Archiv der Kategorie: Asset Allocation

Analyst ESG power: Researchpost 222

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 17^th, 2025)

Biodiversity dilemma: Biodiversity and Local Asset Values by Jess Cornaggia, Peter G. Iliev, Yu-Hsuan (Jennifer) Liang, and Qiang Wang as of April 14^th, 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. 6^th, 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 10^th, 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 15^th, 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 10^th, 2025 (#8): “This study examines whether institutional investors decarbonize their U.S. equity portfolios 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 15^th, 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 12^th, 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.13^th, 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 15^th, 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 15^th, 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 8^th, 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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Werbung (in: Analyst ESG power)

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.

Quant ESG: Researchpost 221

Quant ESG: 12x new research on tariffs, costly pollution, electric vehicles, steel, costly policy uncertainty, green/brown split, quantitative ESG, brown mortgage costs, diversification, bitcoin and financial AI (#shows the SSRN full paper downloads as of April 10th, 2025)

Social and ecological research

Trump trades: Anticipating Trade Turbulence: Assessing the Economic Impacts of President Trump’s Proposed Tariff Scenarios by Jianwei Ai, Wu Huang, Minghao Li, Terry Zhang, and Wendong Zhang as of Jan. 28^th, 2025 (#885): “This paper explores the potential economic consequences of President Donald Trump’s proposed tariff scenarios in his second term. … we study six tariff scenarios based on President Trump’s proposed tariffs … . The scenarios include both escalating US tariffs and retaliatory measures by trade partners. … we find that the proposed tariffs could significantly disrupt global trade and lead to mostly negative impacts on the US and its trading partners. In terms of welfare loss, Canada and Mexico will suffer the most from a trade war with the US. China also will experience substantial welfare decreases from an escalation of its existing trade war with the US but stands to benefit from US tariffs on Mexico and Canada. US will experience mixed welfare changes in different scenarios with smaller magnitudes” (abstract).

Costly pollution: The Cost of Air Pollution for Workers and Firms by Marion Leroutier and Hélène Ollivier as of April 8^th, 2025 (#9): “… even moderate air pollution levels, such as those in Europe, harm the economy by reducing firm performance. Using monthly firm-level data from France, we estimate the causal impact of fine particulate matter (PM2.5) on sales and worker absenteeism. Leveraging exogenous pollution shocks from local wind direction changes, we find that a 10 percent increase in monthly PM2.5 exposure reduces firm sales by 0.4 percent on average over the next two months, with sector-specific variation. Simultaneously, sick leave rises by 1 percent. However, this labor supply reduction explains only a small part of the sales decline. Our evidence suggests that air pollution also reduces worker productivity and dampens local demand” (abstract).

EV mania: The EV Shakeout by Rob Arnott, Bradford Cornell, Forrest Henslee, and Thomas Verghese as of April 8^th, 2025 (#19): “The electric vehicle (EV) sector’s dramatic trajectory from a 900% market capitalization surge in 2020–2021 to a widespread collapse by 2025 exemplifies a „big market delusion“—where investors overestimated the success of early entrants in a transformative industry, ignoring historical consolidation patterns. This paper analyzes how speculative fervor, rather than economic fundamentals, drove valuations to unsustainable heights, only for competition and capital constraints to trigger a brutal shakeout. We document substantial losses, with billions evaporated as firms like Rivian and Nikola faltered or failed. Tesla’s outsized valuation, defying traditional metrics, fueled the bubble, while Chinese manufacturers, leveraging state-backed innovation and pricing, reshaped global competition and pressured Western startups“ (abstract).

Green steel? Estimating firms’ emissions from asset level data helps revealing (mis)alignment to net zero targets by Hamada Saleh, Thibaud Barreau, Stefano Battiston, Irene Monasterolo, and Peter Tankov as of Feb.21^st, 2025 (#35): “We develop a new bottom-up methodology to estimate companies’ (mis)alignment to net-zero scenarios. It uses companies’ asset-level data on greenhouse gas emissions at production units. We apply the methodology to the steel sector globally and we find that companies’ projected emissions at 2030 exceed by up to 20% the levels of the corresponding net-zero scenario of the International Energy Agency …. Further, we find that projected emissions at 2030 exceed companies’ aggregate stated targets, even in the optimistic case of electricity supply decarbonization rate following the net-zero scenario. Moreover, the discrepancy is driven by the largest steel companies” (abstract).

ESG investment research (in: Quant ESG)

Green political cost: Climate Policy Uncertainty and Firms‘ and Investors‘ Behavior by Piero Basaglia, Clara Berestycki, Stefano Carattini, Antoine Dechezleprêtre, and Tobias Kruse as of April 7^th, 2025 (#14): “… This paper introduces a novel Climate Policy Uncertainty (CPU) index … we find that uncertainty surrounding climate policies negatively impacts firm financial outcomes, innovation, and stock-market outcomes for firms that are in CO2-intensive sectors, i.e. exposed to climate policy. Higher CPU reduces capital expenditures, employment, and research and development, which in turn translates to a decrease in innovation (patent filings), particularly for clean technologies. On the stock market, CPU leads to increased stock volatility and decreased returns for exposed firms” (abstract).

Green/brown split: The Political Economy of Green Investing: Insights from the 2024 U.S. Election by Marco Ceccarelli, Stefano Ramelli, Anna Vasileva, and Alexander F. Wagner as of April 1^st, 2025 (#62): “… We provide evidence from incentivized surveys of U.S. investors before and after the 2024 U.S. presidential election. After Trump’s victory, investors reduced green investments on average. However, investors who strongly disapprove of his climate policy increased their green investment taste. These “contrarians” placed greater weight on non-pecuniary considerations and less on financial ones, suggesting they view green investing as a way to compensate for perceived climate inaction. Empirical analyses of real-world ETF flows align with this interpretation …“ (abstract).

Quant ESG (1)? A Systematic Approach to Sustainable and ESG Investing by Andrew Ang, Gerald T. Garvey, and Katharina Schwaiger from Blackrock as of April 3^rd, 2025 (#58): “… Divesting from industries like tobacco, defense, coal, oil, and utilities can only decrease the investment opportunity set. Over 1969 to 2023, excluding these industries has resulted in lower returns: the average return comparing the market constructed excluding these industries is 1.1% lower than the full market. According to the framework of the dividend discount model, sustainable or ESG signals can predict stock prices only if they predict cashflows, or they are related to discount rates, or both. An important insight from this analysis is that, all else equal, higher demand for stocks with more sustainable characteristics or higher ESG ratings would result in lower expected returns. … The second avenue that sustainable signals and ESG ratings can affect returns is if they are related to style factors. Since 2014, MSCI ESG scores have exhibited positive correlations to quality and low volatility factors which, all else equal, would contribute to higher expected returns. By construction, the E, S, and G signals measure or can help effect a real-world ESG outcome: firms with higher carbon-adjusted profits have, by definition, abnormally high earnings relative to the carbon they emit, geographical areas with higher CFPB complaints experience more consumers’ financial vulnerability, and greater board diversity may be an important signal of equality in and of itself …“ (p. 37/38). My comment: This research also shows that the divestment effect depends on the period chosen and taht stock price prediction is problematic. In my opinion, similar performance of sustainable and traditional investments clearly speaks for sustainable investments.

Quant ESG (2): ESG Return and Portfolio Attribution via Shapley Values by Andrew Ang, Debarshi Basu, and Marco Corsi as of April 3^rd, 2025 (#48): “… We show that over 2017 to 2024, Social and Governance scores contribute positively to the ESG portfolio outperforming the MSCI World Index, whereas Environmental scores detracted. Most of the realized active risk of the ESG portfolio is due to Environmental and Governance scores. There is very little contribution to performance, risk, and turnover from reducing carbon emission intensities” (p. 24/25).

Brown mortgage costs: From flood to fire: is physical climate risk taken into account in banks’ residential mortgage rates? by Adele Fontana, Barbara Jarmulska, Benedikt Scheid, Christopher Scheins, and Claudia Schwarz from the European Central Bank as of March 13^th, 2025 (#65): “Physical climate risks can have a large regional impact, which can influence mortgage loans’ credit risk and should be priced by the lenders. … We show that on average banks seem to demand a physical climate risk premium from mortgage borrowers and the premium has increased over recent years. … Banks that were identified as “adequately” considering climate risk in the credit risk management by the ECB Banking Supervision charge higher risk premia which have been increasing particularly after the publication of supervisory expectations. In contrast, the lack of risk premia of certain banks shows that ECB diagnostics in the Thematic Review on Climate were accurate in identifying the banks that need stronger supervisory focus” (abstract).

Other investment research

Implicit diversification: Reclassifying Investment Indexes Based on Sales and Earnings Instead of Legal Domicile by Erblin Ribari as of April 2^nd, 2025 (#21): “Based on two decades of financial and macroeconomic data, it challenges the common view of the S&P 500 as a purely domestic U.S. index, highlighting that around 45 percent of its constituent companies’ revenues come from international markets … the paper shows that the S&P 500 responds strongly to global economic factors“ (abstract).

Bitcoin speculation: The Optimal Long-term Portfolio Share of Bitcoin is Negative (or Zero) by Alistair Milne as of April 1^st, 2025 (#39): ” “Applying the standard Markovitz mean-variance framework to a two asset portfolio consisting of US stocks (S&P500) and Bitcoin (BTC) … With risk (variance and covariance) estimated using data from 02/14 to 02/25 and long-term returns based on standard efficient markets assumptions, the optimal portfolio share for Bitcoin-1.6% (full sample) and-7.3% (recent sample), regardless of investor preferences towards risk. Other studies of BTC in portfolio management report that a positive BTC portfolio share improves risk-return trade-offs. This difference is explained by their focus on short-term dynamic asset allocation strategies and the more recent data used here, exhibiting an increased +ve correlation between BTC and stock returns” (abstract).

Finance AI: Large Language Models in Equity Markets: Applications, Techniques, and Insights by Aakanksha Jadhav and Vishal Mirza as of April 9^th, 2025 (#18): “… This paper presents a comprehensive review of 84 research studies conducted between 2022 and early 2025, synthesizing the state of LLM applications in stock investing. … Our analysis identifies key research trends, commonalities, and divergences across studies, evaluating both their empirical contributions and methodological innovations. We highlight the strengths of existing research, such as improved sentiment extraction and the use of reinforcement learning to factor market feedback, alongside critical gaps in scalability, interpretability, and real-world validation. Finally, we propose directions for future research …“ (abstract).

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Werbung (in: Quant ESG)

Zum Vergleich: Ein traditioneller globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 5 %, ein diversifizierter Gesundheits-ETF 14 %, Artikel 9 Fonds 21%, liquide Impactfonds 39% und ein ETF für erneuerbare Energien 43 % (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!).

Green voting disaster: Researchpost 215

Green voting disaster:20x new research on biodiversity measures,climate catastrophes, hydrogen, brown tech, green and brown returns, green stamps, green reporting, GHG reporting issues, redundant ESG information, greenwashing definitions, green portfolio theory, governance scores, green ventures, green voting disaster, green fund deficit, fear, investment advice, alternatives and LLM overconfidence (#shows the number of full research paper downloads from SSRN as of Feb. 27^th, 2025)

Social and ecological research

2 biodiversity measures: Species metrics by Imène Ben Rejeb-Mzah, Nathalie Jaubert, Alexandre Vincent, and Zakaria Ajerame as of February 20^th, 2025 (#910): “This research paper investigates … two biodiversity measurements …: Rarity Weighted Richness (RWR) and Species Threat Abatement and Restoration (STAR). RWR measures the specific richness of an ecosystem by weighting species according to their rarity, emphasizing ecosystems rare species that are more vulnerable to environmental and human pressures. Conversely, STAR was designed to quantify the impact and contribution of actions to restore habitats and preserve rare and endangered species, as well as broader biodiversity …” (abstract).

Costly catastrophes: Going NUTS: the regional impact of extreme climate events over the medium term from the European Central Bank by Sehrish Usman, Guzmán González-Torres Fernández, and Miles Parker as of Dec. 11^th, 2024 (#91): “.. the impact of an extreme event may not only persist but can also intensify over time … Overall, four years after the event, output is 1.4 percentage points lower in regions affected by a heatwave, and 2.4 percentage points lower in regions affected by a drought. … adaptation capital is less productive than other types of capital in aggregate, total factor productivity falls. Moreover, we document the falling population in affected regions. To the extent that these impacts are more likely to occur in certain countries, there may well be migratory pressures within Europe itself … We also find evidence that economic activity may be higher following an extreme climate event, although this appears to be restricted to just one case: floods occurring in high-income regions. The destruction of capital leads to a period of reconstruction, including higher output and TFP, suggesting these regions are able to “build back better” and upgrade their capital“ (p. 31/32).

Costly hydrogen: Hydrogen in Renewable-Intensive Energy Systems: Path to Becoming a Cost-Effective and Efficient Storage Solution by Chunzi Qu, Rasmus Noss Bang, Leif Kristoffer Sandal, and Stein Ivar Steinshamn as of Jan. 13^th, 2025 (#20): “… reducing hydrogen costs to 12.5% of current levels and increasing round-trip efficiency to 70% could make it competitive. These are challenging targets but feasible given positive predictions on cost reduction and efficiency attainability currently. Hydrogen storage reduces total energy system costs by partly replacing lithium batteries to lower storage costs, due to its suitability for long-term storage, while increasing grid flexibility to lower transmission costs. Moreover, integrating hydrogen can decrease the share of nuclear and fossil fuels in the generation mix, reducing generation costs. Italy and Germany are identified as primary targets for hydrogen expansion in Europe. In scenarios of limited lithium supply, hydrogen becomes more competitive and essential to compensate for system storage capacity shortages, though it may not reduce total system costs” (abstract). My comment: No surprise that funds which have been relying heavily on hydrogen investments have had disappointing results so far.

ESG investment research (in: Green voting disaster)

Brown technology: ESG in Platform Markets by Stefan Buehler, Rachel Chen, Daniel Halbheer, and Helen S. Zeng as of Feb. 25th, 2025 (#17): “Platforms have radically transformed many markets. Initially perceived as the harbinger of a new economy, platforms today can no longer ignore their impact on the triple bottom line of profit, planet, and people …, as their adverse effects on the environment (e.g., massive energy consumption and carbon emissions) and society (e.g., misinformation, hate speech, discrimination, degradation of mental health, and privacy violations) become increasingly evident …. As a result, consumers, regulators, and even business leaders demand greater transparency along the environmental (E), social (S), and governance (G) pillars of a platform’s activities” (abstract). My comment: See why I do not invest in such patforms in my direct equity portfolios even though many ESG ETFs/funds are heavily invested in such stocks: Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog

Indirect ETS effects: Pricing Pollution: Asset-Pricing Implications of the EU Emissions Trading System by Joop Huij, Philip Stork, Dries Laurs, and Remco C.J. Zwinkels as of Feb. 20^th, 2025 (#48): “Our findings point towards a robust influence of carbon prices on stock prices starting from Phase II of the EU ETS in 2008. We find that the transmission of carbon prices to stock prices … also applies to non-European firms that are regulated to a lesser extent” (abtract).

Carbon market premium: Green and brown returns in a production economy from the European Central Bank by Ivan Jaccard, Thore Kockerols, and Yves Schüler as of Feb. 19^th, 2025 (#27): “Using a sample of green and brown European firms, we initially demonstrate that green companies have outperformed brown ones in recent times. Subsequently, we develop a production economy model in which brown firms acquire permits to emit carbon into the atmosphere. We find that the presence of a well-functioning carbon market could account for the green equity premium observed in our data“ (abstract).

Green stamp premium: The Value of Being Green: Assessing the Impact of Green Bond Issuance on Stock Prices of European Listed Companies by Radoslaw Pietrzyk, Sylwia Frydrych, Paweł Węgrzyn, and Krzysztof Biegun as of Feb. 19^th, 2025 (#22): “… generally, the issuance of green bonds does not result in a significant change in the stock prices of the issuing companies. … certified green bonds generally show a more favourable market perception with no significant change in stock prices. In contrast, non-certified green bonds are associated with a decline in the stock prices of the issuing companies“ (abstract).

Green reporting premium: Strategic Transparency: Impact of Early Sustainability Reporting on Financial Performance by Jose Antonio Muñiza, Charles Larkin, and Shaen Corbet as of Feb. 24^th, 2025 (#7): “… by analysing a sample of 2,857 publicly traded companies in the United States … results show a clear financial advantage for firms reporting sustainability information, with those reporting before the Paris Agreement experiencing significantly stronger financial performance than their non-reporting counterparts” (abstract).

Dubious GHG accounting? Corporate Carbon Accounting: Current Practices and Opportunities for Research by Gunther Glenk as of Feb. 24^th, 2025 (#43): “The common framework for determining and reporting corporate greenhouse gas (GHG) emissions today is the GHG Protocol. … Their design and implementation, however, often result in disclosures that obscure firms’ actual emissions and decarbonization progress“ (abstract).

Redundant ESG infos? From KPIs to ESG: Addressing Redundancy and Distortions in ESG Scores by Matteo Benuzzi, Özge Sahin, and Sandra Paterlini as of February 20^th, 2025 (#11): “We investigate the construction of Environmental, Social, and Governance (ESG) scores, focusing on Refinitiv’s (acquired by the London Stock Exchange Group) methodology. We uncover critical challenges, including the inflation of correlations caused by missing data imputation and redundancy among Key Performance Indicators (KPIs). … we demonstrate imputing missing values with zeros distorts relationships between KPIs. … Our findings reveal that a small subset of KPIs can closely replicate Refinitiv’s pillar scores, highlighting that many of the 180 KPIs used are redundant”. My comment: The detailed data which are assembled for ESG-scores should be interesting for many responsible investors, independent of the aggregation method.

Greenwashing definitions: How to enforce ‘greenwashing’ in the financial sector? By Veerle Colaert and Florence De Houwer as of Feb. 24^th, 2025 (#13): “National supervisors have … reported detecting only a limited number of instances of greenwashing, and formal enforcement decisions remain scarce. … We found that there is a plethora of definitions of “greenwashing” in the financial sector …. Those definitions differ in terms of their material scope of application (environmental claims versus any sustainability-related claims), their personal scope of application (certain financial market participants versus all market participants), the objective standard against which greenwashing should be measured (basic environmental or sustainability standards versus prior claims made by the greenwashing entity), the subjective state of the greenwasher (is “intent” relevant or not), the scope of resulting damage (consumer/investor detriment versus unfair competition), and the question whether greenbleaching is deemed an instance of greenwashing. None of those definitions are, however, legally binding” (abstract). My comment: I suggest to use activity-based net SDG-aligned revenues to find sustainable funds and greenwashing, see SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Responsible Investment Research Blog

Green portfolio theory: Advancing sustainable portfolio selection: Insights from a structured literature review by Sofia Baiocco as of Feb. 19^th, 2025 (#11): “The purpose of this paper is to rigorously analyze the current state of empirical research on sustainable portfolio selection … From an initial pool of 757 papers … we applied a six-step screening procedure resulting in a final sample of 44 high-quality articles addressing the topic. .. these papers revealed two main methodological streams: the first extends Markowitz’s (1952) portfolio selection theory by incorporating sustainability as an additional criterion; the second uses multi-criteria decision-making (MCDM) methodologies to balance returns, risks, and sustainability objectives. The prevalence of MCDM methods underscores their value in accommodating investor preferences … several challenges need to be addressed, including the inconsistency of ESG data, the complexity of calculation methodologies, and the risk of greenwashing, all of which can undermine portfolio performance and the applicability of these models” (abstract). My comment: I have made very good experiences with passive forecast-free allocations, see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf

Governance confusion: The G in ESG: How good are the governance ratings in ESG ratings? by Kornelia Fabisik as of Feb. 26^th, 2025 (#37): “I examine the governance ratings’ ability to provide useful information to shareholders. My results not only suggest rather limited success in predicting relevant firm outcomes (such as financial-statement restatements, governance incidents, class action law suits, operating performance, firm value, stock returns, and credit ratings), but in the case of most raters, I identify multiple instances of counterintuitive results, that is, with the opposite direction of the effect” (abstract).

SDG and impact investment research

Green voting disaster: Voting Matters 2024 Are asset managers using their proxy votes for action on environmental and social issues? by Danielle Vrublevskis, Felix Nagrawala, and Lia Viasilikiotis from Share Action as of Feb. 18^th, 2025: “Support for shareholder resolutions has hit an all-time low, driven by the voting behaviour of large US asset managers … Asset managers are not voting in line with commitments they have made to net-zero or as part of Climate Action 100+ … Asset managers are increasingly ignoring urgent environmental and social issues … Our first ever analysis of votes on management items shows asset managers fail to use these votes to hold some of the largest companies in the world accountable …” (p. 10/111). My comment: I now use this study to exclude ETF issuers and fund managers of the bottom half of the participants in this study, e.g. Blackrock.

Green venture premium? When does it pay to be green for startups? Sustainability signaling and venture funding by Markus Koenigsmarck, Martin Geissdoerfer, and Dirk Schiereck as of Feb. 24^th, 2025 (#8): „… on a dataset of 27,000 startups … We find a robust U-shaped connection sustainability signaling and venture funding, with the most and least sustainable startups attracting more funding than their peers. This pattern is persistent for just-green and just-brown subsamples …” (abstract).

Missing green funds? Green Finances: Young Adults and Climate Change by Danielle Kent, William Beckwith, Syed Shah, and Robert Wood as of Dec. 4^th, 2024 (#51): “… while the environment is very important to them, young adults struggle to believe their individual actions can make a difference. They want government and large corporations, particularly banks, to take more action towards sustainability. … Most participants wanted to adopt solar panels and electric vehicles, but the required investment was beyond their reach. Our findings highlight that more financial product innovations offering incremental sustainability investment opportunities, that do not require property ownership, are needed to reduce the financial hurdles to sustainability action for young people …” (abstract). My comment: Look at my fund (see “Werbung” below).

Other investment research (in: Green voting disaster)

Fear beats risk: Fear, Not Risk, Explains Asset Pricing by Rob Arnott and Edward F. McQuarrie as of Feb. 7^th, 2025 (#816): “Risk theory has dominated the asset pricing literature since the 1960s. We chronicle empirical failures of risk theory in its prediction of the excess return on equities, to lay the groundwork for a complementary framework, investor-focused rather than asset-focused, and centered on fear rather than objective measures of risk. A fear premium puts fear of missing out on a par with fear of loss. Most anomalies and factors of the past half-century would have been expected, given a fear-based model for returns. The new paradigm is offered as a starting point to advance investment science” (abstract).

Convincing advice? Financial Advice and Investor Beliefs: Experimental Evidence on Active vs. Passive Strategies by Antoinette Schoar and Yang Sun as of Oct. 23^rd, 2024 (#278): “… we test how retail investors assess and update their priors based on different types of financial advice, which either aligns with their priors or goes against it. We compare advice that emphasizes either the benefits of passive investment strategies (such as diversification and low fees) or active strategies (such as stock picking and market timing). We find that participants rate advice significantly higher when it aligns with their priors rather than contradicts them. But people update their beliefs about investment strategies in the direction of the advice they receive, independent of their priors. At the same time, there is significant heterogeneity based on the subjects‘ financial literacy. Financially more literate subjects positively update in response to seeing passive advice, but most do not update (and rate the advice negatively) when exposed to active advice. In contrast, financially less literate subjects are strongly influenced by both types of advice. Finally, we show that subjects rate the advice lower if the advisor is perceived to have misaligned incentives (the advisor in the video mentions receiving commission-based pay) compared to when it is more aligned (advisor receives flat fee)” (abstract). My comment: No wonder that it is very difficult to sell active funds whereas active ETFs are booming

Costly alternatives: What is the Future of Alternative Investing? by Richard M. Ennis as of Feb. 20^th, 2025 (#347): “Alternative investments, or alts, cost too much to be a fixture of institutional investing. A diverse portfolio of alts costs at least 3% to 4% of asset value, annually. Institutional expense ratios are 1% to 3% of asset value, depending on the extent of their alts allocation. Alts bring extraordinary costs but ordinary returns — namely, those of the underlying equity and fixed income assets. Alts have had a significantly adverse impact on the performance of institutional investors since the GFC. Private market real estate and hedge funds have been standout under-performers. Agency problems and weak governance have helped sustain alts-investing. CIOs and consultant advisors, who develop and implement investment strategy, have an incentive to favor complex investment programs. They also design the benchmarks used to evaluate performance …” (abstract). My comment: Maybe private debt and private equity investments are not the best way to generate positive impact and risk-adjusted returns

LLM Overconfidence: How Much Should We Trust Large Language Model-Based Measures for Accounting and Finance Research? by Minji Yoo as of Nov. 4^th, 2024 (#565): “Researchers often ask ChatGPT to provide confidence levels for its predictions, using these scores to measure the likelihood that a sample is correctly labeled. … Experiments using ChatGPT on financial sentiment analysis reveal a substantial 38–43% gap between average accuracy and self-reported confidence under popular prompts … a fine-tuning approach that retrieves probability estimates directly from the model nearly eliminates overconfidence … smaller, non-generative LLMs, such as RoBERTa, show no overconfidence and outperform prompted ChatGPT in both calibration and failure prediction when fine-tuned. Finally, this paper highlights how empirical analyses can be affected by the methods used to obtain confidence scores” (abstract).

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Werbung (in: Green voting disaster)

Zum Vergleich: Ein Gesundheits-ETF hat eine netto SDG-Umsatzvereinbarkeit von 7%, Artikel 9 Fonds haben 21%, Impactfonds 38% und ein ETF für erneuerbare Energien 43% (vgl. SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Responsible Investment Research Blog).

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?).

Green impact? Researchpost 205

Green impact: 9x new research on the end of oil, biodiversity stress and neighbor risks, high greenwashing costs, bad climate solution returns, green patent disappointments, venture impact and there is no passive investing (# shows the number of SSRN full paper downloads as of Dec. 5^th, 2024)

Nachhaltigkeits- und Investmentforschung aus Impact Investing Insights 2024 von Dirk Söhnholz vom 3. Dezember 2024: „In diesem Beitrag geht es vor allem um die Frage, wie man neue wissenschaftliche Forschung findet, die für die eigene Geldanlage relevant sein kann. Der Fokus liegt dabei auf nachhaltigkeitsbezogenem Research … wer sich nicht auf meine (Sö: Research-=Posts verlassen möchte, kann mit Hilfe dieses Beitrags selbst für sich relevante wissenschaftlich Forschung finden. Damit gibt es keine guten Ausreden mehr, wissenschaftliches Research zu vernachlässigen“ (S. 12/13).

Social and Ecological Research

Winning green paradox? The End of Oil by Ryan Kellogg as of Dec. 2^nd, 2024 (#12): “It is now plausible to envision scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption of stringent climate policies, or both. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is the well-known “green paradox”: because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers‘ investment rates, decreasing near-term oil production and CO2 emissions. … I develop a tractable model of global oil supply that incorporates both effects … I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox. In order for anticipation effects on net to substantially increase cumulative global oil extraction, I find that industry investments must have short time horizons, and that producers must have discount rates that are comparable to U.S. treasury bill rates” (abstract).

ESG investment research (in: Green impact)

Low biodiversity risk? A Biodiversity Stress Test of the Financial System by Sophia Arlt, Tobias Berg, Xander Hut and Daniel Streitz as of Dec. 3^rd, 2024 (#25): “Our study provides a comprehensive assessment of the European financial system’s exposure to biodiversity-related transition risk, alongside a comparative analysis with climate-related transition risk. … we find that while a non-negligible share of bank credit is linked to industries exposed to biodiversity transition risk (approximately 15% of total credit to non-financial firms), the overall financial system impact appears moderate. The bottom-up stress test indicates that even under severe stress scenarios, the additional losses from biodiversity risks are estimated at only 0.3 to 0.5% of the total non-financial corporate loan portfolio. … the capital shortfall associated with a severe shock to the biodiversity risk factor would only amount to about 0.5% of banks’ market capitalization“ (p. 23).

High biodiversity risk? Double Materiality of Biodiversity-related Risks: From Direct to Supply Chain Portfolio Assessment by Anthony Schrapffer, Jaime Andres Riano Sanchez, and Julia Bres as of Dec. 3^rd, 2024 (#32):“42.7% (resp. 31.4%) of a portfolio based on the Stoxx 600 has a strong or very strong direct (resp. indirect) dependency on biodiversity and that 59.9% (resp. 44.64%) has a strong or very strong direct (resp. indirect) impact on biodiversity. … The integrated oil and gas, clothing and electricity sectors are particularly sensitive as they have both a very high dependency and a very high negative impact on biodiversity“ (abstract).

Dangerous neighbors? Proximity Peril: The Effects of Neighboring Firms’ Biodiversity Risk on Firm Value by Chenhao Guo and Rui Zhong as of Nov. 13^th, 2024 (#56): “Since geographically proximate firms operate in local biosphere and rely on common ecosystem services, a focal firm value might be affected by proximate firms’ biodiversity risk. … We find that one standard-deviation increase in neighboring firm’s biodiversity risk measure is associated with about 3.78% decline in the corresponding focal firm’s value on average. Using the Deepwater Horizon oil spill in 2010 as an exogenous shock, we establish a causal relationship. … we find that proximate firm’s biodiversity risk leads to significant declines in sector-wide and long-run value components. Further analysis shows that the negative effects are more pronounced in industries with high biodiversity risk or when firms are connected through supply chains …” (abstract).

High cleanwashing costs: Greenwashing: Measurement and Implications by Qiyang He, Ben R. Marshall, Justin Hung Nguyen, Nhut H. Nguyen, Buhui Qiu, and Nuttawat Visaltanachoti as of Dec. 3^rd, 2024 (#102): “This study employs earnings conference call transcripts and a specialized machine learning model, FinBERT, to measure greenwashing intensity for a broad sample of U.S. public-listed firms spanning the 2007-2021 sample period. … First, we observe that the economy-wide aggregate GW measure markedly increased after the 2015 Paris Agreement. Second, we find that the utility industry has the highest level of GW intensity among all industries. Third, we … find that relative to other firms, firms in the fossil fuel industry or the broader stranded asset industries, experienced a significant increase in greenwashing intensity after the Paris Agreement. Fourth, we find that firms with higher greenwashing intensity incur a greater amount of future environmental incidents, experience a higher amount of future EPA enforcement actions, and have higher future carbon emissions. Fifth, despite their higher likelihood of experiencing future environmental incidents and EPA enforcement, we find no evidence that GW firms produce more green innovation than other firms. … Our findings indicate that GW is associated with lower cumulative abnormal stock returns after earnings conference calls and predicts poorer future corporate operating performance. … we … document that firms with greater GW intensity tend to receive higher future environmental ratings from different rating companies. … after the Paris Accord, there is a positive relation between GW and top executives’ future job security. … greenwashing firms are more likely to link their CEO pay with corporate environmental performance in their compensation contracts. These findings suggest an agency explanation for greenwashing: managers engage in greenwashing to increase their job security and compensation, at the expense of shareholders and other stakeholders“ (p. 37/38). My comment: With my focus on high SDG-aligned revenues, high best-in-class instead of best-in-universe E, S an G Scores and my engagement focus on the CEO to average employee pay ration instead of the introduction of ESG-linked compensation I think that I am rather well protected against greenwashing of my portfolio companies.

SDG investment research

Climate hedges: Climate Solutions, Transition Risk, and Stock Returns by Shirley Lu, Edward J. Riedl, Simon Xu, and George Serafeim as of Nov. 21^st, 2024 (#112): “A long-short portfolio constructed from firms with high versus low climate solutions within an industry group generates an average excess return of-5.37% per year from 2005 to 2023” (p. 34). … “… we find that high-climate solution firms exhibit lower stock returns and higher market valuation multiples. Their stock prices respond positively to events signaling increased demand for climate solutions. These firms also show higher future profitability during periods of regulatory uncertainty, unexpected increases in climate concerns, and when a larger share of their sales occurs in states with climate plans and stronger public support for addressing climate change. Overall, our results indicate that high-climate solution firms, whose business benefits as climate transition risks materialize, hedge investors against such risks”. My comment: Maybe it is good, that most investors cannot go short climate stocks. And remember: Past returns may not be a good indicator of future returns. My experience with climate-solution investments is rather positive.

No patent green impact? Green Innovations – Do patents pay off for the environment or for the investors? by Malte Schlosser, Ester Trutwin and Thorsten Hens as of Feb. 28^th, 2024 (#271): “An examination of WIPO (Sö: World Intellectual Property Organization) patent data in conjunction with MSCI data reveals that companies with relatively more new green patents are those with less carbon emissions … Our analysis indicates that the firm’s green patent ratio does not contribute to an improved ESG score. However, we find evidence that the number of green patents within the last 240 months results in a better E, and industry adjusted ESG score. … While all patent strategies are underperforming the market, they tend to outperform or produce similar returns compared to the environmental and ESG strategies“ (p. 24/25).

Venture capital green impact? Impact Investment Funds by Alan S. Gutterman as of Sept. 16^th, 2024 (#37): “This Work begins with an overview of the “impact startup” financial market .. The Work then dives into the practical “nuts and bolts” of practicing impact venture capital including the structure of impact investment funds and the steps that fund managers need to take to effectively “organize for impact” and the fundraising process for capitalizing the fund including due diligence, preparation and use of offering documents and negotiation of terms of the fund’s limited partnership or operating agreement. … The Work closes with a review of some of the challenges that must be overcome for the impact venture capital sector to fulfill its promise as important contributor to developing and implementing innovative and financially viable solutions to achieve society’s aspirations for sustainable development and progress” (p. 1).

Other investment research (in: Green impact)

No passive investing? Casting a Wide Net: Why True Passive Strategies Are Rare Catches by Alejandro Gaba, Jennifer Bender, Yvette Murphy, and John Tucker State Street Global Advisors from State Street Global Advisors as of Sept. 23^rd, 2024 (#67): “With the rapid expansion of index funds, including smart beta and factor portfolios, what is active versus what is passive has become difficult to discern. Here we argue that only the theoretical market portfolio is “purely” passive and in practice only index portfolios that track broad market cap weighted indices (“passive-adjacent”) can be viewed as passive investing. Everything else is active. However, everything that is active lies on a spectrum and can be evaluated based on a framework we call “Conceptual Activeness.” We discuss three key parts of Conceptual Activeness – Simplicity, Transparency, and Acceptance …”. My comment: I miss a discussion of Multi-Asset Portfolios which are even less passive than equity portfolios, see Multi-Asset Benchmarks: Gibts nicht, will keiner. Oder doch? – Responsible Investment Research Blog. All my portfolios are rather simple, transparent but – unfortunately – not widely accepted (see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf).

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Werbung (in: Green impact)

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich außerordentlich hohen 95% SDG-vereinbaren Umsätzen der Portfoliounternehmen und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement bei derzeit 29 von 30 Unternehmen (siehe auch My fund).

Wrong ESG compensation? Researchpost 196

Wrong ESG compensation: 10x new research on new toxics, climate target ambitions, financial analysts and climate topics, new ESG regulation effect on investments, ESG compensation governance deficits, ESG compensation outcome deficits, costly custom indices, unattractive private capital investments, gender-typical investment problems, and AI for retirement planning

ESG research

New toxics: Novel Entities – A financial time bomb by Planet Tracker as of Oct. 1^st, 2024: “There are hundreds of thousands of novel entities – toxic substances created by humans and released into the environment that may be disruptive to the planet – travelling through the global economy. … most novel entities have not undergone safety assessments or information on those are protected or not shared. … Evaluating novel entities after they have been created and released is not acceptable. … Novel entities are often viewed by investors and lenders as technological progress adding to revenue and earnings potential. Novel entities are a source of significant litigation risk. Novel entities produced decades ago can still cause significant financial downside to companies today and in the future” (p. 5).

Intrinsic climate success: Raising the bar: What determines the ambition level of corporate climate targets? by Clara Privato, Matthew P. Johnson, and Timo Busch as of Sept. 9^th, 2024: “Since the launch of the Science Based Targets initiative (SBTi), we have witnessed a steady increase in the number of companies committing to climate targets for large-scale reduction of greenhouse gas (GHG) emissions. … a two-stage qualitative study is conducted with a sample of 22 companies from five countries. … Within companies with highly ambitious climate targets, the findings indicate that certain factors are highly present, including leadership engagement, continual management support, employee involvement, participation in climate initiatives, and stakeholder collaboration. Conversely, none of these key factors are highly present in companies with less ambitious climate targets. Rather, these companies strongly identify the initiating factors of market-related pressures and non-market stakeholder influence as being the driving forces behind their target setting“ (abstract).

Climate analysts? Climate Value and Values Discovery by Zacharias Sautner, Laurence van Lent, Grigory Vilkov, and Ruishen Zhang as of July 24^th, 2024 (#953): “Analyzing more than 310,000 earnings calls spanning two decades … the interest of analysts in “green topics ” is situational, reflecting market demands rather than persistent individual traits. Trading volume around earnings announcements is positively associated with the degree of climate discussions on earnings calls. … we find correlations between an analyst’s profile in earnings calls and career trajectories, with climate-centric analysts, particularly those focusing on value, experiencing better job opportunities. Climate analysts use voice, not exit, to ask (brown) firms to change“ (p. 25/26).

Regulation-driven divestments: Triggering a Divestment Wave? How ESMA’s Guidelines on ESG Fund Names Affect Fund Portfolios and Stocks by Stefan Jacob, Pauline Vitzthum, and Marco Wilkens as of Sept. 12^th, 2024 (#58): “This paper examines the impact of the European Securities and Markets Authority’s (ESMA) Guidelines on funds’ names using ESG-related terms. These guidelines define clear exclusion criteria for sustainability-named funds. We examine the extent to which funds will be required to exclude non-compliant stocks, resulting in substantial divestments, particularly from firms with fossil fuel involvements. The enforcement of these guidelines is expected to significantly decarbonize the portfolios of sustainability-named funds, while at the same time triggering unprecedented selling pressure on certain stocks“ (abstract).

Wrong ESG compensation (1): ESG Overperformance? Assessing the Use of ESG Targets in Executive Compensation Plans by Adam B. Badawi and Robert Bartlett as of Sept. 10^th, 2024 (#366): “The practice of linking executive compensation to ESG performance has recently become more prevalent in US public companies. In this paper, we document the extent of this practice within S&P 500 firms during the 2023 proxy season … We find that 315 of these firms (63.0%) include an ESG component in their executives’ compensation and that the vast majority of these incentives are part of the annual incentive plan (AIA) … While executives miss all of their financial targets 22% of the time in our sample, we show that this outcome is exceptionally rare for ESG-based compensation. Only 6 of 247 (2%) firms that disclose an ESG performance incentive report missing all of the ESG targets. We ask whether the ESG overperformance that we observe is associated with exceptional ESG outcomes or, instead, is related to governance deficiencies. Our findings that meeting ESG-based targets is not associated with improvements in ESG scores and that the presence of ESG-linked compensation is associated with more opposition in say-on-pay votes provides support for the weak governance theory over the exceptional performance theory“ (abstract). My comment With my shareholder engagement I ask companies to publish the pay ratio between their CEO and the average employee. Thus, all stakeholders can monitor if ESG compensation increases this already typically critically high metric (which I fear), also see Wrong ESG bonus math? Content-Post #188 and Kontraproduktive ESG-Ziele für Führungskräfte? | CAPinside

Wrong ESG compensation (2)? Paychecks with a Purpose: Evaluating the Effectiveness of CEO Equity and Cash Compensation for the Triple Bottom Line by Dennis Bams, Frederique Bouwman, and Bart Frijns as of Oct. 2^nd, 2024 (#4): “We find that CEOs are more inclined to opt for a CSR strategy emphasizing Environmental Outcomes when they receive a larger proportion of their compensation in cash. … additional tests show that intentions have no predictive power for outcomes. … While the proportion of option compensation is beneficial for a CSR strategy that focuses on outcomes, the proportion of stock compensation motivates a focus on intentions. … In conclusion, our study shows that the prevailing approach of compensation packages focusing on equity compensation does not promote the triple bottom line principle.

Other investment research (in: Wrong ESG compensation)

Index illusion: Index Disruption: The Promise and Pitfalls of Self-Indexed ETFs by Bige Kahraman, Sida Li, and Anthony Limburg as of Sept. 27^th, 2024 (#42): “The market for index providers is a concentrated market where the five largest providers serve approximately 95 percent of the market. … An increasing number of ETF issuers are creating proprietary indices in-house to avoid paying fees to third party index providers. In this paper, we … find that self-index funds offer higher, not lower, fees to their customers. To explain this, we suggest two hypotheses, one based on product differentiation and the other one based on conflicts of interest. Our results support the latter“ (p. 22). My comment: There are many (sustainability policy) reasons for custom portfolios but these portfolios should not be more expensive (see e.g. my direct SDG indexing options)

Private capital alpha illusion: The Private Capital Alpha by Gregory Brown, Andrei S. Goncalves, and Wendy Hu as of Sept. 25^th, 2024 (#368): “We combine a large sample of 5,028 U.S. buyout, venture capital, and real estate funds from 1987 to 2022 to estimate the alphas of private capital asset classes under realistic simulations that account for the illiquidity and underdiversification in private markets as well as the portfolio allocation of typical limited partners. We find that buyout as an asset class has provided a positive and statistically significant alpha during our sample period. In contrast, over our sample period, the venture capital alpha was positive but statistically unreliable and the real estate alpha was, if anything, negative“ (p. 31). My comment: Most investors use gatekeepers of funds of funds to invest in private capital and after those costs even buyout alpha may be negligible”.

Lower-risk women: How Gender Differences and Behavioral Traits matter in Financial Decision-Making? Insights from Experimental and Survey Data by Giuseppe Attanasi, Simona Cicognani, Paola Paiardini, and Maria Luigia Signore as of Feb. 3^rd, 2024 (#112): “… Our research suggests that gender alone does not exclusively determine diverse behavioral and investment choices. Instead, it is the context in which these choices are elicited that plays a crucial role. …(but) female investors consistently demonstrated a lower likelihood of engaging in investment activities across the financial domains of risk and ambiguity. … a tendency to invest less in risky financial assets limits the potential for accumulating greater wealth over time “ (p. 30).

Financial AI? Can ChatGPT Plan Your Retirement?: Generative AI and Financial Advice by Andrew W. Lo and Jillian Ross as of Sept. 4^th, 2024 (#896): “… We focus on three challenges facing most LLM applications: domain-specific expertise and the ability to tailor that expertise to a user’s unique situation, trustworthiness and adherence to the user’s moral and ethical standards, and conformity to regulatory guidelines and oversight. … we focus on the narrow context of financial advice … Our goal is not to provide solutions to these challenges … but to propose a framework and road map for solving them as part of a larger research agenda for improving generative AI in any application” (abstract).

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Werbehinweis

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung (aktuell durchschnittlich außerordentlich hohe 97% SDG-vereinbare Umsätze der Portfoliounternehmen: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen (siehe auch My fund).

ESG disclosure benefits: Researchpost 193

ESG disclosure benefits: 14x new research on climate, water and ESG disclosure and litigation effects, World Bank greenwashing, pollution exports, green shows, ESG outperformance, emission credit risks, green bond and green fund benefits, low SDG alignments, financial LLMs, and degrowth theory problems by Heiko Bailer, Thorsten Hens, Stefan Ruenzi and many more (#shows number of SSRN full paper downloads as of Sept. 12^th, 2024)

Ecological and social research

Green disclosure meta-study (ESG disclosure benefits 1): The Economic Consequences of Climate Risk Disclosures by Meena Subedi and Emily Zoet as of June 7^th, 2024 (#56): “… this study provides stakeholders with a thorough analysis of the economic effects of climate risk disclosures, reveals emerging trends, and identifies future research opportunities in this area. … Prior studies find mixed results regarding the positive or negative effects of climate risk and suggest disclosure of climate action may mitigate the penalties associated with climate risk. … Additionally, we compare the theoretical frameworks used in prior studies. We identify the predominant theories and their distinct assumptions and focus, providing insight for future researchers to refer to in their climate disclosure studies” (p. 34).

Good water disclosure (ESG disclosure benefits 2): Self-regulation and self-presentation in sustainability reporting: Evidence from firms’ voluntary water disclosure by Siwen Liu and Hans van der Heijden as of June 6^th, 2024 (#68): “This study focuses on water disclosure, a key dimension of sustainability reporting, which, despite the importance of water, has received relatively little theoretical and empirical attention. … we document supportive evidence for the positive relations between voluntary water disclosure and several self-regulation mechanisms such as policies and actions on water efficiency and emission reductions. … We find that firms with high water efficiency are more likely to disclose water information in the global water survey to proactively showcase their good water performance to key stakeholders …“ (abstract).

Flight from ESG disclosures (ESG disclosure benefits 3): Behind the Corporate Veil: How Business Groups Arbitrage ESG Disclosure Mandates by Stefano Cascino and Maria Correia as of Sept. 9^th, 2024 (#32): “… we demonstrate that, while improving their own ESG performance at the headquarter-country level, business group parents actively shift irresponsible ESG activities down the corporate structure. Specifically, we document that subsidiaries of parents subject to disclosure mandates experience an increase in the occurrence and frequency of ESG incidents, particularly in countries where weaker institutions make stakeholder monitoring more challenging. Moreover, we find that, in response to the introduction of ESG disclosure mandates, parent companies streamline their group structures by tightening control over more integrated subsidiaries and divesting from those that are more peripheral“ (abstract).

ESG litigation opportunities: The Effect of Expected Shareholder Litigation on Corporate ESG Reporting: Evidence from a Quasi-Natural Experiment by Lijun (Gillian) Lei, Sydney Qing Shu, and Wayne Thomas as of June 19^th, 2024 (#112): “… the Morrison ruling by the U.S. Supreme Court … creates a plausibly exogenous shock (i.e., reduction) to expected shareholder litigation costs for U.S.-cross-listed foreign firms … Our primary result is that after Morrison, U.S.-cross-listed foreign firms increase their use of optimistic words in ESG reports. … We also find a decline in the relative likelihood of issuing an ESG report after Morrison … we also show that U.S.-cross-listed foreign firms are less likely to purchase external assurance or adopt GRI guidelines in preparation of their ESG reports in the post-Morrison period. … Overall, the results are consistent with a reduction in expected shareholder litigation costs decreasing the quality of ESG reporting“ (p. 35/36).

Greenwashing World Bank? How Has the World Bank’s Climate Finance Changed After the Paris Agreement? by Ayse Kaya and Asli Leblebicioglu as of Sept. 5^th, 2024 (#17): “Utilizing a novel dataset of more than 2700 projects spanning 2010-2021, this study investigates the shifts in the World Bank (WB)’s climate finance from pre- to post-Paris Agreement. … We show that although WB’s reported climate finance has quadrupled in this period, this increase primarily comes from “mixed projects” that combine mitigation or adaptation goals with other aims. For most projects, these other goals constitute projects’ larger share, and they also increasingly encompass general capacity strengthening as opposed to climate-adjacent aims. Conversely, projects solely dedicated to mitigation or adaptation have declined. … Overall, the spectacular quantitative increase in WB’s post-Paris climate finance may not be as qualitatively impressive“ (abstract). My comment: For my ESG ETF-Portfolios I will continue to use Multinational Development Bank Bonds instead of Government Bonds because I still think that the former have more positive potential impact than the latter

Pollution export: Exporting Carbon Emissions? Evidence from Space by Santanu Kundu and Stefan Ruenzi as of Sept. 5^th, 2024 (#32): “Our study based on the cement and steel industry shows that the price increase of carbon in the EU ETS (Sö: Emission Trading System) after 2017 is associated with emissions leakage to facilities in locations outside the EU. Not surprisingly, emissions are mainly leaked to pollution havens. … We find that mainly constrained firms, firms headquartered in countries with more developed financial markets as well as firms headquartered in civil law countries engage in carbon leakage. At the same time, our effects are stronger for private than for listed firms at the extensive margin. Firms affected by the EU-ETS not only leak more production to facilities outside the EU, they are also more likely to acquire more new facilities outside the EU“ (p. 31/32).

Green show beats impact: Impact, Inspiration, or Image: On the Trade-Offs in Pro-Environmental Behaviors by Raisa Sherif and Sven Arne Simon as of Sept. 4^th, 2024 (#96): “… We find that some individuals are willing to give up environmental impact for both social image concerns and role model aspirations, with the latter having a stronger effect. However, the crowding out is not perfect” (p. 25).

ESG and SDG investment research (in: ESG disclosure benefits)

ESG outperformance drivers: Charting New Frontiers: The S&P 500® ESG Index’s Outperformance of the S&P 500 by May Beyhan from S&P Dow Jones Indices as of Sept. 6^th, 2024: “Since its inception more than five years ago, the S&P 500 ESG Index had a tracking error of 1.33% and outperformed the S&P 500 by 1.62% on an annualized excess total return basis. … The performance of the S&P 500 ESG Index was … driven by an array of factors, such as seeking the best ESG-scoring constituents with medium ESG momentum scores, and selecting constituents with high Human Capital Development and Talent Attraction & Retention scores, while also avoiding the worst ESG-scoring constituents with high ESG momentum scores” (p. 12). My comment: My experience with ESG portfolios has been positive, too, although I exclude the “magnificient 7”, see Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)

Lower emissions and credit risks: Linking Climate Risk to Credit Risk: Evidence from Sectorial Analysis by Mohamad H. Shahrour, Mohamed Arouri, and Sandeep Rao as of April 24^th, 2024 (#86): “Using yearly data on the S&P 500, we first document that an increase in firms’ commitment towards reducing environmental emissions is associated with a lower credit risk (measured by credit ratings, and alternatively, distance-to-default). … While the majority of sectors experience a negative relationship, we find a positive relationship in the Industrials sector. Furthermore, we examine the direction of causality between carbon emissions and credit risk. Our results establish that the direction of causality is from carbon emissions to credit risk“ (p. 16).

Green bond advantages: Green Bonds in Banking: Do They Improve Loan Portfolio Quality and Funding Costs? by Egidio Palmieri, Maurizio Polato, and Josanco Floreani as of Sept. 9^th, 2024 (#8): “… banks issuing green bonds with high environmental performance exhibit an improvement in loan portfolio quality … Furthermore, the interaction with the governance pillar indicates that banks issuing green bonds experience a reduction in the cost of funding … showing that strong governance significantly contributes to lower funding costs” (p. 6).

Lower sustainability risks: Climate Risk Exposure: A Comparative Analysis of Sustainable and Conventional Funds by Camille Baily and Jean-Yves Gnabo as of Sept. 6^th, 2024 (#12): “We … investigate climate risk exposure in the U.S. mutual fund industry … using a large dataset of 3,140 mutual funds from 2013 to 2021. Using a conditional Value-at-Risk approach—CoVaR, we measure individual fund exposure to climate risks. We find that, on average, fund VaR is affected by climate risks when we control for other risk factors, suggesting that climate risks are spreading to U.S. mutual funds. Yet, we show that sustainable funds, as identified by the Morningstar metric, are significantly less exposed to climate risks than their conventional peers, even when we control for other fund characteristics“ (abstract). “Our results indicate that climate risk exposure is almost 50% lower for an average sustainable fund, compared to its conventional counterpart” (p. 31). My comment: In my most recent report for the fund which I advise I showed that “a traditional global small-cap ETF has a Weighted Average Carbon (Scope 1 + 2) Intensity of 313 instead of 32 for the fund” (see Monatsreport).

25% SDG-Alignment? PAB & CTB: Sustainability 2.0 by Heiko Bailer as of Sept. 6^th, 2024 (#27) “This paper investigates the MSCI World and Europe Paris-Aligned Benchmarks (PAB) and Climate Transition Benchmarks (CTB), focusing on refining these indices by incorporating additional sustainable constraints and tilting them towards better alignment with the United Nations Sustainable Development Goals (SDGs). … For instance, the sustainable revenue component of the indices was increased from a baseline of 13- 15% to 25%, while the temperature targets were reduced from approximately 2°C to 1.7°C. These enhancements were achieved with minimal negative impact on financial performance, and in some cases, such as the Europe CTB, even resulted in performance gains. … Further adjustments involved tilting the indices towards higher SDGs, which provided additional alignment with UN sustainability goals without negative performance trade-offs. The analysis revealed a substantial difference in SDG scores between the World and Europe indices, with Europe’s SDG alignment being more than double that of the World indices“ (p.11/12). My comment: In my most recent fund report I write: “The net SDG revenue alignment reported by the data provider for the fund is very high at 93%. … By way of comparison, a traditional global small-cap ETF has an SDG revenue alignment of 5 %” (see Monatsreport).

Other investment research (in: ESG disclosure benefits)

Financial LLM deficits: How good are LLMs in risk profiling? by Thorsten Hens and Trine Nordlie as of Aug. 25^th, 2024 (#113): “This study asked “How do ChatGPT and Bard categorize investor risk profiles compared to financial advisors?” For half of the clients the study revealed no statistically significant differences in the risk scores assigned by ChatGPT and Bard compared to those assigned by bankers. Moreover, on average, the differences had minor economic relevance. However … their reasoning … many times missed the specific characteristics of the clients“ (p. 9).

Degrowth deficits: Reviewing studies of degrowth: Are claims matched by data, methods and policy analysis? by Ivan Savin and Jeroen van den Bergh as of August 2024: “In the last decade many publications have appeared on degrowth as a strategy to confront environmental and social problems. … Based on a sample of 561 studies we conclude that: (1) content covers 11 main topics; (2) the large majority (almost 90%) of studies are opinions rather than analysis; (3) few studies use quantitative or qualitative data, and even fewer ones use formal modelling; (4) the first and second type tend to include small samples or focus on non-representative cases; (5) most studies offer ad hoc and subjective policy advice, lacking policy evaluation and integration with insights from the literature on environmental/climate policies; (6) of the few studies on public support, a majority concludes that degrowth strategies and policies are socially-politically infeasible; (7) various studies represent a “reverse causality” confusion, i.e. use the term degrowth not for a deliberate strategy but to denote economic decline (in GDP terms) resulting from exogenous factors or public policies; (8) few studies adopt a system-wide perspective – instead most focus on small, local cases without a clear implication for the economy as a whole“ (abstract).

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Capital-weighted Asset Allocation: Researchpost 191

Capital-weighted Asset Allocation: 9x new research on ESG disclosure profits, ESG credit risks, environmental versus social scores, developing country ESG, capital weighted asset allocation, asset allocation glidepaths, social media mania, robo advisor tuning, and venture biases (#shows the number of SSRN full paper downloads as of August 29^th, 2024)

ESG investment research

“Good bank” ESG risks: ESG Relevance in Credit Risk of Development Banks by Jan Porenta and Vasja Rant as of August 21^st, 2024 (#12): “… multilateral development banks exhibit elevated ESG risk relevance, primarily stemming from S risk and G risk. The mandate-oriented engagement of multilateral development banks in financing regions and countries marked by challenges such as deficient labor practices, human rights violations, inadequate supply chain oversight, and occasional insolvency issues may accentuate the relevance of social risk. Additionally, risks associated with the rule of law, institutional robustness, regulatory quality, and internal governance challenges could contribute to the heightened governance risk for multilateral development banks“ (p. 24). My comment: Instead of Government bond ETFs I use ETFs for multilateral development bank bonds since several years because they are much better SDG-aligned. Credit and other risks of these bonds have been satisfactory, so far.

Ecological or social? Return trade-offs between environmental and social pillars of ESG scores by Leyla Yusifzada, Igor Loncarski, Gergely Czupy and Helena Naffa as of Aug. 21^st, 2024 (#17): “We analyse the trade-offs between the environmental (E) and social (S) pillars of ESG scores and their implications for equity market performance using data from the MSCI All Country World Index (ACWI) over the period from 2013 to 2022. We find a persistent negative correlation between the E and S scores across most industries. For example, the correlation between E and S scores for the overall sample reached as low as -0.56 in 2018, indicating a significant inverse relationship where firms that excel in environmental performance often lag in social performance and vice versa“ (p. 9). My comment: Since 2016, I require high minimum standards for E, S and G scores at the same time to avoid too negative tradeoffs and I have been happy with the resulting ESG and financial performances

ESG disclosure profits: The Role of Catering Incentives in ESG Disclosure by King Fuei Lee from Schroder Investment Management as of June 12^th, 2024 (#16): “… The study examines 2,207 US-listed firms from 2005-2022, and finds a significant positive relationship between the ESG disclosure premium and firm ESG reporting. Managers respond to prevailing investor demand for ESG data by disclosing more when investors place a stock price premium on companies with high disclosure levels …” (abstract).

Developing ESG deficits: Are Developing Country Firms Facing a Downward Bias in ESG Scores? by Jairaj Gupta, R. Shruti, and Xia Li as of Aug. 26^th, 2024 (#31): “Using panel regression analysis on a comprehensive cross-country sample of 7,904 listed firms from 2002 to 2022 across 50 countries, we find that corporate ESG scores in developing economies are significantly lower – 57% lower for raw ESG scores and 23% lower for standardized ESG scores – than those in developed economies. Further analysis indicates that this disparity is linked to institutional bias and measurement issues within ESG scoring firms, stemming from information asymmetry. Our empirical evidence also suggests that ESG scoring firms can mitigate these information problems by incorporating analyst coverage and experience into their algorithms” (abstract). My comment: Companies in all (including developing) countries can and should provide high (ESG) transparency and then will receive appropriate ratings and ESG investments without such artificial rating adjustments

Other investment research (in: Capital-weighted Asset Allocation)

Capital-weighted Asset Allocation: The Risk and Reward of Investing by Ronald Doeswijk and Laurens Swinkels as of Aug. 28^th,2024 (#283): “This is the first study documenting the historical risks and rewards of the aggregate investor in global financial markets by studying monthly returns. Our sample period runs from January 1970 to December 2022. The breadth of asset classes in this study is unmatched as it basically covers all accessible financial investments of investors across the world. … Despite its diversification across all globally invested assets, the global market portfolio does not have the highest Sharpe ratio compared to the five asset categories over our 53-year sample period. Its Sharpe ratio is only slightly higher than that of equities broad, but lower than that of nongovernment bonds. However, … The stability of the Sharpe ratio over rolling decade samples is substantially greater than that of individual asset categories. In other words, confidence in a positive Sharpe ratio for the global market portfolio over a decade is highest. … If we adjust the average returns by drawdowns instead of volatility, the global market portfolio has the highest reward for risk, and the shortest maximum drawdown period. All of the results above have been measured in U.S. dollars. If we change the measurement currency to one of the nine other major currencies, we observe substantial heterogeneity in the risks and rewards of investing. … Overall, our new monthly data on the global market portfolio suggests that the aggregate investor has experienced considerable wealth losses compared to savers who earn a nominal risk-free interest rate. Such losses are usually recovered within five years, but recovery can take substantially longer“ (p. 20/21). My comment: I use such asset allocations since the start of my own company in 2015. I am still – to my knowledge – the only portfolio provider worldwide using it for all of its allocation portfolios. Overall, my experience is good, see the Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com) and recently Halbjahres-Renditen: Divergierende Nachhaltigkeitsperformances

Slippy asset allocation glidepaths: The Glidepath Confusion by Edward Hoyle from AHL Partners as of March 30^th, 2024 (#127): “The importance of glidepath choice can be overstated. If a pension saver held a balanced portfolio throughout working life, and then at retirement they find that their investment returns are in the left tail of outcomes, it is likely that they would be similarly placed had they chosen an alternative glidepath. Our examination of contrarian strategies confirmed their outperformance on average. As to their tail properties, we find that they are relatively favourable in historical simulations, but less favourable in bootstrapped simulations. This may clear up some apparent disagreement between previous studies. This also lends credence to the intuition that it is risky to be heavily invested in stocks over short horizons. However, this does not mean that stocks investments should be small as retirement approaches. Holding a balanced portfolio throughout working life and retirement seems entirely sensible if the plan is to generate retirement income by decumulation. In these situations no glidepath is needed“ (p. 18).

Social media mania? Social Media and Finance by J. Anthony Cookson, William Mullins, and Marina Niessner as of May 9^th, 2024 (#591): “Social media has become an integral part of the financial information environment, changing the way financial information is produced, consumed and distributed. This article surveys the financial social media literature, distinguishing between research using social media as a lens to shed light on more general financial behavior and research exploring the effects of social media on financial markets. We also review the social media data landscape“ (abstract).

Robo-advisor tuning: In Design and Humans we Trust“? – Drivers of Trust and Advice Discounting for Robo Advice by Claudia Breuer, Wolfgang Breuer, and Thomas Renerken as of April 16^th, 2024 (#38): “We compare the acceptance of advice in the context of robo-advised individual portfolio allocation decisions with respect to the impact of certain layout and questionnaire characteristics as well as the involvement of a human. Our data are based on incentivized experiments. The results show that a more emotional design of the advice software leads to a higher level of advice acceptance, whereas a detailed exploration questionnaire reduces the level of acceptance. The presence of a human influences trust levels significantly positive, but leads to a lower acceptance of advice in total“ (abstract).

Venture biases: Biases influencing venture capitalists’ decision-making: A systematic literature review by Moritz Sachs and Matthias Unbescheiden as of May 9^th,2023 (#44): “In recent years, researchers have demonstrated that venture capitalists are subject to various biases in their decision-making, but a systematic overview was absent. Our literature review revealed that 15 different biases can influence venture capitalist’s investments. For each of these biases, their effect on venture capitalists’ decisionmaking is explained. We contribute to the research on biased start-up investing by detailing the biases and their expected effects on venture capitalists. Our results will be useful for venture capitalists improving their decision-making” (abstract).

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Werbehinweis (in: Capital-weighted Asset Allocation)

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Smallcap-Investmentfonds (SFDR Art. 9, siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung (SDG: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen: Vgl. My fund.

Biodiversity finance and more: Researchpost #186

Biodiversity finance: 18x new research on climate regulation, green millionaires, donations, fintechs, ESG ratings, climate analysts, ESG funds, social funds, smart beta, asset allocation, research risks, green hedge funds, biodiversity, impact funds, proxy voting, sustainable engagement, and timberland investing

Social and ecological research

Non-negative climate regulation? Firms’ Response to Climate Regulations: Empirical Investigations Based on the European Emissions Trading System by Fotios Kalantzis, Salma Khalid, Alexandra Solovyeva, and Marcin Wolski from the International Monetary Fund as of July 15^th, 2024 (#13): “Using a novel cross-country dataset … We find that more stringent policies do not have a strong negative impact on the profitability of ETS-regulated or non-ETS firms. While firms report an increase in their input costs during periods of high carbon prices, their reported turnover is also higher. Among ETS-regulated firms which must purchase emission certificates under the EU ETS, tightening of climate policies in periods of high carbon prices results in increased investment, particularly in intangible assets” (abstract).

Greening millionaires? Wealth transfer intentions, family decision-making style and sustainable investing: the case of millionaires by Ylva Baeckström and Jeanette Carlsson Hauff as of June 21^st, 2024 (#13): “… little is known about how the wealthy make sustainable investment decisions. Using unique survey data from 402 millionaires … Our results show that funds are more likely to be channeled towards sustainable causes in families that are society-oriented and adopt democratic decision-making styles compared to families whose decision-making style is autocratic and intend for future generations to inherit their wealth” (abstract).

Selfish donations? Donations in the Dark by Ionela Andreicovici, Nava Cohen, Alessandro Ghio, and Luc Paugam as of March 13^th, 2024 (#103): “We examine the impact of the 2013 shift from mandatory to voluntary disclosure of corporate philanthropy in the United Kingdom (UK). … we find that, relative to a sample of United States firms, UK firms (i) reduce corporate philanthropy disclosure and (ii) increase corporate philanthropic donations in the voluntary period. … Overall, our results point towards the idea that the shift to voluntary disclosure (i) reduces managerial incentives to transparently report corporate philanthropic activities and (ii) exacerbates managers’ incentives to engage in self-serving corporate donations“ (abstract).

Limited fintech-inclusion: Promise (Un)kept? Fintech and Financial Inclusion by Serhan Cevik from the International Monetary Fund as of July 15^th, 2024 (#12): „The ownership of accounts in formal financial institutions increased from 51 percent of the world’s adult population in 2011 to 76 percent in 2021, but there is still significant variation across countries. … While digital lending has a significant negative effect on financial inclusion, digital capital raising is statistically insignificant. … the overall impact of fintech is also statistically insignificant for the full sample, but becomes positive and statistically highly significant in developing countries” (abstract).

ESG investment research (in: Biodiversity finance)

Positive High-ESG effects: The Effects of ESG Ratings on Firms’ Financial Decisions by Sahand Davani as of July 12^th, 2024 (#27): “I show that firms with higher ESG ratings (high-ESG firms) have higher ownership by ESG institutional investors, have lower perceived cost of capital, and issue more net equity than net debt compared to similar firms with lower ESG ratings (low-ESG firms). Consistently, I find that high-ESG firms try to maintain their high ESG ratings at the current levels, while the ESG ratings of similar low-ESG firms decline” (abstract).

Analysts climate ignorance: Analysts’ Perspectives on Climate Change: An Examination of Analyst Reports by Jesse Chan as of July 12^th, 2024 (#30): “Despite focusing on firms operating in industries most exposed to climate change, I find a minority of analysts (<11%) discuss climate topics in their analyst reports … analysts are concentrating their discussion among electric utilities and other electronic equipment manufacturers, and typically discuss climate change related business opportunities and regulatory issues related to climate change. Climate related discussions, and particularly discussion of regulatory issues, are associated with more pessimistic long-term growth forecasts and revisions, implying analysts expect these issues to affect firms‘ financial performance in the long run” (abstract).

Easy ESG sell? ESG and Mutual Fund Competition? by Ariadna Dumitrescua and Javier Gil-Bazo as of July 12^th, 2024 (#37): “Investors have heterogenous preferences for ESG. Not all investors care for sustainability, and among those who do, they value different ESG objectives differently. The model predicts that in equilibrium the market is segmented: neutral investors (those with no preference for ESG) invest only in conventional funds and ESG investors invest only in ESG funds. While competition is fierce in the conventional segment of the market and only the best funds survive, it is relaxed by investors’ ESG preferences in the ESG segment of the market. If the intensity of ESG investors’ preferences is sufficiently high, ESG funds of lower quality will be able to survive“ (p. 18/19).

ESG steering? Smarter Beta Investing: Forget Exclusions, add Steering towards lower Emissions by Heiko Bailer and Jonathan Miller as of July 17^th, 2024 (#28): “Steering strategically tilts portfolios towards sustainable factors such as lower emissions … This research investigates the effectiveness of steering compared to exclusion-based strategies. … The analysis, spanning September 2019 to May 2024, reveals that steering maintains or improves risk-adjusted returns compared to exclusions. Additionally, steering portfolios exhibit lower risk and avoid unintended biases toward smaller companies, often observed with exclusions“ (abstract). My comment: The resulting steering strategies appear to have rather limited SDG-revenue alignments. My experience shows attractive risk/return characteristics for strategies using many strict exclusions and demanding ESG- and SDG-Revenue requirements. It would be interesting to compare the results with steering approaches (which may be driven by significant Tech allocations).

Risk reducing ESG: Can Environmental and Social Stocks Weather Market Turbulence? A risk premia analysis by Giovanni Cardillo, Cristian Foroni and Murad Harasheh as of July 23^rd, 2024 (#28): “Analyzing all listed firms in the EU and UK and exploiting COVID-19 as an exogenous shock, our findings challenge prior literature by demonstrating that firm sustainability does not necessarily reduce the cost of equity in adverse states of the economy. … Nevertheless, our results indicate that riskier yet more sustainable firms experience a relatively smaller increase in their cost of equity, suggesting a moderating rather than a first-order effect of sustainability. Second, investors positively value firms that reduce CO2 emissions and offer green and more ethical products, as evidenced by lower risk premia assigned to such firms. Lastly, we provide robust evidence that more sustainable firms exhibit less uncertain and higher cash flows during the pandemic than their less sustainable counterparts“ (abstract).

Green optimization limits: Portfolio Alignment and Net Zero Investing by Thierry Roncalli from Amundi as of July 12^th, 2024 (#28): “First, the solution is parameter and data sensitive. In particular, we need to be careful in choosing the carbon scope metric … Scope 3 and consumption-based emissions need to be taken into account to align a portfolio with a net-zero scenario. The problem is that we see a lack of data reliability on these indirect emissions today. Similarly, the solution is highly dependent on the green intensity target and the level of self-decarbonization we want to achieve. … The second key finding is that portfolio decarbonization and net-zero construction lead to different solutions. … These results are amplified when we add the transition dimension to the optimization program. … it is quite impossible to achieve net zero alignment without allowing the algorithm to exclude companies (or countries) from the benchmark. … As a result, some key players in the transition, such as energy and utility companies, unfortunately disappear. … The final lesson is that it is easier to implement net zero in bonds than in equities. … there is another important point that is missing from our analysis. This is the issue of engagement. … The reason is that engagement is difficult to model quantitatively” (p. 20-22). My comment: Given the many discretionary decisions for “optimizations”, I usually call them “pseudo-optimizations”.

No green outperformance? Do sustainable companies have better financial performance? Revisiting a seminal study by Andrew King as of July 24^th, 2024 (#2180): “Do high-sustainability companies have better financial performance than their low-sustainability counterparts? An extremely influential publication, “The Impact of Corporate Sustainability on Organizational Processes and Performance”, claims that they do. Its 2014 publication preceded a boom in sustainable investing …Yet I report here that I cannot replicate the original study’s methods or results, and I show that a close reading of the original report reveals its evidence is too weak to justify its claims concerning financial performance” (abstract). My comment: It is very important to clearly write, understand and also to replicate scientific studies. But as long as the performance of sustainable investments is similar as the performance of traditional investments, I clearly prefer sustainable investments.

Green hedge funds: Are the Hedges of Funds Green? by Huan Kuang, Bing Liang, Tianyi Qu, and Mila Getmansky Sherman as of April 15^th, 2024 (#59): “… we … find that funds with higher green beta not only outperform other funds but also exhibit lower risk. This outperformance is driven by fund managers’ superior investment skill in both green stock picking and green factor timing. Furthermore, we document that investors reward green funds with higher inflows after the 2015 Paris Agreement, but only within high-performance funds. Finally, we show that political beliefs, climate news sentiment, and participation in the United Nations Principles for Responsible Investment (PRI) all influence hedge funds’ exposure to sustainable investing and investor flows” (abstract).

Biodiversity finance and bond risks: Biodiversity Risk in the Corporate Bond Market by Sevgi Soylemezgil and Cihan Uzmanoglu as of July 14^th, 2024 (#165): “We investigate how risks associated with biodiversity loss influence borrowing costs in the US corporate bond market. … we find that higher biodiversity risk exposure is associated with higher yield spreads among long-term bonds, indicating biodiversity as a long-run risk. This effect is stronger among riskier firms and firms that mention biodiversity, particularly biodiversity regulation, in their financial statements. … we find that the impact of biodiversity risk on yield spreads is more pronounced when biodiversity-related awareness and regulatory risks rise” (abstract).

Impact investment research

RI market segmentation: Styles of responsible investing: Attributes and performance of different RI fund varieties by Stuart Jarvis from PGIM as of July 2^nd, 2024 (#18): “Paris-aligned funds … achieve a low level of portfolio emissions, not just through a combination of significant divestment from sectors but also by selecting companies with low emissions levels. The resulting companies have decarbonised significantly in recent years … Impact funds … have demonstrated willingness to invest in sectors with currently-high emissions … Performance for these funds has been the most challenged in recent years …” (p. 12). My comments see Orientierung im Dschungel der nachhaltigen Fonds | CAPinside

Biodiversity finance overview: Biodiversity Finance: A review and bibliometric analysis by Helena Naffaa and Xinglin Li as of June 26^th, 2024 (#31): “Using bibliometric analysis tools, key features of the literature are revealed, influential works are recognized, and major research focuses are identified. This systematic mapping of the field makes contribution to the existing research by providing historical evolution of the literature, identifying the influential works, and current research interests and future research direction“ (abstract).

Empowering small investors? Open Proxy by Caleb N. Griffin as of July 12^th, 2024 (#27): “This Article has explored how the world’s largest asset managers have voluntarily implemented programs for “voting choice,” agreeing to pass through a measure of voting authority to selected investors. Unfortunately, the current instantiation of voting choice offers only a narrow set of artificially constrained options, which, in effect, merely transfer a fraction of the Big Three’s voting power to another oligopoly. In order to amplify the choices available to investors, this Article proposes that large asset managers shift from the current closed proxy system to an open proxy system wherein any bona fide proxy advisor could compete for the right to represent investors’ interests. Such a policy change would infuse intermediated voting programs with essential competitive pressure and allow for truly meaningful voting choice” (p. 41).

Depreciation-aligned sustainability: Timing Sustainable Engagement in Real Asset Investments by Bram van der Kroft, Juan Palacios, Roberto Rigobon, and Siqi Zheng as of July 3^rd, 2024 (#151): “This paper provides evidence that sustainable engagement improves firms’ sustainable investments only when its timing aligns with the (“real” not “book”) depreciation of their physical assets. … Further, our results appear unexplained by a selection in REITs and are generalized to the US heavy manufacturing industry, heavily relying on real assets. Therefore, this paper argues that sustainable engagement poses an effective tool to improve firms’ sustainable investments when accurately aligned with the depreciation cycles of their physical assets” (p. 35/36).

Other investment research (in: Biodiversity finance)

Attractive timberland: Investing in US Timberland Companies by Jack Clark Francis and Ge Zhang as of June 27^th, 2024 (#11): “Over a 20-year sample period it turns out that the US timberland corporations, on average, perform about as well as the highly diversified US stock market index. It is surprising that the timberland companies do not outperform the stock market indexes because, in order to encourage tree planting, the US Congress has almost completely exempted timberland companies from paying federal income taxes. Furthermore, it is scientifically impossible to assess the value of the large amounts of photosynthesis that the timberland companies produce” (abstract). My comment: In my opinion, similar returns clearly speak for the more responsible investments.

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Werbehinweis (in: biodiversity finance)

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Smallcap-Investmentfonds (SFDR Art. 9) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die Ziele für nachhaltige Entwicklung (SDG: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen: Vgl. My fund.

Zur jetzt wieder guten Performance siehe zum Beispiel Fonds-Portfolio: Mein Fonds | CAPinside

Halbjahres-Renditen: Divergierende Nachhaltigkeitsperformances

Halbjahres-Renditen der Soehnholz ESG Portfolios: Vereinfacht zusammengefasst haben die Trendfolge-, ESG-ETF- und SDG-ETF-Aktienportfolios relativ schlecht rentiert. Dafür performten passive Asset Allokationen, ESG-Anleihenportfolios und vor allem direkte SDG Portfolios und der FutureVest Equity SDG Fonds sehr gut.

Halbjahres-Renditen: Passive schlägt aktive Allokation

Halbjahres-Renditen: Das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio hat +7,2% (+5,4% in Q1) gemacht. Das ist ähnlich wie Multi-Asset ETFs (+7,0%) und besser als aktive Mischfonds mit +6,0% (+4,8% in Q1). Das ebenfalls breit diversifizierte ESG ETF-Portfolio hat mit +6,5% (+4,2% in Q1) ebenfalls überdurchschnittlich rentiert.

Nachhaltige ETF-Portfolios: Anleihen gut, Aktien nicht so gut, SDG schwierig

Das ESG ETF-Portfolio ex Bonds lag mit +9,3% (+6,1% in Q1) erheblich hinter traditionellen Aktien-ETFs mit +14,7% (+10,6% in Q1) und aktiv gemanagten globalen Aktienfonds mit +13,7% zurück.

Mit -0,9% (-0,3% in Q1) rentierte das sicherheitsorientierte ESG ETF-Portfolio Bonds (EUR) wie aktive Fonds mit -0,9% (-0,7% in Q1). Das renditeorientierte ESG ETF-Portfolio Bonds hat mit +1,6% (+1,6% in Q1) dagegen nennenswert besser abgeschnitten als vergleichbare aktiv gemanagte Fonds (-1.2%).

Das aus thematischen Aktien-ETFs zusammengestellte SDG ETF-Portfolio lag mit -1,4% (-0,2% in Q1) stark hinter diversifizierten Weltaktienportfolios aber noch vor einem relativ neuen Multithemen SDG ETF, der -4,8% im ersten Halbjahr verlor. Besonders thematische Investments mit ökologischem Fokus liefen auch im zweiten Quartal 2024 nicht gut.

Halbjahres-Renditen: Sehr gute direkte ESG SDG Portfolios und Fonds

Das auf Small- und Midcaps fokussierte Global Equities ESG SDG hat im ersten Halbjahr mit +8,4% (1,4% in Q1) im Vergleich zu Small- (+1,4%) und Midcap-ETFs (+0,6%) und aktiven Aktienfonds (+5,8%) sehr gut abgeschnitten. Das Global Equities ESG SDG Social Portfolio hat mit +6,3% (+3,7% in Q1) ebenfalls sehr gut abgeschnitten.

Mein auf globales Smallcaps fokussierter FutureVest Equity Sustainable Development Goals R Fonds (Start 2021) hat im ersten Halbjahr 2024 eine ebenfalls sehr gute Rendite von +6,8% (+2,6% in Q1) erreicht (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T und My fund – Responsible Investment Research Blog (prof-soehnholz.com).

Für Trendfolgeportfolios haben die zur Risikosenkung gedachten Signale vor allem Rendite gekostet, weil die Portfolios nach dem Marktausstieg aufgrund negativer Signale nicht von dem schnellen und starken Marktaufschwung profitieren konnten.

Mehr Details sind hier zu finden: Soehnholz ESG, siehe auch Excel-Download: Historische Zeitreihen der Portfolios.

Brown banks? Researchpost 180

Brown banks: 9x new research on CO2-costs, climate policy effects, Mittelstand climate, stock prices, ESG, CSR, gender diversity, green projects, and listed real estate (# shows the number of SSRN full research paper downloads as of June 13^th, 2024)

Social and ecological research

Correct CO2 costs? Synthesis of evidence yields high social cost of carbon due to structural model variation and uncertainties by Frances C. Moore, Moritz A. Drupp, James Rising, Simon Dietz, Ivan Rudik, Gernot Wagner as of June 10^th, 2024 (#9): “Estimating the cost to society from a ton of CO2 – termed the social cost of carbon (SCC) – requires connecting a model of the climate system with a representation of the economic and social effects of changes in climate, and the aggregation of diverse, uncertain impacts across both time and space. … we perform a comprehensive synthesis of the evidence on the SCC, combining 1823 estimates of the SCC from 147 studies with a survey of authors of these studies. The distribution of published 2020 SCC values is wide and substantially right-skewed, showing evidence of a heavy right tail (truncated mean of $132). … we train a random forest model on variation in the literature and use it to generate a synthetic SCC distribution that more closely matches expert assessments of appropriate model structure and discounting. This synthetic distribution has a mean of $284 per ton CO2, respectively, for a 2020 pulse year (5%–95% range: $32–$874), higher than all official government estimates … “ (abstract).

Strict policy effects: Climate and Environmental Policy Risk and Debt by Karol Kempa and Ulf Moslener as of April 25^th, 2024 (#95): “… we find that policy determines how firms’ externalities, such as CO2 emissions and different types of environmental pollution, translate into credit risks and corporate bond pricing. The size as well as direction of the effect of externalities on credit risk and bond spreads depends on the stringency of policy. Ambitious policy increases the credit risk and costs of debt for dirty firms and decreases both for clean firms. Lenient regulation can have the opposite effect. … Finally, we find that a higher likelihood of stringent climate policies in the future increases the impact of CO2 emissions on credit risk“ (abstract).

Mittelstandsklima: Die unternehmerische Akzeptanz von Klimaschutzregulierung von Markus Rieger-Fels, Susanne Schlepphorst, Christian Dienes, Rodi Akalan, Annette Icks und Hans-Jürgen Wolter vom 3. Juni 2024: „Nur eine starke Volkswirtschaft kann die für den Klimaschutz erforderlichen Ressourcen aufbringen. Die Unternehmen sind dabei in der Mehrzahl bereit, diesen Weg mitzugehen. Speziell die mittelständischen Unternehmerinnen und Unternehmer weisen tendenziell eine hohe intrinsische Motivation auf, zum Schutz der Umwelt und des Klimas beizutragen. Das ist wichtig, da den Unternehmen stets ein strategischer Spielraum in der Umsetzung bleibt. Das Spektrum reicht dabei von einer Standortverlagerung über eine Produktionseinstellung und dem bewussten Ignorieren von Vorgaben bis hin zur freiwilligen Übererfüllung von Regulierungen …“ (p. 26/27). My comment: The reaction of global “Mittelstand” companies regarding my shareholder engagement activities (see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)) is more open than I thought

ESG investment research (in: Brown banks)

Brown banks? Banking on climate chaos – Fossil fuel finance report 2024 by Urgewald as of May 13^th, 2024: “The 60 biggest banks globally committed $705 B USD to companies conducting business in fossil fuels in 2023, bringing the total since the Paris agreement to $6.9 T. These banks committed $347 billion in 2023 and $3.3 trillion total since 2016 to expansion companies – those companies that the Global Oil & Gas Exit List and the Global Coal Exit List report having expansion plans. … Total financing committed for companies with methane gas (LNG) import and export capacity under development, increased from $116.0 billion in 2022 to $121.0 billion in 2023. … 15.4 % of the financing by dollar value issued in 2023 matures after 2030; 3.7 % matures after 2050. Financing for fossil fuel extraction or infrastructure that matures after 2030 faces a risk of becoming stranded … several banks, including Bank of America and PNC, rolled back their previous exclusions in 2023 (see p. 32). Banks continue to prioritize net zero targets, though early research suggests that these targets, like other bank policies, leave loopholes for ongoing fossil fuel finance (see p. 35)” (p. 4). My comment: Check out you bank based on the detailed data: Banking on Climate Chaos 2024 – Banking on Climate Chaos

Climate correlations: The Cold Hard Cash Effect: Temperature’s Role in Shaping Stock Market Outcomes by Yosef Bonaparte as of April 15^th, 2024 (#8): “The analysis conducted across 67 countries …highlight that warmer climates are linked to lower stock market returns, with a notable economic significance exceeding 9.12%, and reduced volatility, demonstrating an economic significance of at least 36.9%. Conversely, the Sharpe ratio, serving as a gauge of risk-adjusted returns, displays a positive co-movement with temperature change, indicating an economic significance surpassing 1.63%. Furthermore, cold countries earn greater stock market returns but are more negatively affected by temperature changes” (p. 16).

ESG or CSR? Combining CSR and ESG for Sustainable Business Transformation: When Corporate Purpose Gets a Reality Check by David Risi, Eva Schlindwein and Christopher Wickert as of June 7^th, 2024 (#135): “ESG is a compliance-driven and metrics-oriented idea for stimulating sustainable business transformation. It focuses on reducing negative impacts and improving performance in specific areas. Moreover, it provides a reality check on how a firm is doing in light of increasing societal expectations for greater sustainability. By contrast, CSR is often viewed as a more values-based and internally driven approach to sustainability. It provides a strategy for developing a sense of meaning and purpose for responsible business conduct that reflects a firm’s values and identity… In their mutual integration, CSR and ESG create synergy since they can compensate for their respective weaknesses” (p. 12/13).

Good diversity: Board Gender Diversity and Investment Efficiency: Global Evidence from 83 Country-Level Interventions by Dave (Young Il) Baik, Clara Xiaoling Chen, and David Godsell as of May 4^th, 2024 (#177): “We document increases in firms’ investment efficiency after the adoption of BGD interventions relative to firms in countries that do not concurrently adopt BGD interventions. Our results are economically significant, suggesting that treatment firms reduce inefficient investment by 0.6 percent of total assets or 6.5 percent of total investment and are 4 percentage points more likely to have above-median investment efficiency after interventions relative to firms in countries not concurrently adopting interventions“ (p. 33). My comment: I recently divested from a company because the social rating declined which was mainly due to low gender worker and board diversity

Impact investment research

Small climate steps: Inside the Blackbox of Firm Environmental Efforts: Evidence from Emissions Reduction Initiatives by Catrina Achilles, Peter Limbach, Michael Wolff and Aaron Yoon as of June 7^th, 2024 (#35): “This study uses granular data at the firm’s project level, provided by the Carbon Disclosure Project, to present primary evidence on what large U.S. firms actually do to reduce greenhouse gas emissions. … the majority of emissions reduction projects require small investments – the median investment per project is $127,000, with the median of firms’ total annual investment in such projects amounting to only 0.2% of net income. Second, 63% of all projects have payback periods of at most three years, while just about 10% of all projects pay off after more than ten years. These short-term projects mostly target energy efficiency in buildings or production, and typically do not involve new transformative technology and low-carbon energy. … our results suggest that short-term emissions reduction projects generate more CO2e and monetary savings per year, yield greater NPVs, and predict higher environment-related ESG ratings in the near future. However, total CO2e savings over the projects’ lifetime are at least 25% lower for short-term payback projects. Firms that exhibit the most CO2e savings have a mix of short- and longer-term projects, while firms exclusively implementing only short-term or longer-term projects save significantly less CO2e. We also study how characteristics of firms’ emissions reduction projects, such as their payback period and efficiency in saving CO2e, evolve over time and show which firms implement more short-term projects …. the evidence presented in this paper suggests that the majority of large U.S. firms do not act … long-term oriented” (p. 31/32).

Other investment research (in: Brown banks)

Real estate hedge: U.S. and European Listed Real Estate as an Inflation Hedge by Jan Muckenhaupt, Martin Hoesli and Bing Zhu as of May 28^th, 2024 (#27): “This paper investigates the inflation-hedging capability of an important asset class, i.e., listed real estate (LRE), using data from 1990 to the end of 2023 … Listed real estate provides an effective hedge against inflation in the long run, both in crisis and non-crisis periods. In the short term, listed real estate only hedges against inflation in stable periods. LRE effectively serves as a hedge against inflation shocks, particularly protecting against unexpected inflation from the first month and against energy inflation during stable periods. While stocks surpass LRE in long-term inflation protection and LRE has short-term benefits, gold distinguishes itself from LRE by offering reliable long-run protection, but only in economic downturns” (abstract). My comment: My “most-passive” multi-asset ETF portfolios have a target allocation of 10-12% Listed Real Estate, 5 to 6 % Listed Infrastructure and 5% US Treasury Inflation-Protected Securities

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Werbehinweis

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