Analyst ESG power: 12x new research on biodiversity, (un)green CEOs, climate FX, analyst ESG power, green institutions, dirty transition, climate controversies, experiments, risk parity, AI advisors, real estate token and simple language (# shows number of SSRN full document downloads as of April 17th, 2025)
Biodiversity dilemma: Biodiversity and Local Asset Values by Jess Cornaggia, Peter G. Iliev, Yu-Hsuan (Jennifer) Liang, and Qiang Wang as of April 14th, 2025 (#29): “House prices and agricultural land values increase with biodiversity loss at the property level, likely reflecting development-driven monetization. In contrast, at the county level, greater species richness correlates with higher asset values … the positive association between biodiversity loss and property value weakens over time, while the value premium for regional biodiversity strengthens. These findings indicate biodiversity is increasingly valued as natural capital in real estate markets …” (abstract).
ESG investment research
Green the CEOs: CEO Values and Corporate ESG Performance by Xiang Li, Onur Kemal Tosun, and Arman Eshraghi as of Dec. 6th, 2024 (#92): “We construct a novel CEO Values Index (henceforth, CVI) based on environmental, social, and governance values and behaviors displayed by CEOs …Examining a … dataset of S&P 500 CEO values, we document a positive and robust relationship between CVI and ESG performance, such that one standard-deviation increase in CVI is associated with 2.1% increase in corporate ESG score. The enhancement effect of CVI on corporate ESG is 1) long-lasting, 2) robust to shocks such as managerial turnover and Covid; 3) amplified (diminished) by extrovert (introvert) CEOs; 4) prone to political tendencies and amplified by Democratic-leaning CEOs; and 5) robust after various controls including greenwashing“ (abstract). My comment see Neues Research: Nachhaltigkeitsfokus auf grüne CEO? | CAPinside
Climate FX: Global Currency Risk and Corporate Carbon Emissions by Po-Hsuan Hsu, Yan Li, Mark P. Taylor, and Louis Zigan Wang as of April 10th, 2025 (#20): “… international sample of 2,159 GHG-reporting firms across 21 markets from 2003 to 2020. We first show that firms with higher FX risk (their exposures multiplied by FX volatility) release more GHG emissions in their own and upstream operations. This relation has a causal interpretation … FX risk also weakens corporate environmental performance” (abstract).
Analyst ESG power: Do manager care about analyst attention to ESG? by Kevin H. Kim as of April 15th, 2025 (#2): “This study examines the impact of analyst attention to ESG issues during earnings conference calls on firms’ future ESG incidents. Using a large language model fine-tuned for ESG contexts, we find that ESG attention is negatively associated with the number of future negative ESG incidents, suggesting that analyst attention to ESG encourages firms to mitigate potential ESG risks proactively. This effect is more pronounced when ESG attention conveys a negative tone. Moreover, when analysts focus on a specific ESG topic, firms are more likely to reduce incidents related to those particular topics. This relationship holds regardless of whether the ESG topic is classified as material or non-material under SASB materiality guidelines. We also provide evidence that ESG attention is negatively associated with both new types of ESG incidents and recurring incidents and a decrease in the severity level of future ESG incidents“ (abstract). My comment: This is an indicator that shareholder ESG engagement can be effective (for my engagement activities see FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T)
SDG investment research (in: Analyst ESG power)
Green institutions? Beyond Green Signaling: Are Institutional Investors Decarbonizing Their Portfolios? by Mohammad R. Allahdadi as of April 10th, 2025 (#8): “This study examines whether institutional investors decarbonize their U.S. equity port folios after signing the United Nations Principles for Responsible Investment (PRI). … The portfolio-level findings show that while PRI signatories maintain lower portfolio carbon footprints overall, the act of signing PRI does not lead to significant reductions in their carbon footprint over time. European investors’ portfolios even show potential increases in carbon footprint after signing. … PRI signatories classified as quasi-indexers demonstrate superior effectiveness in reducing firm-level emissions through their ownership positions” (abstract). My comment: The signing of UN PRI should not be used to indicate sustainable behavior (and thus not be considered very important for fund manager evaluations): Actions count
Dirty transition: Dirty Business: Transition Risk of Factor Portfolios by Ravi Jagannathan, Iwan Meier, and Valeri Sokolovski as of April 15th, 2025 (#85): “Between 2016 and 2023, the top 10% of carbon-emission-intensive firms (heavy emitters) accounted for over 90% of all Scope 1 emissions from U.S. public companies. We observe that about 35% of the market capitalization of ‘Value’ portfolios, compared to 5% of ‘Growth’ portfolios, regardless of how Value and Growth are defined, was comprised of heavy emitters. When we split the Big Value portfolio into heavy- and light-emitter stocks, we find that these two portfolios had similar realized (raw and risk-adjusted) returns and expected returns, as measured by Implied Cost of Capital, suggesting limited incremental compensation for transition risk. We also find that Big Growth low-emitter stocks consistently had lower expected returns than Big Value low emitter stocks, with the spread widening in recent years, despite similar emission levels“ (abstract). My comment: This clearly speaks for divestments from big emitters
Controversy costs: Real-Time Climate Controversy Detection by David Jaggi, Nicolas Jamet, Markus Leippold, and Tingyu Yu as of April 12th, 2025 (#142): “This study presents ClimateControversyBERT, a novel open-source language model for real time detection and classification of corporate climate controversies (i.e., brown projects, misinformation, ambiguous actions) from financial news. … the model effectively identifies inconsistencies between corporate climate commitments and actions as they emerge. We document significant negative market reactions to these controversies: firms experience an immediate average stock price drop of 0.68%, with further declines over subsequent weeks. The impact is intensified by high media visibility and is notably stronger for firms with existing emission reduction commitments“ (abstract). My comment: Investors should care about environmental controversies
Other investment research
Problematic experiments: Do experimental asset market results replicate? High-powered preregistered replications of 17 claims by Christoph Huber, Felix Holzmeister, Magnus Johannesson, Christian Konig-Kersting, Anna Dreber, Jurgen Huber, and Michael Kirchler as of Dec.13th, 2024 (#337): “Experimental asset markets provide a controlled approach to studying financial markets. We attempt to replicate 17 key results from four prominent studies, collecting new data from 166 markets with 1,544 participants. Only 3 of the 14 original results reported as statistically significant were successfully replicated, with an average replication effect size of 2.9% of the original estimates. We fail to replicate findings on emotions, self-control, and gender differences in bubble formation but confirm that experience reduces bubbles and cognitive skills explain trading success“ (abstract).
Risk parity risks: Risk Parity and its Discontents by Rodney N. Sullivan and Matthew Wey as of March 15th, 2025 (#115): “We use realized risk parity manager returns and a recreated risk parity portfolio beginning in 1951 and find that the risk parity asset allocation strategies underperform a 60/40 portfolio in both instances. Risk parity produces lower annualized returns and lower Sharpe and Sortino ratios than does a 60/40 portfolio. We also show that the starting level of bond yields – and not just the magnitude of bond yield changes – is important for understanding historical risk parity portfolio drawdowns. We show that a minor adjustment to the risk parity framework – by incorporating expected returns – can have material improvements to the resulting asset allocation outcomes” (abstract).
AI beats financial advisors: AI Appreciation and Financial Advice by Christoph Merkle as of April 15th, 2025 (#15): “… an aversion to artificial intelligence and lack of trust in recommendations generated by AI models could prove to be a major obstacle to their broad introduction. We test AI aversion in the context of financial advice in three incentivized experiments (N=1,176). Participants receive investment recommendations sourced either from ChatGPT or from a financial professional. The rate at which participants follow the recommendations and their satisfaction with the advice is consistently higher in the AI treatments. Observing intermediate investment outcomes weakens AI appreciation as outcomes distract from recommendation quality. Participants do not anticipate their AI appreciation, as a majority selects the financial professional in an experiment with free advisor choice. This suggests uncertainty surrounding AI capabilities, which is only resolved when seeing the actual recommendations” (abstract).
Real token: Market Maturation and Democratization Effects of Tokenized Real Estate Matthijs Bergkamp, Imtiaz Sifat, and Laurens Swinkels as of April 8th, 2025 (#47): “Using a comprehensive dataset of 455 tokenized properties worth $83 million over three years … We document three key findings. First, tokenization effectively reduces ownership concentration and increases participation with on average 573 unique holders per tokenized property. Second, we find strong evidence of increasing portfolio diversification. Third, market characteristics show convergence toward traditional real estate fundamentals: monthly turnover has decreased, while price movements demonstrate negative correlation with cryptocurrency markets. These findings suggest that blockchain technology can successfully democratize real estate investment while preserving the asset class’s fundamental characteristics” (abstract).
Better simple: No Matter Your Financial Literacy: Simplicity Wins When Choosing a Fund by Zihan Gong and Sebastian Müller as of January 9th, 2025 (#53): “This study assesses the impact of GPT-4-generated fund prospectus summaries … The findings reveal that easy-to-understand summaries significantly enhance text accessibility by approximately 13% and investment willing ness by 8%. … The study also finds that individuals’ self assessed financial competence plays a more crucial role than their actual literacy in interacting with financial information and making investment decisions” (abstract).
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Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-/Mid-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R) investieren und/oder ihn empfehlen.
Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich einzigartig hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und sehr hohen E-, S- und G-Best-in-Universe-Scores sowie einem besonders umfangreichen Aktionärsengagement (siehe auch My fund).
Zum Vergleich: Ein traditioneller globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 5 %, ein diversifizierter Gesundheits-ETF 13 %, Artikel 9 Fonds 21%, liquide Impactfonds 39% und ein ETF für erneuerbare Energien 42 % (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!).
Insgesamt hat der von mir beratene Fonds seit der Auflage im August 2021 eine ähnliche Performance wie traditionelle globale Small- und Mid-Cap-Fonds (vgl. z.B. Fonds-Portfolio: Mein Fonds | CAPinside und Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds?).
Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Ein besonders konsequent nachhaltiges Portfolio mit marktüblichen Renditen und (eher niedrigeren) Risiken. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.