Brownium: 10x new research on populism, bank lending, emission targets, ESG anarchy, climate overlay, green audit washing, ESG compensation, brown fear of missing out (FOMO), and shades of green
Zusammenfassung
Brownium: 10x new research on populism, bank lending, emission targets, ESG anarchy, climate overlay, green audit washing, ESG compensation, brown fear of missing out (FOMO), and shades of green
Brownium: 10x new research on populism, bank lending, emission targets, ESG anarchy, climate overlay, green audit washing, ESG compensation, brown fear of missing out (FOMO), and shades of green (# shows number of SSRN downloads of full research papers as of July 17th, 2025)
Green and social research
Crisis populism: The Financial Drivers of Populism in Europe by Luigi Guiso, Massimo Morelli, Tommaso Sonno, and Helios Herrera as of June 23rd, 2025 (#2): “… We show in a nutshell that the 2008 financial crisis created economic insecurity in social groups and occupations previously not affected– or affected less– by globalization. Moreover, the addition of this class of concerned voters created a bigger dent in the pre-crisis party structure in countries with low fiscal space, since in such a context, the credibility of transfer-based protection policies is limited. We also contribute to understanding how preferences for exclusion along the cultural dimension evolve, as shaped by voters’ beliefs about the feasibility of different types of welfare protection policies. The middle class was greatly affected by the financial crisis, and the enlargement of the pool of disillusioned voters to include large segments of the middle class fostered populism in Europe. … On the supply side, we examine policy positions of old and new parties in order to show that the prevalence of populism became much higher immediately following the financial crisis“ (abstract).
Bank or ecology? Green Finance Frontiers: Modeling Bank Lending and Welfare under the Green Asset Ratio by Marcella Lucchetta as of June 15th, 2025 (#24): “… Green Asset Ratio (GAR) … redirects lending from high-yield brown loans to lower-yield green loans under stringent capital constraints. Our model reveals a critical short-term trade-off: bank profitability declines by 18% at a 30% GAR threshold due to compliance and data verification costs, while societal welfare rises by 16% through environmental benefits. In the long term, profitability may recover as ESG demand grows, bolstered by increasing brown loan penalties. Data challenges, particularly greenwashing risks, underscore the need for innovative policy solutions …” (abstract).
Unserious targets? Financed Emissions by Mustafa Emin, Nishad Kapadia, Robert Prilmeier, and William Waller as of June 16th, 2025 (#34): “Banks have begun setting industry-specific emissions targets for their lending portfolios. We document the scope, stringency, and coverage of these “financed emissions” targets and test their real effects. Target-setting banks reduce overall lending to high-emission sectors while increasing funding for green projects within them. We classify banks as “serious” or “greenwashers” based on their target stringency. … we find that only firms exposed to serious banks reduce emissions …” (abstract).
ESG investment research (in: Brownium)
ESG anarchy: Institutional ESG Investment as Organized Anarchy by Jan Svanberg, Fredrik Hartwig, Asif Huq, Tarek Rana, Presha E. Neidermeyer, Axel Nilsson, Azer Hojlas and Sotirios Agathangelidis as of June 17th, 2025 (#8): “… institutional investors integrate Environmental, Social, and Governance (ESG) considerations into investment decision-making not as a rational optimization problem typical of finance theory, but as an organizational process characterized by ambiguity, inconsistency, and negotiation. Drawing on qualitative case study data from six Swedish pension funds … Our analysis reveals that ESG integration is constrained by problematic preferences, unclear technologies, and fluid participation—conditions that render decision-making non-linear, contested, and context dependent. … we argue that the irrationalities observed in ESG practices are not implementation failures, but emergent properties of complex organizational environments …” (abstract).
Climate overlay: The Long Term Will Be Decided Now – Why Climate Risk Demands System-Level Action from Investors by Ben Cushing from the Sierra Club as of June 16th, 2025 (#66): “…This paper makes the case that investors must treat climate change not just as a risk to individual companies, but as a threat to the entire economy and long-term portfolio returns. That kind of risk cannot be avoided just by trading assets or holding climate-friendly firms. Because market-wide climate damage comes from rising global emissions, the only way to reduce that risk is to reduce real-world emissions. That requires a strategic shift in investor behavior—from managing company-specific risk exposure to proactively mitigating systemic risk. Part 1 explains why this shift is necessary and urgent, and how conventional approaches—including ESG integration and shareholder divestment—fall short. Part 2 outlines what investors should do instead. … It details how four key levers should be deployed: directing capital, engaging with companies, supporting strong public policy, and holding financial intermediaries accountable” (p. 4).
Green audit washing: Third-Party Auditing Cannot Guarantee Carbon Offset Credibility by Cary Coglianese and Cynthia Giles as of July 10th, 2025 (#359): “… This research supports the conclusion that when auditors are selected and paid by the organizations they are auditing, as happens with carbon offset credits, their auditing results too often support the interests of their clients. We also report findings from our review of carbon audits of 95 projects that have been shown to have serious over-claiming problems. Our review finds that it is not just a handful of auditors involved in reviewing the problematic projects in our sample …. An offset credit structure in which the key actors—carbon credit sellers, buyers, and registries—all gain when projects claim more credits only reinforces the economic incentives and cognitive biases that generally affect auditing reliability“ (abstract).
ESG compensation transparency: Pro ESG compensation: Unpacking ESG Risk Disclosure Determinants: The Role of Stakeholder, Shareholder, and Managerial Influence by Marisa Agostini, Daria Arkhipova, Marco Fasan and Silvia Panfilo as of July 8th, 2025 (#22): “While legitimacy theory suggests firms under scrutiny should disclose more ESG information to secure stakeholder support, findings show these firms often provide lower-quality disclosures, potentially reducing accountability. …. Shareholders, analyzed through agency theory, are expected to push for better ESG disclosures if aligned with financial interests or personal values. However, no significant relationship was found between board characteristics and ESG disclosures, suggesting limited shareholder influence. Management incentives play a notable role, as firms with sustainability-linked executive compensation disclose higher-volume ESG risk information, supporting evidence that such incentives enhance ESG performance”.
Brownium: When Green Turns Brown: Green Premium Revisited by Iengchuo Tang, Roshanthi Dias, Di Mo, and Xiao Tian as of June 20th, 2025 (#9): “We investigate the green premium in Australia’s equity market, which is concentrated by carbon intensive industries. Using the data from 2010 to 2023, we find an initial 118% green-minus-brown premium, which reduces by 75% after orthogonalizing greenness scores for size and book-to market ratio. Critically, excluding carbon-intensive industries and using orthogonalized greenness scores reveals a significant „brownium“ of approximately 50bps monthly. These findings challenge documented outperformance of green stocks, demonstrating that in concentrated markets, industry effects can fundamentally alter green premiums …” (abstract).
My comment: This is of practical interest for me since my fund has a relatively high share of Australian stocks but so far mainly with a social (healthcare) focus.
SDG investment research
Brown FOMO? FOMO in equity markets? Concentration risk in (sustainable) investing by Andreas Brøgger, Joren Koëter, and Mathijs van Dijk as of June 23rd, 2025 (#275): “This paper revisits the financial consequences of imperfectly diversified portfolios – in light of the trend towards concentrated (sustainable) portfolios among some institutional investors. Based on a large global sample of stocks over 1985-2023, we find that – in contrast to common beliefs and prior studies – it takes considerably more than 30-40 stocks to fully diversify idiosyncratic risk. Our second key finding is that concentrated portfolios involve a hitherto unstudied risk: FOMO (Fear Of Missing Out) – just 2% of stocks account for all stock market wealth creation and smaller portfolios have a greater probability of missing out on these top performing stocks. We find similar diversification and FOMO effects for portfolios constructed based on ESG screens, exclusion of sin industries, and portfolio weight optimization” (abstract).
My comment: More diversified portfolios can typically be not very sustainable, compare 30 stocks, if responsible, are all I need – Soehnholz ESG, especially if SDG-revenues are used, compare SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Soehnholz ESG
Shades of green: It better be good, it better be green by Fabio Fornari, Daniele Pianeselli, and Andrea Zaghini as of June 20th, 2025 (#8): “… When buying a green bond, investors do not look only at the green label of the bond, but also consider additional characteristics that involve the environmental score of the issuer and the soundness of the underlying project. By comparing the yields at issuance of green bonds to those of a matched control sample of conventional bonds, our baseline specification identifies a premium of 16 basis points for the green label alone. However, when the environmental score of the issuer is in the top tercile of the cross-sectional distribution of such a score, the greenium increases up to doubling. Green certification and periods of heightened climate uncertainty also significantly influence the size of the greenium” (abstract).
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Werbung (in: Brownium)
Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-/Mid-Cap-Investmentfonds 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.
Zum Vergleich: Ein traditioneller globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von etwa 5 %, ein diversifizierter Gesundheits-ETF 13 %, Artikel 9 Fonds circa 20%, liquide Impactfonds oder ein ETF für erneuerbare Energien ungefähr 40 % (vgl. Maximale Portfolio-Nachhaltigkeit: Was geht?).
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). Mein besonders nachhaltiger Fonds war also bisher ein Nachhaltigkeits „Free Lunch“. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.
