Biodiversity investment illustration from Pixabay by Clkr-Free Vector Images
9x new research on slow Green Deal progress, (too big?) brown banks, green robo investing, performant decarbonization, biodiversity investment growth, greening suppliers, pseudo-optimal portfolios, and 2x investment AI (#shows the number of SSRN full document downloads as of Feb. 12th, 2025)
Social and ecological research
Slow Green Deal? Delivering the EU Green Deal – Progress towards targets by Marelli Luisa et al. from the European Commission as of Feb. 5th, 2025: “This report provides a comprehensive assessment of progress towards the European Green Deal (EGD), the European Union’s transformative agenda for achieving climate neutrality by 2050. The analysis encompasses 154 quantifiable targets from 44 policy documents between 2019 and 2024 across key sectors such as climate, energy, circular economy, transport, agriculture and food, ecosystems and biodiversity, water, soil and air pollution. … As of mid-2024, 32 of the 154 targets are currently “on track” and 64 are identified as “acceleration needed” meaning that more progress is needed to meet the targets on time. Furthermore, 15 of the targets are found to be “not progressing” or “regressing”, and for 43 of the targets no data is currently available” (abstract).
Big brown banks: Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy by Winta Beyene, Manthos D. Delis, and Steven Ongena as of Nov. 7th, 2024 (#162): “… fossil fuel firms with more stranded asset risk rely less on bond finance and more on bank credit. Investors in the bond market price the risk that reserves held by fossil fuel firms will strand, while banks in the syndicated loan market do not. … Bigger banks provide cheaper and more financing to fossil fuel firms, possibly giving rise to a novel “too-big-to-strand” concern for banking regulators“ (abstract).
ESG investment research (in: Biodiversity investment)
Green robo investing? Nudging Investors towards Sustainability: A Field Experiment with a Robo-Advisor by Lars Hornuf, Christoph Merkle, and Stefan Zeisberger as of Jan. 29th, 2025 (#84): “In a field experiment with robo-advisor clients, we explore how default investment options shape sustainable investments choices. Setting sustainable investing as the default significantly increases adoption, with 36% of investors selecting it, compared to just 23% when conventional investing is the default. A follow-up survey reveals stark differences in expectations: most conventional investors believe that their choice offers higher returns and a better risk-return trade-off, while sustainable investors are confident that their portfolios will outperform. … the strong focus on financial returns suggests that investors remain reluctant to forgo substantial gains for sustainability in real-world scenarios” (abstract).
Performant decarbonization: Performance and Challenges of Net-Zero Strategies in the Context of the EU Regulation by Fabio Alessandrini, Eric Jondeau, and Lou-Salomé Vallée as of Sept. 3rd, 2024 (#75): “… an NZ strategy that meets most of the EUSFD Regulation requirements can be implemented at a moderate cost …. The CTB would have resulted in a tracking error of approximately 0.6 0.8% per year, while the PAB would have been more costly, with a tracking error closer to 1.7-1.8% per year. … While tracking error minimization results in a lower ex-post tracking error … Some securities may become substantially overweighted, potentially raising concerns about a lack of liquidity for these securities. … PAB does not suffer from the exclusion of the energy sector in terms of risk-adjusted performance. The Sharpe ratio of the PAB is higher than that of the CTB across all strategies we considered …“ (p. 31). My comment: The authors mention that the results may be influenced by the data (2012-2021).
SDG investment research
Biodiversity investment growth: Current Trends and Projections in Biodiversity Finance by Zannatus Saba as of Feb. 7th, 2025 (#16): “This chapter delves into the dynamic field of biodiversity finance, outlining key trends and future projections. It highlights the proliferation of specialized investment funds dedicated to biodiversity conservation, the integration of biodiversity considerations into Environmental, Social, and Governance (ESG) criteria, and the development of innovative financial mechanisms such as blended finance, green bonds, and nature bonds. The chapter explores how corporations are increasingly embedding biodiversity considerations into their strategic frameworks and examines the expanding roles of both the public and private sectors in driving investments. Looking forward, it projects a heightened emphasis on nature-based solutions, the evolution of regulatory landscapes, technological advancements in biodiversity monitoring, and enhanced methodologies for impact measurement. These insights underscore the critical necessity for effective biodiversity finance mechanisms to address the global biodiversity crisis and promote sustainable conservation practices. Additionally, the chapter underscores the growing practice of integrating biodiversity into financial decision-making and the development of biodiversity-sensitive financial products. Through relevant case studies, the chapter illustrates the implications for investors, corporations, and policymakers, advocating for the alignment of financial strategies with biodiversity objectives to ensure long-term environmental resilience. This nuanced exploration of current trends and future projections in biodiversity finance provides a comprehensive framework for understanding the multifaceted interactions between finance and biodiversity conservation, emphasizing the urgent need for robust financial solutions to safeguard our planet’s biodiversity“ (abstract) “ (abstract).
Supply decarbonization: Greening the Supply Chain: Financial Tools to Catalyze Decarbonization by Small Businesses (#10) by Kyle J. Blasinsky as of Feb. 10th, 2025: “… small- and medium-sized enterprises (“SMEs”) … aggregate emissions … account for half of all emissions in the United States annually. … many SMEs express interest in decarbonization, but they often cite insufficient capital and expertise as central barriers to these efforts. … this Article proposes integrating energy savings performance contracts (“ESPCs”) into large firms’ supply chains … ESPCs allow firms to invest in energy efficiency upgrades with an experienced energy services company that oversees the project and accesses financing by guaranteeing savings from those upgrades. …” (abstract). My comment: This is a good idea for shareholder engagement, see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog
Other investment research (in: Biodiversity investment)
Pseudo-optimal portfolios: Low Risk, High Variability: Practical Guide for Portfolio Construction by Antonello Cirulli, Gianluca De Nard, Joshua Traut, and Patrick Walter as of January 20th, 2025 (#306): “This paper explores how various portfolio construction choices influence the performance of low-risk portfolios. We show that methodological decisions critically influence portfolio outcomes, causing substantial dispersion in performance metrics across weighting schemes and risk estimators. This can only be marginally mitigated by incorporating constraints such as short-sale restrictions and size or price filters. … Transaction costs are found to significantly affect performance and are vitally important in identifying the most attractive portfolios … ” (abstract). My comment: I use equal weighted portfolios with yearly rebalancing which typically perform well (for pseudo-optimization see e.g. Kann institutionelles Investment Consulting digitalisiert werden? Beispiele)
Investment AI: Generative AI and Investor Processing of Financial Information by Elizabeth Blankespoor, Joe Croom and Stephanie Grant as of Dec. 13th, 2024 (#249): “… Our survey of 2,175 retail investors, complemented by an analysis of 40,000 investor questions posed to a GenAI chatbot … we observe widespread adoption, with nearly half of surveyed investors already using GenAI, … nearly two-thirds of investors plan to continue or start using GenAI and believe it will become a standard tool for investors, many non-users remain skeptical. This hesitancy toward future GenAI adoption appears related to concerns about data privacy and response quality, as well as younger and less sophisticated investors having difficulty identifying or leveraging the processing benefits of GenAI …” (abstract).
Good AI advice: Using Large Language Models for Financial Advice by Christian Fieberg, Lars Hornuf, Maximilian Meiler, and David J. Streich as of Feb. 11th, 2025 (#9): “… we elicit portfolio recommendations from 32 LLMs for 64 investor profiles, which differ in their risk preferences, home country, sustainability preferences, gender, and investment experience. Our results suggest that LLMs are generally capable of generating suitable financial advice that takes into account important investor characteristics when determining market and risk exposures. The historical performance of the recommended portfolios is on par with that of professionally managed benchmark portfolios. We also find that foundation models and larger models generate portfolios that are easier to implement and more sensitive to investor characteristics than fine-tuned models and smaller models. Some of our results are consistent with LLMs inheriting human biases such as home bias. We find no evidence of gender-based discrimination, which can be found in human financial advice“ (abstract).
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Werbung (in: Biodiversity investment)
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 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: Ein besonders konsequent nachhaltiges Portfolio mit markttypischen Renditen und (eher niedrigeren) Risiken. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.