Archiv der Kategorie: Responsible Investment

Finfluencers: Researchpost #126

Finfluencers: 14x new research on CO2 storage, climate learnings, sustainable bonds, diversity, impact investing, active investing, and finfluencers by Laurens Swinkels, Alex Edmans, Caroline Flammer, Simon Glossner, Jeffrey Ptak, Michael Kitces, Norman Schürhoff, Christian Klein et al. (# indicates the number of SSRN downloads on May 9th, 2023)

Ecological and social research

CO2 Storage? CO2 storage or utilization? A real options analysis under market and technological uncertainty by Hanne Lamberts-Van Assche, Maria Lavrutich, Tine Compernolle, Gwenny Thomassen, Jacco Thijssen, and Peter M. Kort as of April 24^th, 2023 (#8): “First, the presence of technological and market uncertainties … increase the barriers to invest in CCS or CCU. Second, when the firm anticipates the arrival of a more attractive CCU solution in the future, it will not postpone the investment in CCS. …. Third, higher uncertainty in the CO2 price, i.e. higher σ, increases the investment thresholds, while a higher trend in the CO2 price, i.e. higher α, decreases the investment thresholds for CCS and CCU. … First, policymakers should aim to ensure stability and predictability in the CO2 price, to lower the volatility σ of the CO2 price. Reducing the market uncertainty will lower the CO2 price investment thresholds for CCS, CCU and CCUS. Second, they should also commit to an increasing growth rate in the CO2 price in the EU ETS. When firms expect higher growth rates for the CO2 price in the future, they are more favourable to invest in CCS, CCU and CCUS sooner. Finally, policymakers should realize that CCU and CCS can be complementary solutions” (p. 32/33).

Climate-information matters: Complexity and Learning Effects in Voluntary Climate Action: Evidence from a Field Experiment by Johannes Jarke-Neuert, Grischa Perino, Daniela Flörchinger, and Manuel Frondel as of April 16^th, 2023 (#26): “Exploiting the fact that timing matters, we have empirically investigated how individuals respond to (a) having the choice about the timing of their voluntary abatement efforts in the form of retiring an emission allowance and to (b) being confronted with either no, simple but counter-intuitive, or complex but intuitive information about the effectiveness-ranking of options. To this end, we have conceived a field experiment with more than four thousand participants that was embedded in a survey conducted in Germany in 2021 … Adding information did not systematically affect contributions overall, but substantially increased their effectiveness. … The uptake of information provided was most pronounced by individuals who most strongly believed in the opposite ranking“ (p. 15/16).

German pension wealth: Accounting for pension wealth, the missing rich and under-coverage: A comprehensive wealth distribution for Germany by Charlotte Bartels, Timm Bönke, Rick Glaubitz, Markus M. Grabka, and Carsten Schröder as of April 25^th, 2023 (#13): “We found that including pension wealth increases the wealth-income ratio of German households from 570% to 850%. … pension wealth plays an equalizing role: The wealth share of the bottom 50% increases from 2% to 9% when including pension wealth, whereas that of the top 1% declines from 30% to 20%. However … Pension wealth is not transferable and, hence, differs significantly from marketable assets such as financial investments or housing“ (p. 12).

Responsible investment research: Finfluencers

Green and other bonds: Social, Sustainability, and Sustainability-Linked Bonds by Gino Beteta Vejarano and Laurens Swinkels from Robeco as of April 24^th, 2023 (#107): “… several variations of sustainable bonds appearing in the market, where either use of proceeds are earmarked for sustainable activities, or coupon payments depend on sustainability targets. Despite the fast growth, the sustainable bond market is currently less than 4% of the overall bond market, with the green bond market accounting for half of it. Social and sustainability bonds tend to be issued by government or government-related institutions and, therefore generally have higher credit quality than sustainability-linked bonds, which are much more popular in the corporate sector. … The yields on sustainable bonds tend to be only marginally lower than those on conventional bonds with a similar risk profile …. Since correlations between returns on sustainable and conventional bonds are high, the risk and return profile of the portfolio is unlikely to change much when certain conventional bonds are replaced with ESG bonds with similar characteristics …” (p. 28).

Growing greenium? How Large is the Sovereign Greenium? by Sakai Ando, Chenxu Fu, Francisco Roch, and Ursula Wiriadinata as of April 19^th, 2023 (#22): “This paper is the first empirical study to estimate the sovereign greenium using both the twin bonds issued by Denmark and Germany, and panel regression analysis. While the estimated greenium in this paper is not large, it has been increasing over time alongside the level of sovereign green bond issuances. … It remains an open question whether the purpose of the project associated with the green bond is a key determinant of the greenium, and whether green bonds have resulted in the climate outcomes they intended to achieve” (p.9/10).

Good diversity: Diversity, Equity, and Inclusion by Alex Edmans, Caroline Flammer, and Simon Glossner as of May 2^nd, 2023 (#723): “… demographic diversity measures may miss many important aspects of DEI. … Companies with high DEI enjoyed recent strong financial performance and are less levered, suggesting that a strong financial position gives companies latitude to focus on long-term issues such as DEI that may take time to build. Small growth firms also exhibit higher DEI scores, consistent with either greater incentives or ability to improve DEI in such firms. … we find that the percentage of women in senior management is significantly positively associated with DEI perceptions, and this result holds regardless of the gender or ethnicity of the respondents. … DEI is also unrelated to general workplace policies and outcomes, suggesting that DEI needs to be improved by targeted rather than generic initiatives. … we find no evidence of a link between DEI and firm-level stock returns” (p. 25/26).

Impact measure: The Impact Potential Assessment Framework (IPAF) for financial products by Mickaël Mangot and Nicola Stefan Koch of the 2o investing initiative as of March 2023: “The Impact Potential Assessment Framework (IPAF) assesses financial products based only on their actions to generate real-life impact … It is exclusively based on public information provided by the product manufacturers … It is applicable to various types of financial products … serves as a tool against impact-washing by displaying practical limitations of self-labelled “impact products … First, it assesses the (maximum) impact potential of financial products based on impact mechanisms they supposedly apply (in relation to communicated elements in marketing documents). Those impact mechanisms are the ones widely documented by academic research: Grow new/undersupplied markets, Provide flexible capital, Engage actively, Send (market and nonmarket) signals. Second, it evaluates the implementation of that impact potential based on the intensity with which financial products action the various impact mechanisms in connection to success factors documented by academic research”. My comment: I try to provide as much impact as possible with my public equity mutual fund, see https://futurevest.fund/

Green demand: Nachfrage nach grünen Finanzprodukten, Teilbericht der Wissensplattform Nachhaltige Finanzwirtschaft im Auftrag des Umweltbundesamtes von Christian Klein, Maurice Dumrose, Julia Eckert vom April 2023: “… In this project report, the development of the sustainable investment market, especially in the retail sector, is presented and the characteristics of sustainable investments are introduced. Retail investor motives for investing in such products and the requirements retail investors have for sustainable investment products are highlighted. Barriers for retail investors and investment advisors are identified in the area of sustainable investments. Finally, based on these findings, recommendations for political action are proposed, which can lead to a reduction of these barriers and thus increase the acceptance of sustainable investments” (abstract). .. “Die Literatur zeigt eindeutig, dass insbesondere die Fehlannahme der Anlageberatenden, Retail-Investierende hätten kein Interesse an Nachhaltigen Geldanlagen und fragen deshalb nicht aktiv im Beratungsgespräch nach diesen, eine Barriere darstellt. Die Untersuchung von Klein et al. zeigt in diesem Zusammenhang deutlich, dass diese Barriere durch eine verpflichtende Abfrage der Nachhaltigkeitspräferenz der Retail-Investierenden überwunden werden kann. Ferner zeigt der aktuelle Forschungsstand, dass insbesondere ein zu geringes Wissen im Bereich Nachhaltige Geldanlage die zentrale Barriere für Anlageberatende darstellt. Hohe Transaktions- sowie Informationskosten, ein fehlendes kundengerechtes nachhaltiges Produktangebot, Zweifel an dem Beitrag, den Nachhaltige Geldanlagen zu einer nachhaltigen Entwicklung leisten, hohe wahrgenommene Komplexität, Wahrnehmung von Green Washing, Angst vor Haftungsrisiken, potentielle Reputationsrisiken und keine einheitliche bzw. gesetzliche Definition des Begriffs Nachhaltige Geldanlage konnten als weitere Barrieren identifiziert werden“ (S. 42/43).

2 ESG types? Sustainable investments: One for the money, two for the show by Hans Degryse, Alberta Di Giuli, Naciye Sekerci, and Francesco Stradi as of April 26^th, 2023 (#66): “Analyzing a representative sample of Dutch households, we document the existence of two types of households: those that invest in sustainable products for social reasons (social sustainable investors) and those that do it for financial reasons (financial sustainable investors). The two groups are of equal importance but are characterized by different features. The social sustainable investors have higher social preferences, level of education and trust, and are more likely left-wing and less risk-loving. Reliable labelling, reducing greenwashing concerns, and emphasizing typical left-wing thematic linked to sustainable investments is positively related to sustainable investments by social sustainable investors, whereas hyping the benefit in terms of returns of sustainable investments through social media and word of mouth is positively associated with the investment decisions of financial sustainable investors” (abstract).

Traditional and fintech investment research: Finflucencers

Difficult 1/n?: Is Naïve Asset Allocation Always Preferable? by Thomas Conlon, John Cotter, Iason Kynigakis, and Enrique Salvador as of April 28th, 2023 (#90): “For allocation within asset classes, we find only limited evidence of outperformance in terms of risk-adjusted returns for optimized portfolios relative to the naïve benchmark … we find statistical and economic evidence that a bond portfolio that minimizes risk is the only case that provides outperformance of the 1/n rule. This evidence points to challenges in outperforming the equally weighted portfolio, especially when allocating among equities and REITs. When allocating across asset classes, we find that minimum-variance portfolios that include bonds exhibit higher Sharpe ratios than the equally weighted portfolio. These findings also carry over to downside risk, where optimal strategies have a lower VaR, both economically and statistically, than that associated with the equally weighted approach. Allocations across different asset classes also have lower rebalancing requirements, which means they are less affected by the transaction costs” (p. 26). My comment: My equity portfolios are all equal weighted. The most passive world market portfolio should be uses as reference instead of naïve asset allocation which does not work well because auf unclear asset class definitions, see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com). Regarding optimization limits see Kann institutionelles Investment Consulting digitalisiert werden? Beispiele. – Responsible Investment Research Blog (prof-soehnholz.com)

Active disaster: How Can Active Stock Managers Improve Their Funds’ Performance? By Taking a Vacation—a Long One by Jeffrey Ptak from Morningstar as of May 2^nd, 2023: “While active large-cap managers made thousands of trades worth trillions of dollars over the 10-year period ended March 31, 2023 … The funds’ actual returns were almost identical to what they’d have been had those managers made no trades at all and were worse after adjusting for risk. And that was before fees were deducted”. My comment: With my portfolios/fund I try to trade as little as possible

Wealthtech changes: The Kitces AdvisorTech Map Highlights The Evolving Landscape As It Turns 5 Years Old by Michael Kitces and ben Henry-Moreland as of May 1^st, 2023: “… there now 409 different software solutions … with the total number of solutions more than doubling … Some highlights of these AdvisorTech evolution trends over the past 5 years include: The near-disappearance of the ‚B2B robo‘ tools as advisors demanded better onboarding capabilities but showed an unwillingness to pay for them on top of their broker-dealer or custodial providers … portfolio management tools have increasingly bought or built performance reporting and performance reporters acquired most of the available trading and rebalancing tools in a massive consolidation into what is now the „All-In-One“ category … The growth of the Behavioral Assessments category … The proliferation of specialized financial planning software …The explosion in advisor marketing technology …”

Bad influences: Finfluencers by Ali Kakhbod, Seyed Kazempour, Dmitry Livdan, and Norman Schürhoff as of May 4^th, 2023 (#178): “… instead of following more skilled influencers, social media users follow unskilled and antiskilled finfluencers, which we define as finfluencers whose tweets generate negative alpha. Antiskilled finfluencers ride return and social sentiment momentum, which coincide with the behavioral biases of retail investors who trade on antiskilled finfluencers’ flawed advice. These results are consistent with homophily in behavioral traits between social media users and finfluencers shaping finfluencer’s follower networks and limiting competition among finfluencers, resulting in the survival of un- and antiskilled finfluencers despite the fact that they do not provide valuable investment advice. Investing contrarian to the tweets by antiskilled finfluencers yields abnormal out-of-sample returns, which we term the “wisdom of the antiskilled crowd.”“ (p. 40).

Literacy returns: Financial literacy and well-being: The returns to financial literacy by Sjuul Derkx, Bart Frijns, and Frank Hubers as of April 25^th, 2023 (#21): “Using a panel data set of Dutch households over 2011-2020, we find that initial (2011) … financial literacy positively affects wealth accumulation for up to four years into the future, showing that there is mean-reversion in financial literacy when one no longer invests in it. Considering different age brackets, we document that financial literacy among the young results in higher income generation, while financial literacy among the old leads to greater wealth accumulation” (abstract).

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ESG beliefs: Researchpost #124

Picture from ecolife.zone (Home – Eco Life Zone)

ESG beliefs: 10x new research on biodiversity, subsidies, governance, greenium, ESG beliefs, divestments, taxonomy reporting, fund commissions, SVB, private asset platforms etc. by Theresa Kuchler, Johannes Stroebel, Christian Klein and many more (# indicates the number of SSRN downloads on April 19th, 2023)

Ecologial and social research

Quantified biodiversity risks: Biodiversity Risk by Stefano Giglio, Theresa Kuchler, Johannes Stroebel, and Xuran Zeng as of April 4^th, 2023 (#8): “The goal of this paper is to introduce measures of aggregate biodiversity risk as well as measures of firms’ and industries’ exposures to these risks; to connect and validate the two; to study the pricing of this risk in financial markets; and to publicly release our biodiversity exposure measures at www.biodiversityrisk.org to facilitate more research on this important topic“ (p. 28).

Dubious subsidies: Green Technology Adoption, Complexity, and the Role of Public Policy: A Simple Theoretical Model by Sanjit Dhami as of April 13^th (#9): “We present a simple model of technology choice by heterogeneous firms … We illustrate the extreme unpredictability of the final outcome, and consider the role of public policy in the form of taxes and subsidies in influencing the long-run expected outcome. Our model … highlights the challenges and limitations of public policy in such scenarios“ (p. 24).

Good governance competition: Boosting Foreign Investment: The Role of Certification of Corporate Governance by Pietro Bonetti and Gaizka Ormazabal as of Jan. 31^st, 2023 (#42): “… we exploit a recent cross-country initiative by a coalition of key institutions in Southeast Asia; the periodic publication of a “Top List” containing the top 50 firms for each participating Southeast Asian country based on an independent assessment of corporate governance practices. Our tests reveal that the inclusion in the list is associated with increases in foreign institutional ownership and equity issuance. We also find evidence suggestive that firms change their governance practices to be included in the list“ (p. 33).

Responsible investment research: ESG beliefs

Policy success: An empirical analysis of climate and environmental policy risk, the cost of debt and financial institutions‘ risk preferences by Xiaoyan Zhou, Ben Caldecott, and Gireesh Shrimali as of April 13^th, 2023 (#9): “… we analyse the loan spreads variance using a large sample of syndicated loan data across 40 countries from 2000- 2019. … we observe that a higher level of CE (Sö: climate and environmental policy stringency) (such as carbon trading schemes) can lower the capital cost for loans issued to renewables, leading to an increase in renewable energy investments. We also find that the more stringent CE policies in a country, the lower likelihood of capital flow into oil & gas or coal. In the electricity sector, while no evidence supports that CE policies (solar & wind support policies) decrease the cost of debt for renewable electric utilities compared to fossil fuel and mixed electric utilities, they are still successful in attracting more capital to renewable firms” (abstract).

Performance trumps beliefs: Four Facts About ESG Beliefs and Investor Portfolios by Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Zhenhao Tan, Stephen Utkus, and Xiao Xu as of April 13^th, 2023 (#26): “We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. … First, investors generally expected ESG investments to underperform the market. Between mid-2021 and late-2022, the average expected 10-year annualized return of ESG investments relative to the overall stock market was −1.4%. Second, there is substantial heterogeneity across investors in their ESG return expectations and their motives for ESG investing: 45% of survey respondents do not see any reason to invest in ESG, 25% are primarily motivated by ethical considerations, 22% are driven by climate hedging motives, and 7% are motivated by return expectations. Third, there is a link between individuals’ reported ESG investment motives and their actual investment behaviors, with the highest ESG portfolio holdings among individuals who report ethics-driven investment motives. Fourth, financial considerations matter independently of other investment motives: we find meaningful ESG holdings only for investors who expect these investments to outperform the market, even among those investors who reported that their most important ESG investment motives were ethical or hedging reasons” (abstract).

Inefficient markets? Private Sanctions by Oliver D. Hart, David Thesmar, and Luigi Zingales as of Jan. 19^th, 2023 (#338): “Neoclassical economics is based on the assumption that firms maximize profits. We provide survey evidence that a majority of Americans do not want the firms they invest in, shop from, and work for, to behave in this way. Limited deviations from value maximization are desired when firms can have a unique impact, as in the case of the sanctions against Russia for the purpose of ending the war. We show that a very simple model … can explain 24% of the cross-sectional variations in the willingness to boycott“ (p. 28). My comment see Impact Investing mit Voting und Engagement? (Opinionpost #194) – Responsible Investment Research Blog (prof-soehnholz.com)

Good taxonomy reporting: Portfolio benefits of taxonomy orientated and renewable European electric utilities by Thomas Cauthorn, Christian Klein, Leonard Remme, and Bernhard Zwergel as of Jan. 12^th, 2023 (#65): “We find a positive low-carbon premium (confirming H1) for portfolios of taxonomy orientated and renewable energy EEU. … We can confirm H2, i.e., the level of renewables in the energy mix positively affects the returns of the taxonomy orientated and renewable energy portfolios while negatively affecting the non-orientated, non-reporting and conventional energy portfolios. The taxonomy orientated and renewable energy portfolios outperformed their counterparts confirming H3. … Next, we find that a taxonomy orientated portfolio outperforms a non-reporting portfolio” (p. 18/19). My comment see Taxonomy reporting: Can companies boost their share-prices? – (prof-soehnholz.com)

Traditional and alternative investment research (ESG beliefs)

Bad commissions: The Effect of Commission Bans on Household Wealth: Evidence from OECD Countries by Steffen Sebastian, Lukas Noth, and Albert Grafe as of April 5^th, 2023: “Although misaligned incentives of financial advisors created by commission-based systems have been shown to have a negative impact on the quality of financial advice, many countries decided not to introduce commission bans. In the European Union, only five including the UK countries followed the recommendation of the Commission to ban commission-based financial advice. … Countries with commission-bans in place have seen an outperformance of their wealth between 1.7 percent and 2 percent annually. … We find that a household in a commission-ban country achieves wealth levels double the amount of a household in a non-commission-ban country over the period of 40 years with the most conservative estimate (typical timespan for retirement provision). … countries that have implemented commission bans realized ~900 billion USD access wealth formation compared to countries without commission bans” (p. 19).

Crash herding: Public attention, sentiment and the default of Silicon Valley Bank? by Stephan Bales and Hans-Peter Burghof as of April 7^th, 2023 (#123): “We assess the interplay between public attention and trading of the Silicon Valley Bank stock around its default on March 10, 2023. Based on tweets and Google searches, we demonstrate that public attention considerably fueled the crash dynamics … the attention dynamics fueled and accelerated the downward spiral, but are not fully responsible for the outcome” (p. 11/12).

Private Equity Fintechs: The Amplify private-asset platforms study by Selin Bucak from Citywire Amplify as of April 13^th, 2023: “There has been a proliferation of private-asset platforms in recent years. Specialist investment firms want to reach into the wealth management space, while many mainstream asset managers have pushed hard into private markets. So what does the landscape look like now? Citywire Amplify will examine how many platforms there are, what they offer and how they differ. We have collated the key data on the major players: how much they have raised, who their backers and partners are and, crucially, what they charge” (p. 2). My comment see Über 70 interessante Fintechs für institutionelle Anleger – Responsible Investment Research Blog (prof-soehnholz.com)

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Taxonomy reporting: Can companies boost their share-prices?

Taxonomy reporting: Many investors want to invest responsibly. Investment funds which want to attract such investors should report their share of responsible investments.

Slow regulatory details

In the EU, so far only two (climate change mitigation and adaption) of the predefined six environmental categories and zero social categories have been officially defined. Thus, reported responsible investments are limited to those two climate categories.

The good news: Regulation is finally advancing and last week the EU finally published a call for feedback on the 4 remaining green categories: Sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems (see Sustainable investment – EU environmental taxonomy (europa.eu)).

Taxonomy reporting is scarce and of little meaning

I want to invest 100% responsibly and I think that my fund portfolio is close to that goal (see e.g. my FutureVest fund in www.cleanvest.org and Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)). My fund mainly focuses on social topics but social investment cannot officially be reported as responsible.

The auditors of my fund – one of the top 4 firms – only allows to count revenues as responsible for my fund if they have been officially declared by my investment companies as EU taxonomy aligned. Specifically, the auditors do not accept responsible investment estimates, even if they are provided by well recognized third parties such as MSCI. My fund only has a low share of EU-based investments. The few EU companies who focus on the first two defined green categories of the EU Taxonomy tend to report taxonomy aligned revenues. Others, especially non-EU based companies, do not.

Therefore, I agreed to officially define only 5% as the “responsible” minimum investment of my fund (see www.futurevest.fund for the offical documents). Other suppliers of investment funds follow a similar approach. Therefore, (EU-)investors who look for responsible investments can often only find funds with low minimum targets for such investments.

For all listed companies, taxonomy reporting can pay off fast

Companies are typically free to report EU taxonomy-aligned investments. In doing so, they can attract additional investments by the many funds who want to sell to European investors. That could increase their share prices for very low additional reporting costs.

In any case, investment providers should be allowed to estimate green and especially social investments to give investors a better view of overall responsible investments. Even without detailed regulation, such estimates are nor riskless for data- and investment providers. Many organizations and individuals have started to observe and report potential green and social washing.

Only once all green and social goals have been clearly defined and EU-based companies have to report these revenues, estimates for such revenues regarding EU-based companies could be forbidden.

ESG or impact? Researchpost #123

ESG or impact: 15x new research on (social) housing, AI lawyers, DWS, climate models, divestments, sustainability loans and greenium, green fees, ESG ratings, ESG labels, Article 9 funds, fiduciary duty and suppliers by Marco Wilkens, Maximilian Görgen, Martin Rohleder, Daniel Engler, Gunnar Gutsche, Paul Smeets, Mauricio Vargas, Marie Kuhn and many more

Ecological and social research

Housing risks: European Housing Markets at a Turning Point – Risks, Household and Bank Vulnerabilities, and Policy Options by Laura Valderrama, Patrik Gorse, Marina Marinkov, and Petia Topalova as of April 5^th, 2023 (#6): „European housing markets are at a turning point as the cost-of-living crisis has eroded real incomes and the surge in interest rates has made borrowers more vulnerable to financial distress. … Under the baseline IMF macroeconomic forecast, the share of households that could struggle to meet basic expenses could rise by 10 pps reaching a third of all households by end 2023. Under an adverse scenario, 45 percent of households could be financially stretched, representing over 40 percent of mortgage debt and 45 percent of consumer debt. The impact on the banking sector seems contained under the baseline forecast, though there are pockets of vulnerability. … Fiscal measures, such as subsidies to the bottom income tercile, could save 7 percent of households from financial distress at an estimated cost of 0.8 percent of GDP” (abstract).

Social housing: The Global Housing Affordability Crisis: Policy Options and Strategies by Albert Saiz as of March 29^th, 2023 (#320): “… I described the basic parameters and foundations behind global affordable housing policies and strategies. I also provided several case studies that inform the discussion. At least thirty different economic strategies can be combined to conform a large field of potential interventions” (p. 39). My comment see Wohnteilen: Viel Wohnraum-Impact mit wenig Aufwand – (prof-soehnholz.com)

AI lawyer: GPT-4 Passes the Bar Exam by Daniel Martin Katz, Michael James Bommarito, Shang Gao, and Pablo David Arredondo as of March 20^th, 2023 (#3225): “The exam, which includes both multiple-choice and open-ended tasks testing theoretical knowledge and practical lawyering, has long been viewed as an insurmountable summit for even domain-specific models. This assumption no longer holds; large language models can meet the standard applied to human lawyers in nearly all jurisdictions in the United States by tackling complex tasks requiring deep legal knowledge, reading comprehension, and writing ability“ (p. 10).

Kein Vorbild: DWS: Hohe Boni durch Greenwashing von Mauricio Vargas und Marie Kuhn von Greenpeace vom 15. März 2022: „ … DWS-CEO unter Berücksichtigung der Unternehmensgröße mit Abstand Deutschlands bestbezahlter Manager eines börsennotierten Unternehmens … Im Vergütungsbericht 2021 ist die problematische Zielgröße des „ESG-spezifisch verwalteten“ Vermögens aus den Leistungszielen für den CEO verschwunden. Allerdings wurde auch der überarbeitete Katalog der Nachhaltigkeitsziele auf weitgehend wirkungslose Pseudo-Nachhaltigkeitsindikatoren reduziert“ (p. 4). My comment: My engagement focuses on CEO pay ratio see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

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Green cover investments: Researchpost #120

Green cover investments: 10x new research on carbon offset accounting, green cover and fading green investments, greenium, divestment criticism, SDG benchmarks, and real estate inflation risk

Ecological research

Offset-Accounting: Accounting for carbon offsets – Establishing the foundation for carbon-trading markets by Robert S. Kaplan, Karthik Ramanna, and Marc Roston as of Feb. 28^th, 2023 (#198): “Tackling climate change requires not only reducing GHG emissions but also removing GHG from the atmosphere. … But existing carbon-offset markets have been criticized for poor measurement practices and inadequate controls, resulting in transaction of products that do not materially sequester carbon. … we apply basic financial-accounting principles to develop an accurate and auditable framework for offset accounting. … rigorous accounting for emissions and offsets can improve and expand markets for impactful decarbonization” (abstract).

Responsible investment research: Green cover investments

Green cover investments? Do Investors Compensate for Unsustainable Consumption Using Sustainable Assets? by Emily Kormanyos as of Feb. 28^th, 2023 (#61): “… high-footprint consumers seem to understand the environmental impacts of their consumption patterns, and aim to offset them by investing specifically in securities which have extremely low-emission profiles. I present additional evidence that investors use only these specific securities to offset their carbon-based emissions, whereas portfolios with high general ESG ratings do not exhibit such a relation to unsustainable consumption. … I show that Catholicism, historically tied to financial offsetting practices through the 15th and 16th-century letters of indulgence, is significantly and positively related to the sustainability profile of retail investor portfolios … Finally, I conduct a survey with 3,646 clients of the same bank that provided the administrative data analyzed in this paper, finding that the majority of investors underestimate their own carbon footprints from consumption. This underestimation increases systematically in the size of the survey participants’ real footprints …” (p. 45/56).

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Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen?

>50% Turnover aus unterschiedlichen Gründen

Mein Artikel 9 Fonds „FutureVest Equities Sustainable Development Goals R“ enthält nur die aus meiner Sicht nachhaltigsten 30 Aktien. Ich prüfe laufend, ob meine Nachhaltigkeitsanforderungen noch erfüllt werden. Im Jahr 2022 führte das zum Austausch von fünf Aktien. Einmal pro Jahr überprüfe ich, ob es auf Basis der gleichen Regeln noch nachhaltigere Aktien gibt. Das war Ende 2022 bei weiteren fünf Aktien der Fall. Drei weitere Unternehmen wurden aus dem Fonds eliminiert, weil sie Verluste über 50% erlitten und damit mein einziges „nicht-nachhaltiges“ Aktienauswahlkriterium verletzen.

Einmal pro Jahr prüfe ich zudem, ob ich meine Nachhaltigkeitsregeln weiter verschärfen kann. 2023 werden so nicht nur Unternehmen mit grausamen und kosmetischen Tierversuchen wie schon in den Vorjahren, sondern mit allen Arten von Tierversuchen ausgeschlossen. Ab Ende 2022 werden außerdem auch Aktivitäten mit genetisch manipulierten Organismen (GMO) komplett ausgeschlossen. Diese Regeländerungen führten zum Ausschluss weiterer 3 Unternehmen aus dem Portfolio.

Artikel 9 Fonds mit Midcapfokus und fast 100% Active Share

Letztes hat zum Ausschluss der meisten Pharmaunternehmen aus dem Fonds geführt. Diese Regeländerung war wohl auch ausschlaggebend für einige Kennzahlenveränderungen, die sich abgeleitet aus den Änderungen der Nachhaltigkeitsregeln ergeben.

So ist der Anteil an Gesundheitsaktien von 65% im Jahr 2022 auf 39% in 2023 gesunken. Im Gegenzug ist der Industrieanteil von 12% auf 31% gestiegen. Andere Branchen hatten 2022 einen Anteil von 23% und 2023 von 30%. Zum Vergleich: Der MSCI All Countries World Index hat aktuell ungefähr jeweils 11 bis 12% Industrie- und Gesundheitsanteile. Ich unterscheide aktuell die folgenden Gesundheitssegmente: Absicherung, Einrichtungen, Forschung, Geräte, Services, Technologie und Immobilien. Aus jedem dieser Segmente darf nur ein aus den USA zwei Unternehmen pro Land im Portfolio vertreten sein. Weil viele dieser Marktsegmente wenig international sind, sollte der Wettbewerb der Portfoliobestandteile untereinander relativ gering sein.

Ungewöhnlich ist auch die Fondsallokation zu verschiedenen Unternehmensgrößen, die 2023 0% (10% 2022) zu Megacaps, 19% (31%) zu Largecaps, 44% (33%) zu Midcaps, 29% (26%) zu Smallcaps und 7% (0%) zu Microcaps betrug. Sie lag im Schnitt bei nur 7 Milliarden Euro (12 Mrd. Euro in 2022), bei der Vergleichsgruppe bei 34 Milliarden Euro und beim MSCI All Countries World Index bei 90 Milliarden Euro.

Insgesamt ist der Anteil amerikanischer Aktien im Fonds von 2022 auf 2023 von 41% auf 57% gestiegen. Dafür ist der Eurolandanteil von 23% auf nur noch 6% gesunken. Australien mit 13% (vorher 16%) und sonstige mit 24% (vorher 20%) sind dagegen weitgehen gleich allokiert. In Relation zu globalen aktiven Fonds mit flexiblen Kapitalisierungsanforderungen (Morningstar Peerproup) und dem Vergleichsindex ist die US-Allokation typisch, während die Australien- und die Eurolandallokationen ungewöhnlich sind.

Morningstar beziffert die sogenannte „Active share“ des Fonds, mit der Abweichungen vom Vergleichsindex gemessen wird auf fast 100%.

Artikel 9 Fonds mit Fokus auf Sozial-SDGs

Eines meiner wichtigsten Selektionskriterien ist SDG-Alignment. Nur etwa 10% der ungefähr 500 Aktien, die alle meine sonstigen Nachhaltigkeitsanforderungen erfüllen, sind aus meiner Sicht gut mit den SDG vereinbar. Das gilt vor allem für sogenannte Pure Plays, also auf ein Marktsegment fokussierte Unternehmen. Diesen ordne ich jeweils ein primäres SDG-Ziel zu. Im Oktober 2022 habe ich 18 Unternehmen dem Gesundheitsziel zugerechnet, 6 dem Infrastruktur-SDG und 6 weitere den SDGs nachhaltige Energie (3), Wasser (2) und menschenwürdige Arbeit (1). Im Februar 2023 ordne ich 12 Aktien dem Gesundheits-SDG, 5 menschenwürdiger Arbeit, 4 Infrastruktur, 3 Energieversorgung, und je 2 Industrie, nachhaltigen Städten und Wasser zu. Infrastruktur umfasst Eisenbahn- und Telekommunikation und nachhaltige Städte öffentlichen Transport. Beide SDG sind damit sowohl ökologisch als auch sozial ausgerichtet. Insgesamt überwiegen in beiden Jahren damit die Sozial gegenüber den ökologischen Zielen.

Noch mehr Satellite-Charakter

Die Kennzahlenveränderungen sind Folgewirkungen der Verschärfung der Nachhaltigkeitsregeln und nicht aktiv gesteuert. Die Reduktion des Anteils des Gesundheitssektors finde ich aus Diversifikationsgründen positiv. Allerdings wird sie durch die Morningstaranalyse aus meiner Sicht überzeichnet, weil einige der Technologie- und sonstigen Aktien des aktuellen Portfolios durchaus dem Gesundheitssektor zurechnet werden können.

Auch die Kapitalisierungsreduktion ist positiv, weil sie die Überlappung meines Fonds mit anderen Core-Fonds und vielen anderen Nachhaltigkeitsfonds reduziert. Insgesamt ist mein Fonds so zu einem noch attraktiveren Ergänzung für viele Anlegerportfolios geworden ist, ohne dass der Charakter als Midcaporientierter Fonds mit Sozialfokus sich geändert hat.

Defensive Performance des Artikel 9 Fonds

Obwohl der Artikel 9 Fonds mit nur 30 Aktien und einem hohen Gesundheitsanteil wenig diversifiziert erscheint, hat er gut und vor allem defensiv performt. In den guten Aktienmarktphasen zu Ende 2022 und zu Anfang 2023 brachte der Fonds nur geringere Renditen als der allgemeine Aktienmarkt. Dafür hat er in 2022 mit -8,6% relativ gesehen sehr gut rentiert. Damit liegt er wie schon sein Modellportfoliovorläufer mit dem Startjahr 2017 (Global Equities ESG SDG Portfolio, vgl. www.soehnholzesg.com) bei der Rendite auf dem Niveau des breiten Aktienmarktes bei erheblich geringerem Risiko.

Quellen: Länderallokation Monega, alle anderen Allokationen von Morningstar von Oktober 2022 und Ende Januar 2023

Weiterführende Links: www.futurevest.fund inklusive Nachhaltigkeitsdetails und aktuell Artikel 9 Fonds: Sind 50% Turnover ok? – Responsible Investment Research Blog (prof-soehnholz.com) sowie Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Disclaimer

Diese Unterlage ist von Soehnholz Asset Management 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 Erstellerin übernimmt keine Gewähr oder Garantie für die Richtigkeit und/oder Vollständigkeit dieser Informationen. 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.

Critical ESG and more: Researchposting 118

Critical ESG: 11x new research on tax avoidance, ESG deficits, corporate governance, green monetary policy, climate transition investing, shareholder engagement, inequality, factor investments, listed real estate, and ChatGPT by Alex Edmans, David Larcker, Martin Hoesli et al.

Unsocial multinationals: Global profit shifting, 1975–2019 by Ludvig Wier and Gabriel Zucman as of Nov. 29^th, 2022 (#11): “This paper constructs time series of global profit shifting covering the 2015–19 period, during which major international efforts were implemented to curb profit shifting. We find that (i) multinational profits grew faster than global profits, (ii) the share of multinational profits booked in tax havens remained constant at around 37 per cent, and (iii) the fraction of global corporate tax revenue lost due to profit shifting rose from 9 to 10 per cent. We extend our time series back to 1975 and document a remarkable increase of multinational profits and global profit shifting from 1975 to 2019”. My comment: To strenghten communities (stakeholders), the reduction of profit shifting should be an attractive topic for shareholder ESG engagement

ESG investment research: Critical ESG

10 critical ESG theses: Applying Economics – Not Gut Feel – To ESG by Alex Edmans as of Feb. 21^st, 2023 (#2754): “I identify how conventional thinking on ten key ESG issues is overturned when applying the insights of mainstream economics” (abstract): “1. Shareholder Value is Short-Termist (No, shareholder value is a long-term concept). 2. Shareholder Primacy Leads to an Exclusive Focus on Shareholder Value (No, shareholders have objectives other than shareholder value). 3. Sustainability Risks Increase the Cost of Capital (No, sustainability risks lower expected cash flows). 4. Sustainable Stocks Earn Higher Returns (No, sustainability may be priced in; tastes for sustainable stocks lead to lower returns). 5. Climate Risk is Investment Risk (No, climate risk is an unpriced externality). 6. A Company’s ESG Metrics Capture Its Impact on Society (No, partial equilibrium differs from general equilibrium). 7. More ESG Is Always Better (No, ESG exhibits diminishing returns and trade-offs exist). 8. More Investor Engagement Is Always Better (No, investors may be uninformed or undermine managerial initiative). 9. You Improve ESG Performance By Paying For ESG Performance (No, paying for some ESG dimensions will cause firms to underweight others). 10. Market Failures Justify Regulatory Intervention (No, regulatory intervention is only justified when market failure exceeds regulatory failure)“ (p. 4). My comment: I don’t detect any contradictions regarding my approach to invest as sustainable as possible considering exclusions, ESG and SDG factors and engagement, see e.g. Artikel 9 Fonds: Sind 50% Turnover ok? – Responsible Investment Research Blog (prof-soehnholz.com)

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Beyond ESG: Researchposting 116

Beyond ESG: 21x new research on bioenergy, CSR, carbon policy, greenium, ESG ratings, ecolabel, greentech, transition, fiduciaries, impact, activism, insiders, 1/n, SPACs, private equity and female founders by Timo Busch, Andreas Hoepner and many more

Social and ecological research

High bio-emissions: Emissions of Wood Pelletization and Solid Bioenergy Use in the United States by Huy Tran, Edie Juno, and Saravanan Arunachalam as of Dec. 27th, 2022 (#6): “… we find that this sector’s emissions could be potentially underestimated by a factor of two. Emissions from biomass-based facilities are on an average up to 2.8 times higher than their non-biomass counterpart per unit energy. Up to 2.3 million people live within 2km of a biomass facility, and who could be subject to adverse health impacts from their emissions. Overall, bioenergy sector contributes to about 3 – 17% of total emissions from all energy, i.e., electric and non-electric generating facilities in the U.S. In comparison to residential wood combustion, bioenergy sector emissions are lower in VOC, CO, NH3, and directly emitted PM2.5, but higher in NOX and SO2. We also review some drivers of bioenergy expansion, various feedstocks and technologies deployed with an emphasis on wood-based bioenergy and discuss their implications for future air quality and health impacts” (abstract).

Research overview: The Past and Future of Corporate Sustainability Research by Vanessa Burbano, Magali A. Delmas, and Manuel Jesus Cobo as of Oct. 13^th, 2022 (#122): “… we present a comprehensive review of the field of corporate sustainability using a science mapping co-word bibliometric analysis. Through analysis of the co-occurrence of 25,701 keywords in 11,962 sustainability-related articles from 1994-2021, we identify and graphically illustrate the thematic and theoretical evolution of the field, in addition to emerging and waning research trends in the field. We characterize the most impactful articles of sustainability research in terms of disciplinary focus, topic of focus, dependent variable of focus, unit of analysis, and research method employed” (abstract).

Climate policy works: Carbon Policy Surprises and Stock Returns: Signals from Financial Markets by Martina Hengge, Ugo Panizza, and Richard Varghese as of Feb. 1^st, 2023 (#18): “…. the creation of the EU Emissions Trading System (ETS) in 2005. This “cap and trade” scheme places a limit on the right to emit greenhouse gases and allows companies to trade emission allowances. … we show that regulatory surprises that result in an increase in carbon prices have a negative and statistically significant impact on stock returns, which increases with a firm’s carbon intensity. This negative relationship becomes even stronger when we drop firms in sectors which participate in the EU ETS, suggesting that investors price in transition risk stemming from the shift towards a low-carbon economy“ (p. 22).

Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. I focus on social SDGs and midcaps and use separate E, S and G best-in-universe minimum ratings. The fund typically scores very well in sustainability rankings, e.g. this free new tool, and the performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

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Stakeholder engagement and ESG (Special Edition Researchposting 115)

Stakeholder engagement: 18x (new) research on stakeholder engagement, human capital, employee activists, employee ESG surveys, ESG wage gap, CEO pay gap, customer alpha, CEO limits and more research which is important for my shareholder engagement activities (see e.g. my earlier blog posts Engagement test, Impact Investing mit Voting und Engagement? and Wrong ESG bonus math?).

Stakeholder engagement overview

Stakeholder engagement studies: Exploring the antecedents and consequences of firm-stakeholder engagement process: A systematic review of literature by Avinash Pratap Singh and Zillur Rahman as of Oct. 31st, 2022 (#16): “… we pursued the vast body of literature on firm-stakeholder engagement and comprehensively examined over 170 research articles to accumulate precursors and outcomes of SE processes. … We used thematic analysis to provide evidence of the growing interest of academics and managers in firm-stakeholder engagement. The findings of this study suggest that shared benefits with a long-term perspective are valuable to both corporation and its stakeholders”.

Stakeholder engagement options: Stakeholder Engagement by Brett H. McDonnell as of Oct. 31st, 2022 (#88): “We have seen that the present reality of stakeholder engagement is fairly extensive, and sensible as far as it goes. As one would expect, employees are the most engaged group, followed by customers, and then by nonprofits, suppliers, and government regulators. The most used forms of engagement include meetings and surveys. Employee resource groups are near-universally used. Partnerships, social media, and councils are used less frequently, but still somewhat regularly. … And yet, the current reality falls well short of the future possibilities of stakeholder engagement. Current engagement mostly involves companies listening to what stakeholders have to say. It does not empower stakeholders to be more actively involved in corporate decision making” (p. 53/54). My comment: Very helpful paper for practitioners including reference to the AccountAbility Stakeholder Engagement Standard

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ESG confusion and more (Researchposting 114)

ESG confusion: 19x new research on energy, mining, home offices, UN PRI, D&O, ESG ratings, greenwashing, shareholder and bondholder engagements, CEO pay, asset allocation, trading fee, private equity, cryptos

Political (social and ecological) research

Energy tax chaos: Carbon conundrum – How to Save Climate Change Policy from Government Failure by Philip Booth and Carlo Stagnaro from the Institute of Economic Affairs as of Jan. 19^th, 2023 (#5): “In principle, environmental taxes and subsidies should reflect externalities. However, in practice, policy is chaotic with tax treatment reflecting the nature of the fuel, who consumes the fuel and for what purpose the fuel is used. … On average, oil products are taxed at €405 per tonne of oil equivalent in the UK and €334 in the EU27, as compared with €135 and €101 for natural gas and €112 and €84 for coal. This is despite the fact that coal, not oil, poses the largest environmental challenges as far as climate change is concerned. … Subsidies were higher for solar photovoltaics (€1,468 per tonne of oil equivalent in the UK and €2,019 in the EU27), followed by wind power (€961 and €743, respectively). Hydro power and bio-energies received, on average, much lower subsidies. … Subsidies to fossil fuels were generally intended to support consumption rather than production. On average, oil, natural gas and coal received €130, €61 and €86 per tonne of oil equivalent in subsidies in the UK and €320, €47 and €27 respectively in the EU27. … The net effect of taxes and subsidies leads to substantially greater net taxes on oil than on natural gas while coal is taxed the least. The level of net taxes on energy sources does not, in any way, relate to the externalities from the energy source” (Viii-X)

Social mining: Mining for Peace by Roland Hodler, Paul Schaudt, and Alberto Vesperoni as of Jan. 25^th, 2023 (#9):“The energy transition increases the demand for minerals from ethnically diverse, conflict-prone developing countries. We study whether and where mining is possible in such countries without raising the risk of civil conflict. … A crucial insight is that new mining projects do not necessarily translate into more conflict but may pacify the country under the right conditions and the right policies“ (abstract). My comment: Ca. 1% of my investable ESG universe consists of mining stocks

Good home offices: Time Savings When Working from Home by Cevat Giray Aksoy, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls, and Pablo Zarate as of Jan. 17^th, 2023 (#53): “We quantify the commute time savings associated with work from home, drawing on data for 27 countries. The average daily time savings when working from home is 72 minutes in our sample. … Workers allocate 40 percent of their time savings to their jobs and about 11 percent to caregiving activities. People living with children allocate more of their time savings to caregiving“ (abstract).

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