Beastly problems: 11x new research on meat and milk, electricity outages, emissions against competition, costly ESG events, cheaper ESG funds, ESG AI, impact channels, political banks, fund flow risks, and private equity outperformance illusion (#shows SSRN full paper downloads as of Feb. 7th, 2025).
Ecological and social research
Beastly problems (1): Climate and Nature based Interventions in Livestock – Assessing the Mitigation Potential and Financing Flows by FAIRR as of Jan. 28th, 2025: “Annual public and private funding towards on-farm livestock interventions estimated in this report are low, amounting to USD $284.5 million (globally) and USD $120 million (for the US), respectively, representing between 0.1% and 0.2% of all climate financing over the periods assessed. … Continued reliance on interventions with incremental benefits creates a lock-in, incentivising intensive livestock production practices and delaying our ability to transition towards a net-zero and nature-positive future. … The research highlights the need to dedicate more capital towards interventions that address nature-related planetary boundaries such as biogeochemical flows, freshwater change, land-system change, biosphere integrity and novel entities. Furthermore, research, engagement and increased investment are needed across a broad range of interventions, including sustainable on-farm practices, but also demand-side measures such as protein diversification, alternative food technologies, and tackling food loss and waste to effectively reduce emissions, curb nature loss, and address human health-related impacts across the entire livestock value chain“ (p. 6).
Beastly problems (2): „Super-Emittenten“ der Fleisch- und Milchwirtschaft in Deutschland – Studie zu ihren Treibhausgasemissionen und Klimaverpflichtungen von Konstantinos Tsilimekis von Germanwatch vom Januar 2025: „In Deutschland trägt die Tierhaltung zu 5,3 % aller THG-Emissionen und zu 68,1 % der THG-Emissionen aus der Landwirtschaft bei. … Wir zeigen u. a., dass die Emissionen der zehn umsatzstärksten Schlachtkonzerne und der zehn umsatzstärksten Milchkonzerne im Jahr 2022 rund 61 % der im selben Jahr in Deutschland ausgestoßenen Emissionen durch PKWs entsprachen. Berücksichtigt man bei der Berechnung auch sog. Opportunitätskosten, dann steigen die Emissionen der Konzerne sogar auf das 1,5-fache der PKW-Emissionen. Darüber hinaus nehmen wir auch bisherige klimaschutzbezogene Eigenangaben der beiden Marktführer Tönnies und DMK Deutsches Milchkontor näher in den Blick. Dabei kommen wir zu dem Schluss, dass gerade diese beiden Konzerne noch deutlich in Sachen Vollständigkeit, Transparenz und Kohärenz nachbessern und damit für die Branche wegweisend vorlegen müssen …“ (Zusammenfassung).
Expensive outages: The Economic Costs of Temperature Uncertainty by Luca Bettarelli, Davide Furceri, Michael Ganslmeier, and Marc Tobias Schiffbauer from the International Monetary Fund as of Jan. 31st, 2025 (#18): “Combining novel high-frequency geospatial temperature data from satellites with measures of economic activity for the universe of US listed firms, … the results show that temperature uncertainty—by increasing power outages, reducing labor productivity, and increasing the degree of exposure of firms to environmental and non-political risks, as well as economic uncertainty at the firm-level—persistently reduce firms’ investment and sales. This effect varies across firms, with those characterized by tighter financial constraints being disproportionally more affected” (abstract).
Emissions against competition? The Carbon Cost of Competitive Pressure by Vesa Pursiainen, Hanwen Sun and and Yue Xiang as of Feb. 3rd, 2025 (#33): “… The positive relationship between competition and carbon emissions is stronger for firms in areas less concerned about climate change. It is also stronger in areas with weaker social norms. Our results suggest that short termism is not the primary driver, as the emissions-competition link is at least as strong for firms with longer-term-oriented shareholders. … ” (abstract).
ESG investment research (in: Beastly problems)
Costly ESG events: Understanding Reputational Risks: The Impact of ESG Events on European Banks by Erdinc Akyildirim, Shaen Corbet, Steven Ongena, and David Staunton as of July 27th, 2024 (#152): “This study examines the financial impact of Corporate Social Irresponsibility (CSI) events on European banks. Exploiting a dataset of 11,832 reputational shocks from 2007 through 2023, we find evidence of significant negative abnormal stock returns and increased volatility following CSI media coverage. High-severity media coverage, as well as the reporting of previously unknown problems, increases the magnitude of the shock. … proactive ESG engagement buffers against reputational risks. European banks with higher deposit instability exhibit especially negative short-term returns, reflecting the interconnections between investor and depositor behaviour. Changes in total deposits that coincide with negative CSI news magnify the effect on stock prices and volatility”.
Cheaper ESG funds: ESMA Market Report Costs and Performance of EU Retail Investment Products 2024 as of Jan. 14th, 2025: “… Despite the decline in costs, active equity funds continued to underperform (after fees) passive non-exchange-traded equity funds and exchange-traded equity funds. … As reported in 2022, the ongoing costs of environmental, social and governance (ESG) funds are lower than or similar to the ongoing costs of non-ESG equivalents. Overall, ESG funds outperformed their non-ESG equivalents in 2023, with disparities across asset classes. Equity ESG funds outperformed their equivalents, while fixed income and mixed ESG funds underperformed” (p. 4).
ESG AI + and -: Big Data and Machine Learning in ESG Research by Kai Li as of Feb. 4th, 2025 (#112): “In recent years, there has been a drastic increase in the use of machine learning methods in ESG research. Finance and accounting researchers have employed various machine learning methods, ranging from simple bag-of-words and topic modeling to more advanced methods such as word embedding, BERT, and generative AI. These methods have equipped researchers with useful tools to explore and analyze new data sets that were previously difficult or impossible to study. Moreover, machine learning has significantly expanded the range of tool kits researchers can employ to process data, as well as the range of data beyond texts, such as audio and videos … much work has been done on the “E” dimension, focusing on evaluating environmental performance, such as climate change, climate risk, and extreme weather exposure, at different levels. Meanwhile, more work could be done to measure “S” performance and gain a better understanding from the social perspective. …“ (p. 15).
SDG and impact investment research
10 impact channels: Channels of influence in sustainable finance: A framework for conceptualizing how private actors shape the green transition” by Jan Fichtner, Simon Schairer, Paula Haufe, Nicolás Aguila, Riccardo Baioni, Janina Urban and Joscha Wullweber as of January 27th, 2025 …: “… growth in ‘sustainable finance’ assets is not necessarily causing more sustainability-advancing productive investment to drive the green transition. We thus argue that sustainable finance is not exclusively about investing or providing finance, but crucially also about changing corporate practices toward greater sustainability. … We identify ten channels of influence concerning sustainable finance: (1) initial financing; (2) refinancing; (3) (re)insurance; (4) ratings; (5) climate-litigation; (6) company engagement; (7) divestment; (8) reputation; (9) coalition-building; and (10) standard-setting. These are grouped according to the specificity and breadth of their sustainability impact …” (abstract). My detailed comment see Neues Research: Vielfältige reale Nachhaltigkeitswirkung | CAPinside
Political banks: Do banks price environmental risk? Only when local beliefs are binding! By Irem Erten and Steven Ongena as of Nov. 7th, 2024 (#151): “… At loan origination banks charge higher rates to firms creating more environmental damage, especially when they are lowly capitalized, and when the firms operate in “greener” states with lower climate denial and there is more negative environmental news. Biodiversity risk is also priced, especially when public interest in it intensifies. Following the Trump withdrawal from Paris, banks modulate their environmental risk pricing in “browner” states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes” (abstract).
Other investment research (in: Beastly problems)
Flow risks: Risky Business: When Behavioral Biases Meet Mutual Fund Scale Challenges by Cristhian Andres Rodriguez Revilla as of Oct. 28th, 2024 (#118): “… A key discovery is that perceptions of threat profoundly influence managerial behavior. In conditions of substantial contractions, managers can capitalize on these challenges, effectively protecting and potentially increasing portfolio value. Conversely, during periods of significant expansion, the excessive rewards appear to compromise strategic focus and reduce investment decision quality, … The study highlights that the poorest competitive results during heavy inflows are linked to managers’ speculative choices, particularly in initiating new positions that result in adverse investment returns after three months …“ (p. 45).
Private outperformance illusion: The tyranny of IRR by Ludovic Phalippou as of Dec. 10th, 2024 (#4009): “The use of since-inception Internal Rate of Return (si-IRR) may contribute to the prevailing belief that private equity returns are much greater than those of other asset classes. This perception, in turn, drove the sharp increase in capital allocated to private equity funds in developed markets, and their fast penetration into retail investor portfolios. The „Yale model,“ which posits that superior returns arise from substantial allocations to private equity, is heavily predicated on a si-IRR …” (abstract).
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Werbung (in: Beastly problems)
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Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich außerordentlich hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement bei derzeit 28 von 30 Unternehmen (siehe auch My fund).
Zum Vergleich: Ein traditionelle globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 20%, für einen Gesundheits-ETF beträgt diese 7% und für einen ETF für erneuerbare Energien 43%.
Insgesamt hat der von mir beratene Fonds seit der Auflage im August 2021 eine ähnliche Performance wie durchschnittliche globale Small- und Midcapfonds (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: Man erhält ein besonders konsequent nachhaltiges Portfolio mit markttypischen Renditen und Risiken. Vergangene Performance ist allerdings nicht unbedingt ein guter Indikator für künftige Performance.