können. Im Dezember 2023 hat mein Fonds mit den +9% gezeigt, dass das durchaus vorkommen kann.

Mein erklärtes Ziel, mittelfristig eine marktübliche Performance mit besonders nachhaltigen Investments zu erzielen, habe ich bisher erreicht. Anders ausgedrückt: Wenn man weltweit in Small-Caps investieren möchte, kann man das mit meinem Fonds besonders nachhaltig machen und sollte dabei keine Performancenachteile haben.

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Werbung (Small Caps):

Der von mir beratene Fonds (SFDR Art. 9) ist auf soziale SDGs fokussiert. Ich nutze separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement bei aktuell 26 von 30 Unternehmen: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T oder Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds

Disclaimer

Diese Unterlage ist von der Soehnholz ESG GmbH erstellt worden. Die Erstellerin übernimmt keine Gewähr für die Richtigkeit, Vollständigkeit und/oder Aktualität der zur Verfügung gestellten Inhalte. Die Informationen unterliegen deutschem Recht und richten sich ausschließlich an Investoren, die ihren Wohnsitz in Deutschland haben. Sie sind nicht als Verkaufsangebot oder Aufforderung zur Abgabe eines Kauf- oder Zeichnungsangebots für Anteile des in dieser Unterlage dargestellten Fonds zu verstehen und ersetzen nicht eine anleger- und anlagegerechte Beratung. Anlageentscheidungen sollten nur auf der Grundlage der aktuellen gesetzlichen Verkaufsunterlagen (Wesentliche Anlegerinformationen, Verkaufsprospekt und – sofern verfügbar – Jahres- und Halbjahresbericht) getroffen werden, die auch die allein maßgeblichen Anlagebedingungen enthalten. Die Verkaufsunterlagen werden bei der Kapitalverwaltungsgesellschaft (Monega Kapitalanlagegesellschaft mbH), der Verwahrstelle (Kreissparkasse Köln) und den Vertriebspartnern zur kostenlosen Ausgabe bereitgehalten. Die Verkaufsunterlagen sind zudem im Internet unter www.monega.de erhältlich. Die in dieser Unterlage zur Verfügung gestellten Inhalte dienen lediglich der allgemeinen Information und stellen keine Beratung oder sonstige Empfehlung dar. Die Kapitalanlage ist stets mit Risiken verbunden und kann zum Verlust des eingesetzten Kapitals führen. Vor einer etwaigen Anlageentscheidung sollten Sie eingehend prüfen, ob die Anlage für Ihre individuelle Situation und Ihre persönlichen Ziele geeignet ist. Diese Unterlage enthält ggf. Informationen, die aus öffentlichen Quellen stammen, die die Erstellerin für verlässlich hält. Die dargestellten Inhalte, insbesondere die Darstellung von Strategien sowie deren Chancen und Risiken, können sich im Zeitverlauf ändern. Einschätzungen und Bewertungen reflektieren die Meinung der Erstellerin zum Zeitpunkt der Erstellung und können sich jederzeit ändern. Es ist nicht beabsichtigt, diese Unterlage laufend oder überhaupt zu aktualisieren. Sie stellt nur eine unverbindliche Momentaufnahme dar. Die Unterlage ist ausschließlich zur Information und zum persönlichen Gebrauch bestimmt. Jegliche nicht autorisierte Vervielfältigung und Weiterverbreitung ist untersagt.

ESG Bluff: Picture from pixabay by May Leroy shows dices etc.

ESG bluff? Researchpost #164

ESG bluff: 10x new research on Swiss/sustainable retail, lab meat, Weimar politics, sustainable women, SDG financial research, green funds, real estate ESG, free trading governance effects and bond factors (#shows the number of SSRN full paper downloads as of February 22nd, 2024)

Social and ecological research (in: ESG bluff?)

Sustainable retail (English version below): Ausgebummelt – Wege des Handels aus der Spass- und Sinnkrise by Gianluca Scheidegger, Johannes Bauer, and Jan Bieser as of Dec. 7th, 2023 (#21): „Die Zeit wird neu verteilt: Was keine Freude oder Sinn stiftet, wird gestrichen … Nachhaltiger Konsum gewinnt an Bedeutung … Umfassend informiert: KI erleichtert die Produktsuche für Konsument:innen …Auf einer Linie: Persönliche Werte werden bei der Produkt- und Händlerwahl entscheidend: Purpose-driven Consumers sind die weltweit größte Kundengruppe. Tendenz steigend. Diese Kund:innen kaufen nur bei Firmen ein, die ihre Werte teilen. Die Konsument:innen erwarten in Zukunft mehr von den Unternehmen. Händler müssen Stellung zu gesellschaftlichen Problemen beziehen und aktiv zu ihrer Lösung beitragen. Die gute Nachricht ist: Die Menschen trauen dies den Unternehmen zu. Jedem Kanal seine Rolle: Transaktion primär online, Inspiration eher offline. Schnell und nachhaltig: … Händler, die beide Ansprüche unter einen Hut bekommen, verschaffen sich einen klaren Wettbewerbsvorteil“ (p. 84).

Sustainable retail (German version above): Going shopping is dead – How to Restore Meaning and Fun in Retail by Gianluca Scheidegger, Johannes Bauer and Jan Bieser as of Dec. 4th, 2023 (#17): “Time is being reallocated: what’s not fun or meaningful will be crossed off the schedule … Sustainable consumption is gaining in importance Overconsumption has a massive impact on the environment. … Fully informed: AI facilitates consumers’ searches for products … In aligment: personal values becoming decisive in choosing products and retailers Purpose-driven consumers are the largest customer group worldwide. This trend is rising. These customers only buy from companies that share their values. Consumers will expect more from companies in the future. Retailers must take a stand on social problems and actively contribute to solving them. The good news is that people trust companies to do this. Each channel has its role: transactions primarily online, inspiration mostly offline … Fast and sustainable: delivery under greater scrutiny … The fastest form of delivery is often not the most sustainable. Retailers who can reconcile both requirements gain a clear competitive advantage“ (p. 84).

Lab meat: Good conscience from the lab? The State of Acceptance for Cultivated Meat by Christine Schäfer, Petra Tipaldi and Johannes C. Bauer as of Jan. 8th, 2024 (#12; German version: Gutes Gewissen aus dem Labor? So steht es um die Akzeptanz von kultiviertem Fleisch by Christine Schäfer, Petra Tipaldi, Johannes Bauer :: SSRN, #26): “Lab-grown meat instead of beef fillet, cell-cultured patties instead of burgers – for many Swiss people this sounds far from appetising. A mere 20% would even try cultivated meat, whilst 15% remain undecided. … The Swiss population is also sceptical about other kinds of novel foods, such as insects or coffee made from mushrooms. There are, however, customer groups who may be more inclined to tuck into a steaming plate of crispy lab-grown schnitzel: They are young, male, educated, mainly live in the city, already have experience with a particular diet, such as vegetarian or low carb, and know a lot about sustainable food. … Lab-grown meat is one such example of a novel food. It is cultivated from stem cells in a bioreactor and has many advantages, namely that factory farming and the use of antibiotics are all but eliminated, less space and water is needed for production, no rainforests need to be cut down to cultivate animal feed and the combination of nutrients in the meat can be adapted to specific target groups. But there are risks …. the production facilities needed eat up enormous amounts of energy … Lab-grown meat is still hard to find on the market. Customers can only taste chicken derived from cellular agriculture in a few restaurants in Singapore and the USA at the moment. As yet, it has not been approved anywhere in Europe“ (p. 2). My comment: I am skeptical about the ecological footprint and market potential of lab meat compared to plant-based meat alternatives.

Sustainable women: Sustainable leadership among financial managers in Spain: a gender issue by Elena Bulmer, Iván Zamarrón, and Benito Yáñez-Araque as of Dec. 29th, 2023 (#13): “A total of 131 senior financial managers (106 men and 25 women), from various sectors in Spanish companies (a multi-sector study), responded to two scales: the Honeybee Sustainable Leadership Scale (focusing on stakeholder orientation and a vision of social and shared leadership) and the Locust Leadership Scale (primarily centered on achieving short-term profits at any cost). … The main finding was that female financial managers scored significantly higher on the Honeybee Leadership Scale compared to their male counterparts, signifying that female presence is key to sustainable leadership” (abstract).

Deglobalization effect? The consequences of a trade collapse: Economics and politics in Weimar Germany by Björn Brey and Giovanni Facchini as of Jan. 17th, 2024 (#18): “What are the political consequences of de-globalization? We address this question in the context of Weimar Germany, which experienced a 67% decline in exports between 1928-1932. During this period, the Nazi party vote share increased from 3% to 37%. … we show that this surge was not driven by the direct effects of the export decline in manufacturing areas. At the same time, trade shock-induced declines in food prices spread economic hardship to rural hinterlands. We document that this indirect effect and the pro-agriculture policies put forward by the Nazis are instead key to explain their electoral success” (abstract).

Responsible investment research (in. ESG bluff?)

SDG research: Finance Research and the UN Sustainable Development Goals – an analysis and forward look by Yang Sua, Brian M. Lucey, and Ashish Kumar Jha as of Feb. 13th, 2024 (#183): “This study conducts a comprehensive analysis of the interplay between the United Nations Sustainable Development Goals (UN SDGs) and scholarly output in financial journals from 2010 to 2022. … The findings demonstrate a focus within finance research on Economic Growth (Goal 8) and Peace and Justice (Goal 16), while also identifying areas that warrant further scholarly attention” (abstract). My comment: For mutual funds it seems to be easiest to focus on SDGs 3 (Health), 7 (Energy) and 9 (Industry/Infrastructure). That is my experience with a bottom-up stock selection approach, see www.futurevest.fund “Nachhaltigkeitsreport”.

ESG bluff? Sustainable in Name Only? Does Bluffing or Impact Explain Success in a Moral Market? by Kevin Chuah and Witold Henisz as of Feb. 13th, 2024 (#16): “… US-domiciled equity-focused investment funds that are labeled as focusing on environmental, social, and governance (ESG) issues. Although we find that product success in terms of investment inflows is more likely for funds with better ESG performance, the draw of larger fund operators and of superior financial returns remains substantial. We further segment our sample, finding that segments offering lower levels of ESG engagement achieve inflows that are unrelated to ESG performance, yet are a substantial part of the overall market. This suggests that bluffing by large product providers may undermine genuine attempts at social impact in moral markets“ (abstract). My comment: It certainly seems to help to grow fund assets to have huge marketing power and good returns, recently often based on high allocations to the glorious 7 which I do not consider to be very sustainable, see Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)

Green disadvantage? Carbon Risk Pricing or Climate Catering? The Impact of Morningstar’s Low Carbon Designation on Fund Performance by K. Stephen Haggard, Jeffrey S. Jones , H. Douglas Witte, and C. Edward Chang as of Jan. 18th, 2024 (#21): “Our results show insignificant performance differences between Low Carbon Designated (LCD) funds and non-LCD funds for the most recent (three-year) period. For longer periods of five and ten years, we observe excess performance only for the Sharpe and Sortino ratios, but not for Total Return or the Treynor ratio. … our results are consistent with a catering hypothesis of climate investing. Initially, investors seeking low-carbon investments bid up the prices of low-carbon stocks. Firms respond by seeking Low Carbon Designations, whether through real efforts or greenwashing. Once enough low-carbon stocks are available to meet the demand of the lowcarbon clientele, the premium associated with low carbon disappears“ (p. 17). My comment: If low LCD funds have similar performance as high carbon funds, why invest in the latter?

Green disadvantage? Doing Good and Doing Well: The Relationships between ESG and Stock Returns of REITs by Neo Jing Rui Dominic and Sing Tien Foo as of Jan. 29th, 2024 (#31): “Using a sample of 413 REITs from both the US and other developed countries covering the period from 2018 to 2022 …We find that REITs with an ESG rating have a lower price return of 0.8% relative to REITs not assessed for ESG. … The results show that the total returns of the ESG-rated REITs were even lower when the climate change risks increased, or more specifically, when investors became more salient about climate change news, they increased their preference for ESG-rated REITs, thus reducing the total return of REITs. … we find that higher compliance and operation costs for REITs with strong ESG agendas, which may come in the form of higher compensation for the Board and Senior Management, who take on more ESG responsibilities, may have a negative impact on the ESG-rated REIT stock performance“ (p. 19/20). My comment: The higher compensation for REIT Boards and Senior Management with the associated higher pay gap compared to median employee should be explored further. With my shareholder engagement strategy I try to alert regarding this issue, see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Retail anti-governance? Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading by Dhruv Aggarwal, Albert H. Choi, and Yoon-Ho Alex Lee as of Feb. 9th, 2024 (#102): “We examine the effects of the sudden abolition of trading commissions by major online brokerages in 2019, which lowered stock market entry costs for retail investors, on corporate governance. … Firms with positive abnormal returns in response to commission-free trading subsequently saw a decrease in institutional ownership, a decrease in shareholder voting, and a deterioration in environmental, social, and corporate governance (ESG) metrics. Finally, these firms were more likely to adopt bylaw amendments to reduce the percentage of shares needed for a quorum at shareholder meetings” (abstract).

Other investment research (in: ESG bluff)

Few good bond factors: The Corporate Bond Factor Zoo by Alexander Dickerson, Christian Julliard, and Philippe Mueller as of Nov. 14th, 2023 (#1299): “We find that the majority of tradable factors designed to price corporate bonds are unlikely sources of priced risk, and that only one factor, capturing the post-earnings an-nouncement drift in corporate bonds, which has not been utilized in prior asset pricing models, should be included in any stochastic discount factor (SDF) with very high probability. Furthermore, we find that nontradable factors capturing inflation volatility risk … and the term structure yield spread … as well as the return on a broad based bond market index, are likely components of the SDF” (p. 37/38).

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Nutrition changes: Picture shows aubergine caricature by nneem from Pixabay

Nutrition changes: Researchpost #163

Nutrition changes: 13x new research on biodiversity, food, socially responsible buying, SFDR, ESG data, green indices, derivatives, impact investing, ESG compensation, stock and bond risks, and financial advisor biases by Patrick Velte, BaFin, Morningstar and many others (# shows number of full SSRN downloads as of Feb. 15th, 2024):

Social and ecological research (in: “Nutrition changes”)

Man vs. biodiversity: The Main Drivers of Biodiversity Loss: A Brief Overview  by Christian Hald-Mortensen as of Oct. 18th, 2023 (#101): “The drivers of biodiversity loss are complex – this paper has examined the main drivers, namely agricultural expansion, climate change, overfishing, urbanization, and the introduction of invasive species. To avoid further biodiversity loss, the role of agricultural expansion and land use change becomes apparent as a cause of 85% of at-risk species” (p. 5/6).

Nutrition changes (1): European Food Trends Report: Feeding the Future Opportunities for a Sustainable Food System by Christine Schäfer, Karin Frick and Johannes C. Bauer as of Nov. 7th, 2023 (#41): “…Industry, logistics, retail and research are developing new solutions for a diet that does not come at the expense of the planet. By employing methods of agro-ecology and precision agriculture, farmers can produce in a more resource-efficient way. Smart data enables more efficient logistics. New virtual distribution channels and a vibrant creator economy – which includes food bloggers, influencers and online chefs – are shaking up the industry and are able to bring important issues to consumers’ attention. By using packaging that is recyclable or biodegradable, the processing industry is able to reduce its ecological footprint. Meanwhile, researchers have long since explored alternative protein sources based on cells or fermentation, the production of which generates fewer greenhouse gas emissions compared with conventional meat production” (p. 2).

Nutrition changes (2): From Intention to Plate: Why Good Dietary Resolutions Fail by Petra Tipaldi, Christine Schäfer and Johannes C. Bauer as of Jan. 11th, 2024 (#17): “What we eat accounts for more than 30% of man-made greenhouse gas emissions. … The majority of the Swiss population is aware of this: 98% want to change the way they eat, at least partially. 91% want to avoid generating food waste, more than three-quarters want to eat more healthy, seasonal and regional foods and even 42% want to often cut out fish and meat. Despite Swiss people being so motivated, the same products mostly end up on their plates like before, as a representative survey from the Gottlieb Duttweiler Institute shows. The study reveals: there is an intention-behaviour gap. … Consumers can do the most for the environment by avoiding food waste, reducing their consumption of fish, meat and animal products in general and buying food with the lowest possible CO2 emissions. The study also shows the extent to which companies, the retail industry and politicians can support consumers to seize their opportunities for action so that sustainable diets do not remain an intention but become a reality on consumers’ plates”.

Community & supply SCR: Which CSR Activities Motivate Socially Responsible Buying? by Katherine Taken Smith, Donald Lamar Ariail, Murphy Smith, and Amine Khayati as of Feb. 8th, 2023 (#14): “In support of prior research, our findings revealed consumers to be more inclined to purchase from companies engaged in CSR activities. … While consumers voiced support for CSR activities in each of the social issues, only two were identified as motivating socially responsible buying: i.e., community and supply chain. As a CSR issue, the term supply chain encompasses ethical labor concerns such as child labor and human trafficking. The term community refers to a company investing resources in the local economy. … females displayed significantly higher buying intentions towards companies that practice CSR. Females, compared to males, were more supportive of CSR activities related to ethics and philanthropy. … Non-conservative consumers, compared to conservative, exhibited a higher degree of socially responsible buying. … religious consumers, compared to non-religious, were more supportive of CSR activities related to community and ethics“ (p. 18/19). My comment: My shareholder engagement activities include a focus on suppliers by asking buyers to use comprehensive ESG-ratings, see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog (prof-soehnholz.com)

Responsible investment research (in: “Nutrition changes”)

Sustainable fund details: SFDR Article 8 and Article 9 Funds: Q4 2023 in Review? by Hortense Bioy, Boya Wang, Arthur Carabia, Biddappa A R from Morningstar as of Jan. 25th, 2024: “In the fourth quarter of 2023, Article 8 funds registered the largest quarterly outflows on record and Article 9 funds their very first quarterly outflows … Over the entirety of 2023, Article 8 funds registered net outflows of EUR 27 billion, while Article 9 funds collected EUR 4.3 billion and Article 6 funds garnered EUR 93 billion. Actively managed funds drove all the outflows in the fourth quarter as well as over the full year. Passive funds sustained their positive momentum. Assets in Article 8 and Article 9 funds rose by 1.7% over the quarter to a new record of EUR 5.2 trillion. Together, Article 8 and Article 9 funds saw their market share climb further to nearly 60% of the EU universe primarily due to continued reclassification from Article 6 to Article 8 or 9. We identified 256 funds that altered their SFDR status in the fourth quarter, including 218 that upgraded to Article 8 from Article 6, while only four funds downgraded to Article 8 from Article 9” (p. 1). My comment: There are only very few Article 9 funds with a focus on SDGs (if so, mostly ecology oriented funds) or small and midcaps. There is still limited competition (and overlap with other funds) for my small/midcap (social) SDG fund which – since inception – has a similar performance as traditional small/midcap funds (see Fonds-Portfolio: Mein Fonds | CAPinside)

ESG rating deficits: BaFin Marktstudie – Durchführung einer Marktstudie zur Erhebung von und Umgang mit ESG-Daten und ESG-Ratingverfahren durch Kapitalverwaltungsgesellschaften vom 14.2.2024: „Mithilfe einer Befragung von 30 deutschen KVGen und 6 ESG-Ratinganbietern untersucht die vorliegende Marktstudie der BaFin den Status Quo hinsichtlich der Erhebung und des Umgangs der KVGen mit ESG-Daten und Ratings. … 84% der KVGen zieht MSCI als Datenanbieter heran, gefolgt von ISS (44%), Bloomberg (28%) und Sustainalytics sowie Solactive (jeweils 20%). Über 70% der KVGen, die externe Datenanbieter heranziehen, nutzen mehr als einen Anbieter… Nur rund 38% der KVGen betrachten die Qualität extern erhobener ESG-Daten und Ratings als „hoch“ … Als Gründe werden neben der zum Teil schlechten Datenabdeckung auch die zum Teil unzureichende Aktualität der Daten genannt … während 64% der KVGen sich eine schnellere Beantwortung ihrer Fragen durch die Anbieter wünschten“ (p. 3-5). My comment: MSCI is not necessarily the best sustainability data provider. The costs of <50k EUR p.a. for ESG data seems low and not high to me. Most likely, (indirect) costs charged to the portfolio managers of the funds are not included in that figure. And those costs can be very high, if detailed and transparent reporting to end-investors is offered. Also, there is a (under)performance risk if there is crowding in highly MSCI rated investments (compare: Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)).

Green index variations: Resilience or Returns: Assessing Green Equity Index Performance Across Market Regimes by An Duong as of Jan. 5th, 2024 (#20): “… we embark on a comprehensive examination of the performance differential between green equity indices, specifically the FTSE4Good series, and conventional equity indices across a diverse set of economies: the US, UK, Japan, Indonesia, Malaysia, Mexico, and Taiwan. … in periods of market stress, green indices often demonstrate slightly less negative returns than their conventional counterparts, … in developing economies, green indices exhibit higher volatility, indicating greater sensitivity to market downturns, contrasted with the lower volatility observed in developed markets. … In addition, Green indices show a higher likelihood of remaining in bearish states, suggesting either a resilience to rapid shifts or a slower adaptation to positive market changes “ (p. 31).

Commodity ESG: ESG and Derivatives by Rajkumar Janardanan, Xiao Qiao, and K. Geert Rouwenhorst as of Feb. 8th, 2024 (#40): “We present a simple conceptual framework to illustrate how ESG considerations can be applied to derivatives in practice, using the market for commodity futures as an example. Because derivatives do not target individual firms, we link the S and G scores to the geography of global production. … Some preliminary simulation evidence suggests that, for now, including ESG considerations in the selection of commodity futures would have not materially impacted the risk and return properties of investor portfolios” (p. 14).

Impact investment research (in: “Nutrition changes”)

Beyond ESG: From ESG to Sustainable Impact Finance: Moving past the current confusion by Costanza Consolandi and Jim Hawley as of Feb. 5th, 2024 (#86): “We argue that ESG/Sustainability is moving from being based primarily on ESG ratings and rankings … to sustainability (ESG) being based on mandated disclosure and analysis of externalities. We briefly examine the basis of ESG ranking and ratings confusion concluding that based on current methodologies of major providers results in neither significant change nor accurate disclosures by firms. Alternatively, we suggest an integration of externality data will significantly modify Modern Portfolio Theory as it does not account for externality effects either … Not accounting for externalities leads to sub-optimum economic system performance … Finally, we place these concepts and developments the context of global emerging regulatory and standard setting” (abstract).

Good ESG bonus? Archival research on sustainability-related executive compensation. A literature review of the status quo and future improvements by Patrick Velte as of Feb. 13th, 2024: “This literature review summarizes previous quantitative archival research on sustainability-related executive compensation (SREC) … there are clear indications that SREC has a positive effect on sustainability performance. In contrast to the business case argument for sustainability, this is not true for financial performance. We find major limitations and research gaps in previous studies that should be recognized in future studies (e.g., differentiation between symbolic and substantive use of SREC)” (abstract). My comment: I hope that there will be more such research, e.g. focusing on pay ratios, see Pay Gap, ESG-Boni und Engagement: Radikale Änderungen erforderlich – Responsible Investment Research Blog (prof-soehnholz.com)).

Other investment research

Risk versus time: The Long and Short of Risk and Return by Leo H. Chan as of Dec. 20th, 2023 (#31): “I show that risk increases as the measurement time frame shortens, while it decreases as the measurement time frame increases. … Over the long horizon, risk (as measured by standard deviation of returns) is no longer a concern. Rather, an investor should pay more attention to the total return of an investment portfolio. In this regard, what is considered risky (stocks) is a far better choice than what is considered safe (bonds)” (abstract).

Only stocks or more? Stocks for the Long Run? Sometimes Yes, Sometimes No by Edward F. McQuarrie as of Feb. 13th, 2024: “Digital archives have made it possible to compute real total return on US stock and bond indexes from 1792. The new historical record shows that over multi-decade periods, sometimes stocks outperformed bonds, sometimes bonds outperformed stocks and sometimes they performed about the same. New international data confirm this pattern. Asset returns in the US in the 20th century do not generalize. Regimes of asset outperformance come and go; sometimes there is an equity premium, sometimes not” (abstract).

Advisor bias: Financial Advisors and Investors’ Bias by Marianne Andries, Maxime Bonelli, and David Sraer as of Jan. 27th, 2024 (#73): “We exploit a quasi-natural experiment run by a prominent French brokerage firm that removed stocks’ average acquisition prices from the online platform used by financial advisors. … First, even in our sample of high-net-worth investors receiving regular financial advice, the disposition effect – investors’ tendency to hold on to their losing positions and sell their winning stocks – is a pervasive investment bias. Second, financial advisors do exert a significant influence on their clients’ investment decisions. Third, financial advisors do not actively mitigate their clients’ biases: when advisors have access to information relevant to their clients’ disposition effect – whether stocks in their portfolio are in paper gains or losses – clients exhibit more, not less, disposition effect“ (p. 25). … “(a) decrease in disposition effect bias leads to higher portfolio returns, increased client inflow, and a lower likelihood of leaving the firm” (abstract).

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Advert for German investors:

Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

Impact washing illustration shows picture by Raca C from Pixabay thanks to Bucarama TLM

Impact washing? Researchpost #162

Impact washing: 8 new research studies on ESG performance, sustainable finance labels, sdg funds, diversification, bank purpose, SME loans, Millenials and fractional shares (#: SSRN full paper downloads as of Feb. 8th, 2024)

Responsible investment research (In: Impact washing?)

ESG study overview: Global Drivers for ESG Performance: The Body of Knowledge by Dan Daugaard and Ashley Ding as of Feb. 2nd, 2024 (#22): “… the literature on what drives ESG performance is highly fragmented and current theories fail to offer useful insights into the disparity in ESG performance. Hence, this study draws upon an accumulated body of knowledge of ESG-related literature and explores the major drivers of ESG performance. … this article reveals the fundamental debate underpinning ESG responsibility, the breath of pertinent stakeholders, the theories necessary to understand ESG management and the conditions which will best achieve ESG progress” (abstract).

Label-chaos? New trends in European Sustainable Finance Labels by Karina Megaeva, Peter-Jan Engelen, and Luc Van Liedekerke as of Feb. 1st, 2024 (#38): “… we … review the current market of labelled sustainable investments in the context of the major changes in the EU regulation of sustainable finance and to determine their (new) role and place” (abstract). “… the evolvement of the voluntary certification on the sustainable investments market will depend a lot on how the future EU Eco-label is received on that market, the reactions of the financial market participants (both asset managers and investors) and certainly on further developments of the EU regulatory initiatives” (p. 42).

Impact washing? Impact investing – Do SDG funds fulfil their promises? by ESMA – The European Securities and Markets Authority as of Feb. 1st, 2024: “… investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return – attracts growing interest from investors. … Impact claims are often based on well-known sustainability frameworks, including the United Nations Sustainable Development Goals (SDGs), … This article proposes and summarises a methodological approach towards identifying SDG funds and assessing the extent to which their holdings align with their claims by bringing together a unique set of different data sources. Our results highlight some of the challenges in assessing real-world impact claims and show that SDG funds do not significantly differ from non-SDG counterparts or ESG peers regarding their alignment with the United Nations SDGs“ (p. 3). “ … our final sample of SDG funds consists of 187 funds (p. 7) … average holding of 187 stocks and bonds for SDG funds compared with 586 for non-SDG funds (p. 9) … for scope 3 emissions, where SDG funds seem to have more than 50% more emissions compared to non-SDG funds (p. 11) … My comment: “United Nations Global Compact is a voluntary initiative whose aim is … delivering the SDGs through accountable companies and ecosystems that enable changes”. … This corresponds to 2,721 unique United Nations Global Compact companies” (p. 8). This does not seem to be the best basis to measure SDG alignment. I suggest activity-based company revenue shares instead which is available from independent data providers such as clarity.ai. This provider also covers many (small and midsize) companies which are not UNGC members. My fund, for example, currently has >70% such SDG Revenue share. Also, concentrated SDG funds (my fund focuses on the 30 most sustainable stocks according to my criteria) may have higher such shares than more diversified ones, a topic which could be analyzed in future studies.

Other investment research (In: Impact washing?)

Good concentration: Bad Ideas: Why Active Equity Funds Invest in Them and Five Ways to Avoid Them by C. Thomas Howard as of Feb. 1st, 2024: “The best and worst idea stocks are, respectively, those most and least held by the best US active equity funds. … The two best ideas category stocks eclipse their benchmarks by 200 and 59 basis points (bps) …. The bad idea stocks, by contrast, underperform. (These results would have been even more dramatic had we excluded large-cap stocks since stock-picking skill decreases as market cap increases: The smallest market-cap quintile best idea returns far outpace those of the large-cap top quintile best ideas.)”

Profitable purpose: Purpose, Culture, and Strategy in Banking by Anjan Thakor as of Oct. 5th, 2023 (#73): “What the research is showing, however, is that in many instances, acting to serve the greater good actually helps the bottom line as well, and the channel for this effect is employee motivation. … Part of the reason for this relationship is that adoption of an authentic higher purpose engenders employee trust in the organization’s leaders (e.g. Bunderson and Thakor (2022)) and this facilitates the design of more complex and profitable products and services (e.g. Thakor and Merton (2023))” (p. 18). My comment: With my shareholder engagement I try to activate employee and other stakeholder (ESG) motivation, see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Climate vs. SME credits: Climate vulnerability and SME credit discouragement: Nurturing a vicious circle by Jeremie Bertrand, Christian Haddad, and Dupire Marion as of Dec. 4th, 2023 (#9): “… based on a sample of SMEs from 119 developing countries in the 2010–2019 period .. our findings indicate a positive association between vulnerability to climate change and credit discouragement” (abstract).

Millennials are different: Bitcoin: Between A Bubble and the Future by Yosef Bonaparte as of Dec. 20th, 2023 (#28): “… we find that social holidays has greater impact during the Millennials segment than previous generations, while the impact of post trading days of traditional holidays declines. We also find that days of the week and month of the year anomalies are different for Millennials than previous generations. Thus, we suggest that anomalies are subject to generations. At the cross-sectional level, we demonstrate that some sectors are positively sensitive to generations, especially to the Millennials (including Textiles, Defense and Beer and Liquor) while others negatively (Coal, Construction and Mines). At the micro portfolio choice level, we find that Millennials exhibit a unique portfolio choice strategy with more aggressiveness (higher participation and more investing in risky assets) and more diverse (invest in many stocks and more international stocks). We also find that the Millennials employ a unique search strategy for stocks as they rely more on professionals help when they invest“ (p. 21/22).

Fractional share benefits: Nominal Price (Dis)illusion: Fractional Shares on Neobroker Trading Platforms by Matthias Mattusch as of Feb.6th, 2023 (#53): “… we examine neotrading behavior in the light of three key innovations of neobrokers: commission-free trading, easy availability, and fractional shares trading. … we identify a substantial and enduring surge in demand for stocks with lower nominal prices. … Notifications on trading apps, specifically regarding corporate actions, elicit observable market reactions. … most importantly, the introduction of fractional shares suggests that most of these nominal price reactions will be weakened, if not eliminated. … Introducing fractional shares boosts overall trading activity … The introduction of fractional shares could likely eliminate anomalies in asset pricing, which would pave the way for interesting future research“ (p. 20/21).

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Advert for German investors

Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

Shareholder engagement strategies illustration shows 4 such strategies

Shareholder engagement options: Researchpost #161

Shareholder engagement options: 14x new research on real estate, waste, nature, biodiversity, corporate governance, loans, climate postures, decarbonization, greenwashing, shareholder proposals and engagement, sustainable investor groups, CEO pay and BNPL by Thomas Cauthorn, Samuel Drempetic, Julia Eckert, Andreas G.F. Hoepner, Sven Huber, Christian Klein, Bernhard Zwergel and many others (# shows # of SSRN full paper downloads as of Feb. 1st, 2024):

Social and ecological research

Invisible housing space: Der unsichtbare Wohnraum by Daniel Fuhrhop as of June 30th, 2023: “This dissertation analyzes »invisible living space« and its potential for the housing market … »invisible living space«: unused rooms in homes, which were (often) formerly used as children’s rooms but are no longer needed in now elderly, single-family households. Using the »invisible living space« could help avoid economic and ecological costs of new housing developments … this thesis investigates realistic methods for the activation of invisible living space … In addition to homeshare, this dissertation … shows the potential of existing, invisible living space for up to 100.000 apartments“ (p. 13/14). My comment: I suggest a similar approach with Wohnteilen: Viel Wohnraum-Impact mit wenig Aufwand which could especially attractive for Corporates to attract and maintain employees and improve the CSR-position

Repair or not repair? Consumerist Waste: Looking Beyond Repair by Roy Shapira as of Jan. 27th, 2024 (#58): “The average American uses her smartphone for only two years before purchasing a new one and wears a new clothing item five times before dumping it. … Consumerist waste is a multifaceted problem. It emanates not just from functional product obsolescence, which repair can help solve, but also from psychological (or “perceived”) product obsolescence, which repair cannot solve. … A key question is therefore not whether consumers have a right to repair but rather whether consumers want to repair. … Existing proposals focus on requiring disclosure at the purchasing point and assuring repair at the post-purchase point. These tools may be necessary, but they are hardly sufficient. … It may be more effective to focus on sellers’ reputational concerns instead” (abstract).

ESG investment research (Shareholder engagement options)

Nature-ratings: Accountability for Nature: Comparison of Nature-Related Assessment and Disclosure Frameworks and Standards by Yi Kui Felix Tin, Hamza Butt, Emma Calhoun, Alena Cierna, Sharon Brooks as of January 2024: “… provides an overview of the key methodological and conceptual trends among the private sector assessment and disclosure approaches on nature-related issues. … The report presents findings from a comparative research on seven leading standards, frameworks and systems for assessment and disclosure on nature-related issues … CDP disclosure system, European Sustainability Reporting Standards (ESRS), Global Reporting Initiative (GRI) Standards, International Sustainability Standards Board (ISSB) Standards, Natural Capital Protocol, Science Based Targets Network (SBTN) target setting guidance, Taskforce on Nature-related Financial Disclosures (TNFD) framework … Overall, the study revealed that the reviewed approaches are demonstrating an increasing level of alignment in key concepts and methodological approaches” (p. Vii/Viii).

Biodiversity premium: Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector by Annette Becker, Francesca Erica Di Girolamo, Caterina Rho from the European Commission as of December 2023: “Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the level of exposure of borrowing firms and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower“ (abstract).

Passive investment risks: Corporate Governance Regulation: A Primer by Brian R. Cheffins as of Jan. 26th, 2024 (#47): “… we find that equity capital flows into the “Big Three” investment managers (Sö: Vanguard, BlackRock, and State Street Global Advisors) have slowed in recent years, with substantial differences between each institution. We also present a framework to understand how fund characteristics and corporate actions such as stock buybacks and equity issuances combine to shape the evolution of institutional ownership …. Our evidence reveals why certain institutions win and lose in the contest for flows and implicates important legal conversations including the impact of stock buybacks, mergers between investment managers, and the governance risks presented by the rise of index investing” (abstract).

Huge transition risks: Risks from misalignment of banks’ financing with the EU climate objectives by the European Central Bank as of January 2024: “The risks stemming from the transition towards a decarbonised economy can have a significant effect on the credit portfolio of a financial institution … The euro area banking sector shows substantial misalignment and may therefore be subject to increased transition risks, and around 70% of banks are also subject to elevated reputational and litigation risk” (p. 2/3).

Cost reduction or transition? Climate Postures by Thomas Cauthorn, Samuel Drempetic, Andreas G.F. Hoepner, Christian Klein and Adair Morse as of Jan. 27th, 2024 (#26): “… we define climate postures as the focus of firm climate efforts, where those in the status quo economy focus on costs, and those undertaking opportunities focus on transition. … We find priced evidence for both optimal status quo and transition opportunity firms in both energy and industrials/basic materials sectors. The sorting following the signal of a climate posture towards transition opportunities yields a 2.9% excess two-week return for European energy companies and a 1.6% return for industrials in North America. Our design also identifies across-sector market penalties in signals of climate costs“ (abstract).

Impact investment research (Shareholder engagement options)

Obvious greenwashing? Decarbonizing Institutional Investor Portfolios: Helping to Green the Planet or Just Greening Your Portfolio? by Vaska Atta-Darkua, Simon Glossner, Philipp Krueger, and Pedro Matos as of Sept. 29th, 2023 (#1208): “We … analyze climate-conscious institutional investors that are members of the most prominent investor-led initiatives: the CDP (that seeks corporate disclosure on climate risk related matters) and the subsequent Climate Action 100+ (that extends the mission of CDP and calls for investor action on climate change with top emitting firms). … We conclude that CDP investors located in a country with a carbon pricing scheme decarbonize their portfolios mostly via portfolio re-weighting (tilting their holdings towards low-emitting firms) rather than via corporate changes (engaging with high-emitting firms to curb their emissions). We continue to find mostly portfolio re-weighting even among CA100+ investors after the 2015 Paris Agreement and do not uncover much evidence of engagement. … we fail to find evidence that climate-conscious investors seek companies developing green technologies or encourage their portfolio firms to generate significant green revenues“ (p. 25/26).

No greenwashing impact? The financial impact of greenwashing controversies by European Securities and Markets Authority as of Dec. 19th, 2023: “… the number of greenwashing controversies involving large European firms increased between 2020 and 2021 and tended to be concentrated within a few firms belonging to three main sectors, including the financial sector. We also investigate the impact of greenwashing controversies on firms’ stock returns and valuation and find no systematic evidence of a relationship between the two. The results suggest that greenwashing allegations did not have a clear financial impact on firms and highlight the absence of an effective market-based mechanism to help prevent potential greenwashing behaviour. This underscores the importance of clear policy guidance by regulators and efforts by supervisors to ensure the credibility of sustainability-related claims“ (p. 3). My comment: Investor should do much more against greenwashing (to avoid additional regulation)

Shareholder engagement framework: Introducing a standardised framework for escalating engagement with companies by Niall Considine, Susanna Hudson, and Danielle Vrublevskis from Share Action as of Dec. 6th, 2023: “ShareAction is introducing the concept of a standard escalation framework to facilitate the application of escalation tools with companies through corporate debt and listed equity. The escalation framework comprises: The escalation toolkit, which groups different escalation tools into five categories of increasing strength; The escalation pathway, which sets out how the asset manager will apply and progress through the escalation toolkit in a timely manner. We also include expectations on resourcing and reporting on the escalation framework” (p. 7). My comment: You may also want to read DVFA-Fachausschuss Impact veröffentlicht Leitfaden Impact Investing – DVFA e. V. – Der Berufsverband der Investment Professionals which soon will also be available in English (and to which I was allowed to contribute). You find the picture of the article and explanations there or here Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Shareholder voting effects: Shareholder Proposals: Do they Drive Financial and ESG Performance? by Victoria Levasseur and Paolo Mazza as of Jan. 23rd, 2024 (#24): “Our findings reveal that shareholder proposals are associated with increased nonfinancial performance, as evidenced by improved ESG scores. However, these proposals are associated with a negative impact on financial performance, and the extent of this correlation varies across different financial ratios. Furthermore, the study underscores notable differences in the effects of shareholder activism based on the geographical location of the company’s headquarters, specifically between the United States and Europe” (abstract).

Unsustainable Divestors? New evidence on the investor group heterogeneity in the field of sustainable investing by Julia Eckert, Sven Huber, Christian Klein and Bernhard Zwergel as of Jan. 18th, 2024 (#74):  “We provide new insights about the investor group heterogeneity in the field of sustainable investing. Using survey data from 3,667 German financial decision makers, we … find a new investor group which we call: Divesting Investors. Second, we analyze the differences with regard to the perceived investment obstacles between the investor groups that do not want to (further) invest sustainably or want to withdraw capital from sustainable investments” (abstract). My comment: Divestment is a powerful instrument for sustainable investors to become even more so, see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (prof-soehnholz.com). For me, the option to divest is so important that I do not invest in illiquid investments anymore.

Other investment research (Shareholder engagement options)

CEO overpay everywhere? CEO Pay Differences between U.S. and non-U.S. firms: A New Longitudinal Investigation by Ruiyuan (Ryan) Chen, Sadok El Ghoul, Omrane Guedhami, and Feiyu Liu as of Dec. 11th, 2023 (#29): “We use time series CEO compensation data across 34 nations from 2001-2018, and find about a 23% pay premium for U.S. CEOs. This premium diminishes in comparison to G7 countries …. We also find that top U.S. CEOs earn substantially more, but excluding them reduces the overall pay premium” (p. 1).  My comment: Investor should focus more on reducing the CEO to median employee pay ratio and not to introduce (additional) ESG bonifications, compare Wrong ESG bonus math? Content-Post #188 – Responsible Investment Research Blog (prof-soehnholz.com)

Unsustainable BNPL: “Buy Now, Pay Later” and Impulse Shopping by Jan Keil and Valentin Burg as of Nov. 29th, 2023 (#190): “We analyze if “Buy Now, Pay Later” (BNPL) generates impulsive shopping behavior. Making BNPL randomly available increases the likelihood that an impulsive customer completes a purchase by 13%. … Shopping behavior of all customers changes in ways resembling impulsiveness – by looking more hasty, premature, unoptimized, and likely to be regretted retrospectively“ (abstract). My comment: Not all fintech is sustainable

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Neutral ESG shows illustration from Jannik Texler from Pixabay

Neutral ESG? Researchpost #160

Neutral ESG: 14x new research on migration gender topics, re-migration, AI, broadband, political ESG investments, ESG ratings, ESG alpha, ESG credit risk, greenium, anomalies, robo-advisors, private equity and finfluencers (# shows the number of SSRN full paper downloads as of Jan. 25th, 2024).

Social and ecological research (Neutral ESG)

Female migration disadvantages: Does Granting Refugee Status to Family-Reunified Women Improve Their Integration? by Linea Hasager as of Jan. 18th, 2024 (#4): “… I estimate the impact of recognizing women, who are initially admitted through family-reunification procedures, as refugees themselves. When they are recognized as refugees, they are able to divorce their husbands without automatically being returned to their origin countries. … I show that the divorce rate increases following asylum recognition. In addition, I document that the risk of being a victim of violence decreases when women change residency. … Asylum recognition also has positive consequences for females’ employment and earnings trajectories“ (p. 14).

Ukrainian return-migration: The Effect of Conflict on Ukrainian Refugees’ Return and Integration by Joop Adema, Cevat Giray Aksoy, Yvonne Giesing, and Panu Poutvaara as of Jan. 18th, 2024 (#16): “Our analysis has highlighted that the vast majority of Ukrainians in Ukraine plan to stay and most Ukrainian refugees in Europe plan to return. … we find that close to 2% of Ukrainian refugees returned every month. … Ukrainians’ confidence in their government and optimism have reached exceptionally high levels in international comparison (Fig. 6). … Confidence in the judiciary remains low, and corruption is perceived to be high“ (p. 24).

Is AI bad for migrants? The Impact of Technological Change on Immigration and Immigrants by Yvonne Giesing as of Jan. 18th, 2024 (#17): “We analyse and compare the effects of two different automation technologies: Industrial robots and artificial intelligence … (with) data on Germany … (we) identify how robots decrease the wage of migrants across all skill groups, while neither having a significant impact on the native population nor immigration flows. In the case of AI, we determine an increase in the wage gap as well as the unemployment gap of migrant and native populations. This applies to the low-, medium- and high-skilled and is indicative of migrants facing displacement effects, while natives might benefit from productivity and complementarity effects. In addition, AI leads to a significant inflow of immigrants“ (abstract).

Healthy broadband? Broadband Internet Access and Health Outcomes: Patient and Provider Responses in Medicare by Jessica Van Parys and Zach Y. Brown as of Jan. 23rd, 2024 (#16): “… we show that patients had better health outcomes and visited higher quality providers when they gained access to broadband internet. Our results imply that internet access makes patient demand more elastic with respect to quality. This mechanism is particularly important in hospital markets that are highly concentrated. … Overall, counterfactual simulations imply that broadband expansion was responsible for 16% of the total reduction in poor health outcomes for joint replacements from 1999 to 2008” (p. 25/26). My comment: I include this rather specific research because I have been discussing e.g. with ratings experts if telecommunications infrastructure can be SDG-aligned or not (for my approach see

ESG investment research (Neutral ESG)

Right-wing or green: Climate Polarization and Green Investment by Anders Anderson and David T. Robinson as of Jan. 24th, 2024 (#11): “Over the last decade, one of the world’s largest retirement systems (Sö: Sweden) went from offering very few climate-friendly investment choices to being dominated by them. … For men, proximity to extreme weather events increased the likelihood that they grew more concerned about global warming, while women across the board became more concerned about the climate, regardless of their proximity to adverse weather events. At the same time, men living in right-wing strongholds were generally less concerned about climate change after the extreme weather events than they were before” (p.28).

Negative or neutral ESG? Understanding the effect of ESG scores on stock returns using mediation theory by Serge Darolles, Gaelle Le Fol, and Yuyi He as of Dec. 7th, 2023 (#42): “We show that the information contained in corporate E, S, G or overall ESG scores is effectively incorporated into stock prices through both the investor demand channel and the fundamental/profitability channel. … institutional ownership is positively correlated with a firm’s environmental, social, governance and overall ESG scores. … We also find that they are more sensitive to G-performance and overall ESG performance than S and then E performance. Our results also show that ESG is priced by the market and that all scores have a significant negative impact on future returns. …” (p. 25/26). My comment: It would be interesting to see this approach applied not only to US stocks (mainly large caps) and more recent stock price levels.

Positive or neutral ESG? Material ESG Alpha: A Fundamentals-Based Perspective by Byung Hyun Ahn, Panos N. Patatoukas, and George S. Skiadopoulos as of Jan.17th, 2024 (#81): “We provide a fundamentals-based perspective on why firms with improving material ESG scores outperform. More financially established firms—firms with larger size, lower growth, and higher profitability relative to their sector—are associated with subsequent improvements in their material ESG score. … we find that the materiality portfolio does not generate alpha after we account for its exposure to profitability and growth pricing factors “ (p. 30). My comment: An investment strategy which focuses on ESG-improvement would have to ignore investments which already have high ESG-ratings or sell them to buy one with lower ratings to show improvement. This is not a responsible investment strategy.

Low ESG credit risks: ESG criteria and the credit risk of corporate bond portfolios by Andre Höck, Tobias Bauckloh,  Maurice Dumrose, and Christian Klein as of Oct. 25th, 2023: “… our findings highlight that the implementation of an ESG-best-in-class strategy significantly affects the credit risk exposure without any performance or diversification penalty. … the higher the sustainability, the lower the credit risk. … The findings of this study are robust to the usage of ESG ratings from different providers and different asset pricing models” (p. 579).

Unstable greenium: The European Carbon Bond Premium by Dirk Broeders, Marleen de Jonge, and David Rijsbergen from De Nederlandsche Bank as of Jan. 16th, 2024 (#36): “We present evidence of the existence of a significant carbon premium in euro area corporate bonds, which has steadily increased since early 2020. Over the whole sample period, from 2016 to 2022, we observe that a doubling of a firm’s Scope 1 and 2 emissions on average implies 6.6 basis point higher bond yield spreads. … From early 2020, the carbon premium increases steadily so that the effect more recently, in early 2022, is substantially higher than the sample average. A doubling of Scope 1 and Scope 2 emissions by early 2022 on average results in a higher spread of 13.9 basis points. This means that European firms with high levels of carbon emissions face increasingly high financing costs. Our research also reveals a distinctive carbon premium term structure, rising with longer maturities. … the premium between short-term and long-term maturity bonds has diminished in recent years. … Our findings highlight, to some extent, why various studies have come to conflicting conclusions on the presence and magnitude of a carbon premium in financial asset prices. We show that the choice of sample period is an important determinant of the presence and extent of a carbon premium. … Additionally, we illustrate how climate litigation has become an important frontier of transition risk in the last years, which may have urged investors to progressively price a carbon premium” (p. 33/34).

Positive ESG pay: ESG-linked Pay Around the World —Trends, Determinants, and Outcomes by Sonali Hazarika, Aditya Kashikar, Lin Peng, Ailsa Röell and Yao Shen as of April 15th, 2023 (#308): “We study ESG-linked executive compensation contracts using an inclusive global sample of major firms across 59 countries over the period 2005-2020. We document a substantial increase in firms’ adoption of ESG-linked pay over the last decade, especially for firms from developed markets and those that belonging to the extractive and utility industries. The adoption decision is also strongly associated with the culture, shareholder rights and legal origin of the country where the firm resides. Among firm characteristics, large firms and firms with greater return on assets are more likely to adopt. The ESG-linked pay adopters exhibit significantly higher ESG scores, better ESG disclosure, and higher operating profit margin and return on assets. … we show that the treatment firms’ increased reliance on incentives tied to employee satisfaction is a plausible channel to achieve a “win-win” outcome” (p. 29/30). My skeptical comment: See HR-ESG shareholder engagement: Opinion-Post #210  and especially Wrong ESG bonus math? Content-Post #188

Other investment research

Normalized anomalies: Does U.S. Academic Research Destroy the Predictability of Global Stock Returns? by Guohao Tang, Yuwei Xie and Lin Zhu as of Jan. 16th, 2024 (#52): “We conduct a thorough investigation into 87 cross-sectional return anomalies, as documented in leading finance and accounting journals, spanning 38 countries. … In the global market, post-sample and post-publication returns diminish by 65% and 73%, respectively, from the in-sample mean. Intriguingly, predictors that demonstrate higher in-sample returns experience a more pronounced reduction in the post-publication phase“ (p. 16).

Robo-limits: Taming Behavioral Biases in Consumer Decision-Making: The Role of Robo-Advisors by Francesco D’Acunto and Alberto G. Rossi as of Dec. 20th, 2023 (#41): “… in many cases robo-advising applications can help consumers make better choices but this is in no way universal. Indeed, not only do robo-advisors in some cases exacerbate the effect of underlying behavioral biases, but they sometimes even exploit behavioral biases in ways that might improve or worsen choices. Even for those cases in which extant research shows a positive average effect of exposure to robo-advising on medium-term outcomes for consumers, the effects are often highly heterogeneous“ (p. 26).

Political PE: Political Connections and Public Pension Fund Investments: Evidence from Private Equity by Jaejin Lee as of Dec. 29th, 2023 (#36): “This paper investigates the effects of political connections on private equity (PE) investment decisions by public pension funds, using a regression discontinuity design on U.S. state elections. A comparison of PE managers (GPs) donating to winning and losing candidates reveals a twofold increase in the probability of post-election PE investments from pension funds for GPs supporting winners. Pension funds with such connections show underperformance in PE investments. These effects are pronounced among pension board members with connections and in states with high corruption levels. These connected pension funds pay higher PE fees and exhibit more home-state bias, suggesting politicians influence investment decisions for personal gain” (abstract).

Finfluencer issues: The Finfluencer Appeal: Investing in the Age of Social Media Serena by Espeute and Rhodri Preece from the CFA Institute as of Jan. 25th, 2024: “Our analysis of finfluencer content posted on YouTube, TikTok, and Instagram in the markets we studied shows that the most discussed asset classes were individual shares, index funds, and exchange-traded funds (ETFs). We found that 45% of this content offered guidance, 36% contained investment promotions, and 32% contained investment recommendations … Only 20% of the finfluencer content that contained recommendations, however, included any form of disclosure (such as the professional status of the finfluencer or whether the finfluencer received commissions or other forms of payment for recommending certain products). Further, just over half (53%) of the content that contained promotions made any form of disclosure. … Moreover, when disclosures regarding affiliate links (such as sign-up links to open accounts with trading platforms or free shares) were made, they were often generic, such as “some of the links may be affiliate links,” which obscured exactly which websites and/or product sign-ups the finfluencers were being remunerated for. … Finfluencers appeal to Gen-Z investors because they produce educational and engaging content that is free and instantly accessible. They are also relatable and, in some cases, perceived to be trustworthy“ (p. 3).

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