Archiv der Kategorie: Behaviroral Finance

Biodiversity research: Blogpost 501

Biodiversity research: 13x new research on chemical emissions, biodiversity basics, biodiversity returns, bio-regulatory risks, ESG history, ESG rating divergence, net-zero conviction, German impact, transition logic, brown engagement, good committees, willingness to answer, and AI overkill (# shows the number of SSRN full paper downloads as of May 15th,2025)

Social and ecological research

Chemical emissions: Lessons in Chemistry Climate Action Giants by Planet Tracker as of May 8^th, 2025: “The chemical industry … accounts for up to 6% of global greenhouse gas (GHG) emissions, … Specifically, this report benchmarks the climate transition performance of eight of the world’s top chemical companies: BASF, Bayer, Dow, Incitec Pivot, Air Liquide, LyondellBasell, SABIC, and Toray Industries. It evaluates them across emissions performance, value chain engagement, governance and remuneration, capital allocation, and policy advocacy … to provide financial institutions with a clear picture of these companies’ transition readiness and their potential climate-related risks and opportunities” (p. 39).

Biodiversity lecture: A Course on Biodiversity by Thierry Roncalli from Amundi as of May 14^th, 2025 (#293) covering definition, ecosystem functions and services, threats and risks, measurement, governance and regulation and investment approaches and exercises.

ESG investment research (in: Biodiversity research)

Biodiversity returns: It’s all about cash, but what about biodiversity? Cutting through the biodiversity measurement jungle to account for biodiversity in corporate activities by Saverio Olivito and Patricia Ruffing-Straube as of May 7^th, 2025 (#31): “… Our results show that … firm-specific industry-dependency on biodiversity and ecosystem services is strongly associated with financial performance …“ (abstract).

Bio-regulatory risk: Do Equity Markets Reflect Biodiversity Regulatory Risk? by Ricardo Peña, Shikhar Singla, and Zirui Wang as of May 12^th, 2025 (#32): “We combine endangered species data with establishment locations to identify firm exposure to Areas of Unprotected Biodiversity Importance (AUBI)— areas likely to be targeted by future conservation policy. Between 2020 and 2023, firms in nature- and location dependent sectors earned 5.53% lower annual returns per standard deviation increase in AUBI exposure. Returns for high-exposure firms in these sectors were negative following Biden’s 2021 “30 by 30” executive order and positive after the 2024 election“ (abstract).

ESG history: A Study of ESG by Min Ruan and Haoxu Zhang as of May 7^th, 2025 (#35): “Despite its widespread adoption, existing literature on ESG often lacks a cohesive historical perspective. This study draws on historical events and major shifts to review its origins and evolution and analyse its strengths and weaknesses. By delving into its historical roots and connecting a series of seemingly unrelated facts and statistics under the framework of ESG, we further identify key drivers and co-benefits beyond sustainable finance and provide practical implications for improvements in the adoption process. Overall, the findings underscore the necessity of viewing ESG as a long-term institutional commitment for sustainable development rather a buzzword, highlighting its ongoing significance in a rapidly changing world“ (abstract).

Rating divergence: ESG Rating Uncertainty: Causes, Consequences and Potential Remedies by Ali Bayat, Ruini Qu, and Zohreh Rahmani as of May 7^th, 2025 (#30): “… This paper synthesizes the fragmented literature on ESG rating disagreement to assess how much ratings differ, what drives the variation, and what consequences follow. The paper also reviews potential responses that include efforts to achieve convergence, strategies that reduce the impact of disagreement, and the use of outcome-based alternatives to ESG ratings. The paper introduces a four-dimensional framework that categorizes the sources of disagreement into the content of what is measured, firm-specific factors, rater-specific attributes, and the methods used to produce the scores …“ (abstract). My comment: Divergence is understandable because of the complexity. Divergence is no excuse not to use ESG data.

Net-Zero conviction: Does Greenhouse Gas Disclosure Trigger a Net-Zero Fallacy for Retail Investors? by Christian Friedrich, Marco Meier, and Christian Peters as of May 7^th, 2025 (#10): “… our experiment shows that retail investors make less efficient investments when a fund discloses net-zero emissions as a salient sustainability achievement than when a fund discloses net-positive emissions, thereby documenting a phenomenon we label as “net-zero fallacy.” Our experiment further provides evidence that retail investors substitute more complex, multifactorial decisions by narrowly focusing on the salient sustainability achievement. Thereby, achieving net zero causes retail investors to ignore alternative mechanisms for more efficient emission reductions“ (abstract).

SDG investment research

German impact: Network Analysis of ESG and SDG across Legal Origins by Kausik Chaudhuri, Han Jin, Ting Xie and Yongcheol Shin as of May 7^th, 2025 (#10): “… we investigate the network causal relationship from ESG to SDG. … In particular, spill-out effects from German legal origin dominate while its spill-ins are almost negligible, which renders it to be the most influential ESG/SDG shock transmitter in the system. … the positive impacts of ESG on SDG diffuse mostly from German legal origin to English and French legal origins” (p. 22).

Transition logic: Productive Climate Finance by Dominik Boos and Julia Meyer as of May 7^th, 2025 (#4) “We extend the standard financial market model of sustainable finance by incorporating a production economy with heterogeneous firms (abstract) … First, normative and ethical dilemmas arise for values-based investors: is it justifiable to remain invested in a company with unsustainable practices, whose business model conflicts with the values of the financing party? What is an appropriate time frame for companies to start and complete their transformation? Second, current measurement approaches predominantly capture companies’ static sustainability performance, while identifying forward-looking sustainability indicators remains a challenge. … transition ambitions should play a greater role in classifying companies and investments as sustainable …” (p. 24)

Brown engagement: Impact Investing with Shareholder Engagement by Jean-Francois Chassagneux, Roxana Dumitrescu, and Olivier David Zerbib as of May 7^th, 2025 (#12): “… we propose a continuous-time equilibrium model in which heterogeneous investors exert costly shareholder engagement to decrease a representative firm’s greenhouse-gas emissions. … our framework shows that shareholder engagement induces investors to overweight high-emitting firms, accepting lower expected returns, to secure deeper emissions cuts. More precisely, we establish three main results: (i) stronger pro-environmental preferences or lower engagement costs amplify capital al locations and engagement toward brown firms; (ii) such engagement mechanically reduces brown firms’ equilibrium expected returns; and (iii) firms respond with a two-fold mitigation: they are incentivized to cut their gross emissions and subsequently are compelled to cut them further due to shareholder engagement” (p. 20). My comment: I try to invest in the 30 most sustainable companies and engage with all of them, see Shareholder engagement: 21 science based theses and an action plan

Good committees: Sustainability committee and eco-innovation: A global perspective by Asad Mashwani and Rizwan Mushtaq as of May 7^th, 2025 (#7): “This study investigates the influence of sustainability committees on corporate environmental innovation (hereafter eco-innovation) … We find that the existence of sustainability committee and climate governance mechanisms positively influences corporate eco innovation. Our results indicate that the sustainability committee along with sustainability reporting and corporate emission performance improves eco-innovation. Moreover, our results suggest that eco-innovation is associated with the firm’s overall environmental and ESG (Environmental, Social and Governance) performance” (abstract).

Other investment research (in: Biodiversity research)

Willingness to Answer: Willingness To Pay: An Interrogation by Cass R. Sunstein as of Feb. 26^th, 2025 (#70): “Both free markets and government regulators tend to use willingness to pay (WTP) as the measure of value of goods that people do not own, and willingness to accept (WTA) as the measure of value of goods that people do own. … WTP and WTA might be infected by a lack of information, by behavioral biases, and by hedonic forecasting errors … There are questions about how to proceed when WTA is much higher than WTP for the same goods; the WTP-WTA disparity has yet to be fully understood. These questions are especially challenging when valuing environmental amenities, animal welfare, and social media”.

AI overkill: AI in Finance and Information Overload by Attila Balogh, Antoine Didisheim, Luciano A. Somoza, and Hanqing Tia as of May 2^nd, 2025 (#142): „This paper documents information overload in Large Language Models applied to financial analysis. Using earnings forecasts from corporate calls and market reaction predictions from news, we show that predictive accuracy follows an inverted U-shaped pattern, where excessive context degrades performance. Larger LLMs mitigate this effect, increasing the optimal context length” (abstract).

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Werbung (in: Biodiversity research)

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.

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.

Green engagement: Researchpost 224

Green engagement: 15x new research on greenwashing, carbon pricing, carbon financing, carbon taxes, biodiversity tools, sovereign spreads, supply chain AI,ESG shorting, AI activism, impact measurement, biodiversity risks, impact market, bond ETFs, and FOMO (#shows SSRN full paper downloads as of May 1^st, 2025)

Social and ecological research

Problematic climate information: Climate Pledges and Green-washing: Information Provision Does Not Work by Vittoria Battocletti, Alfredo Desiato, Alessandro Romano, Chiara Sotis, and Tobias H. Tröger as of April 28^th, 2025 (#16): “… First, we show that while people are not aware of the meaning of the most common climate pledges, they are willing to pay a considerable premium for these claims …. Second, we observe that information provision does not affect respondents when making consequential choices on how much to pay for gift cards of firms that have made a climate pledge. Third, we find that in a realistic setting where respondents receive multiple pieces of information about various products, information regarding climate pledges attracts significant attention. However, it does not improve understanding of climate pledges and actually increases recipients’ confusion“ (abstract).

Carbon pricing: Exploring the Social Cost of Carbon for Internal Carbon Pricing: Insights from a Technology Probe by Ando Shah, Zoya Abdullah, and John Chuang as of April 24^th, 2025 (#20): “Internal carbon pricing (ICP) can be a powerful means of reducing greenhouse gas emissions for organizations. However, current carbon pricing is well below optimal levels as described by the Social Cost of Carbon (SCC). … We discover that framing the SCC purely as a function of the discount rate makes it a robust indicator of climate responsibility at an organizational level. … Introducing SCC as a significant metric in cross cutting reporting frameworks may promote its widespread adoption as an unbiased measure of organizational commitment, and spur organizational climate action that go beyond token gestures or mere lip service“ (abstract).

Brown offshore risks: Out of the light, into the dark: how ‘shadow carbon financing’ hampers the green transition and increases climate-related systemic risk Simon Schairer, Jan Fichtner, Riccardo Baioni, David Castro, Nicolás Aguila, Janina Urban, Paula Haufe and Joscha Wullweber as of April 15^th, 2025 (#140): “… offshore finance enables the obfuscation of financial flows, while shadow banking facilitates alternative financing to high carbon-emitting firms. Drawing on qualitative expert interviews and financial market data, the paper explains how the offshore-shadow-banking nexus hampers the green transition by introducing the concept of ‘shadow carbon financing’, which can operate through the following channels: (1) loan securitization, (2) emissions risk transfers, (3) bond financing, (4) carbon asset partitioning, (5) offshore corporate wealth chains, (6) private credit, and (7) proved developed producing reserves securitization. We demonstrate several instances of financial flows moving away from regulated and transparent forms of financing to less regulated and more opaque shadow carbon financing channels. Consequently, we argue that shadow carbon financing may also pose substantial systemic risk, as climate-related risks (e.g., stranded assets) increasingly accumulate in less regulated parts of the financial system“ (abstract).

Good taxes? Cross-border carbon taxes and shareholder wealth by Marta Alonso, Martin Jacob, Gaizka Ormazabal, and Robert A. Raney as of Dec. 16^th, 2024 (#261): “… we analyze stock price reactions to news about the introduction of the Carbon Border Adjustment Mechanism (CBAM) in the EU. We find that stock prices of EU importers of CBAM products respond more negatively to the announcement of the CBAM than those of similar non-European firms. The results from cross-sectional tests support the interpretation that the documented patterns reflect EU firms’ limited ability to pass on the tax cost in commercial relations with non-EU counterparts. Collectively, our results shed doubt on the ability of cross border carbon taxes to level the playing field between local and foreign firms” (abstract).

Biodiversity tools: Bridging business and biodiversity: An analysis of biodiversity assessment tools by Andreas Barth, Lea Ranacher, Franziska Hesser, Tobias Stern, and Kurt Christian Schuster as of June 2025: “This paper analyses 45 biodiversity assessment tools, proposed by the Science Based Targets Network (SBTN), that can be used by companies … we identified six main groups: software and web applications for biodiversity assessment, Life Cycle Assessment (LCA) tools, Multi-Regional Input-Output (MRIO) analysis tools, Geographic Information System (GIS)-based tools, index calculation methods and biodiversity related data repositories. Furthermore, the biodiversity related indicators in the tools differ greatly by scope, data and evaluation method …“ (abstract).

ESG investment research (in: Green engagement)

Emerging ESG importance: Do ESG Considerations Matter for Emerging Market Sovereign Spreads? by Carmen Avila-Yiptong, Mahamoud Islam, Ayah El Said and Chima Simpson-Bell from the International Monetary Fund as of April 24^th, 2025 (#18): “This paper aims to investigate the determinants of sovereign spreads for a panel of 79 emerging markets and development economies (EMDEs) over the period 2001-2021, … our results show that improvements in ESG factors tend to reduce sovereign spreads, alongside domestic variables capturing growth, fiscal and external balances, and global factors such as U.S. interest rates and changes in global risk sentiment. In particular, we find that governance is a key factor in explaining movements in sovereign spreads, … Social and environmental aspects, proxied by population purchasing power and greenhouse gas emissions, respectively, also play significant roles …“ (abstract).

Supply chain AI: The Evolution of Artificial Intelligence in Supply Chain Due Diligence: A Systematic Literature Review and Framework Development by Marcel Welsen and Łukasz Sułkowski as of April 24^th, 2025 (#10): “… The findings demonstrate that AI not only improve the ESG compliance verification and monitoring capabilities, but it also revealed key challenges, such as data quality issues, algorithmic bias, cross-border regulatory difficulties, and cultural adaptation requirements. Critical research gaps that were identified are: limited integration between technological and ethical dimensions, insufficient attention to cultural factors, absence of comprehensive ethical frameworks, lack of empirical studies, and inadequate regulatory alignment examination. The theoretical contributions provided by this research is the development of a framework and practical implication advices for stakeholders“ (abstract). My comment on supply chain stakeholder engagement see Supplier engagement – Opinion post #211

ESG shorting: Betting Against ESG Sinners: Evidence From Short Selling Around the World by Tsuyoshi Iwata, Tomasz Orpiszewski, and Mark Thompson as of April 24^th,2025 (#11): “… the study employs propensity score matching to examine abnormal stock returns, short interest changes, and stock borrowing rate changes around ESG negative events. The analysis shows consistent stock market drops from a day before to the event date, with varying durations of price drops both pre- and post-event and incoherent evidence of short sellers’ activity across regions. … In the backtesting analysis, the study tests ESG-negative-event-driven shorting strategies constructed based on the observation of the market behavior around ESG negative events, finding potential alpha opportunities in 17 out of 18 strategies after considering borrowing costs, though statistical significance is only observed in 6 strategies” (p. 19).

Impact investment research

Green engagement: Engagement Report Statements, Votes, Dialogues: The SfC – Shareholders for Change network’s activities in 2024 as of Feb. 27^th, 2025: “Our 20 members engaged with 172 companies and one institution across … One of the key themes of 2024, as in previous years, was our focus on “orphan issues”—topics that are insufficiently addressed in mainstream investor engagement. Our network addressed issues such as ’energy poverty’ in Spain or the investment in nuclear weapons by financial institutions. We have engaged not only listed companies, but also unlisted, small companies, as well as asset managers and ESG rating agencies. And we haven’t been afraid to engage with institutions such as the European Commission, where we are fighting to keep weapons out of the definition of sustainable investment …“ (p. 3). My comment: My engagement report is based on the SfC systematic, see FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

AI Activism: Between Promise and Power: Artificial Intelligence, Shareholder Activism, and the Corporate Governance of the Next Generation by Pierluigi Matera as of April 16th, 2025 (#338): “… AI tools can be used to surface resonant causes and craft precise, data-enhanced proposals that rally dispersed shareholders around a common normative objective. …However, empirical data from the 2022–2024 proxy seasons suggest that AI’s democratizing promise remains largely aspirational. Benefits continue to accrue disproportionately to large, well-capitalized actors, while smaller investors face persistent structural and behavioral barriers. … while AI tools could help insurgents spot vulnerabilities to leverage in identity-driven campaigns, they are increasingly used by corporations to anticipate activist efforts and shield incumbent management” (abstract). My comment see KI kann börsennotierte Impactinvestments ermöglichen | CAPinside

Impact measurement: In Plain Sight: Mechanisms of means–ends decoupling in impact investing by Lauren Kaufmann, Gorgi Krlev, and Maoz (Michael) Brown as of April 29^th, 2025 (#8): “.. it is an “open secret” that because of inconsistencies and fragmentation in the applied means of impact measurement, ends are imperfectly met. In this article, we probe how and why means–ends decoupling occurs in impact investing in plain sight. We apply a qualitative and interpretative approach, drawing on 135 interviews and 102 documents gathered from impact investors. We find that impact measurement is not primarily used for performance management but plays a relational role between stakeholders. We uncover and conceptualize three mechanisms that drive decoupling between the ideal and actual functions of impact measurement, namely impact measurement as: (1) communication, (2) categorization, and (3) construction of the domain. We also find an important contingency: decoupling becomes more likely with increasing systemic opacity in an investment field” (abstract).

Compensation biodiversity risks: Biodiversity at Risk: How Managerial Myopia and Incentives Shape UK Corporate Environmental Strategies by Yueyang Wang, Lanxin Lei, Zixiao Xing, Brian Lucey, Yizhi Wang as of April 24^th, 2025 (#63): “This study examines how managerial myopia—the focus on short-term financial results—affects corporate biodiversity management, using data from UK-listed firms (2000–2023). The findings show that short-term-oriented managers underinvest in biodiversity initiatives, increasing ecological and financial risks. Salary-based incentives tied to short-term earnings amplify this effect, while greater board national diversity mitigates it by promoting long-term ecological strategies” (abstract).

Impact potential: Impact Investment Anlegerstudie Deutschland 2025 von Christian Klein von der Universität Kassel vom 29.4.2025: „Unsere repräsentative Befragung von 2.103 privaten Anlegern in Deutschland macht deutlich: Das Interesse an solchen Investments ist groß – das Wissen darüber jedoch gering. Nur 14 % der Befragten hatten vor der Befragung überhaupt schon einmal von Impact Investments gehört. Mehr als die Hälfte dieser Teilgruppe gab jedoch an, bereits in entsprechende Produkte investiert zu haben … Auch unter den Befragten, die erstmals im Rahmen der Studie mit dem Begriff in Berührung kamen, stößt die Idee auf Interesse: 34 % können sich vorstellen, in Zukunft in Impact-Produkte zu investieren“ (S. 3).

Other investment research (in: Green engagement)

Bond ETF risks: Same Same But Different: The Risk Profile of Corporate Bond ETFs by Johannes Dinger, Marcel Müller, and Aleksandra Rzeźnik as of April 28^th, 2025 (#55): “We show that, while corporate bond ETFs systematically exhibit lower liquidity risk than the bonds they hold, they also face heightened intermediary risk. This effect is more pronounced for high-yield ETFs, for those with less liquid portfolios, and for funds reliant on weaker Authorized Participants …“ (abstract).

FoMo facets: FoMO in Investment: A Critical Literature Review of Fear of Missing Out in Investment by Ayse Beyza Nirun and Malik Asgarli as of April 2^nd, 2025 (#92): “Fear of missing out (FoMO) is a psychological phenomenon … In our taxonomy, we identify and discuss six dimensions of FoMO: measures, effects, investor responses, psychological drivers, mitigation strategies, contextual influences of FoMO” (abstract).

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Werbung (in: Green engagement)

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?).

Biodiversity investment: Researchpost 213

Biodiversity investment: 9x new research on slow Green Deal progress, (too big?) brown banks, green robo investing, performant decarbonization, biodiversity investment growth, greening suppliers, pseudo-optimal portfolios, and 2x investment AI (#shows the number of SSRN full document downloads as of Feb. 12th, 2025)

Social and ecological research

Slow Green Deal? Delivering the EU Green Deal – Progress towards targets by Marelli Luisa et al. from the European Commission as of Feb. 5^th, 2025: “This report provides a comprehensive assessment of progress towards the European Green Deal (EGD), the European Union’s transformative agenda for achieving climate neutrality by 2050. The analysis encompasses 154 quantifiable targets from 44 policy documents between 2019 and 2024 across key sectors such as climate, energy, circular economy, transport, agriculture and food, ecosystems and biodiversity, water, soil and air pollution. … As of mid-2024, 32 of the 154 targets are currently “on track” and 64 are identified as “acceleration needed” meaning that more progress is needed to meet the targets on time. Furthermore, 15 of the targets are found to be “not progressing” or “regressing”, and for 43 of the targets no data is currently available” (abstract).

Big brown banks: Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy by Winta Beyene, Manthos D. Delis, and Steven Ongena as of Nov. 7^th, 2024 (#162): “… fossil fuel firms with more stranded asset risk rely less on bond finance and more on bank credit. Investors in the bond market price the risk that reserves held by fossil fuel firms will strand, while banks in the syndicated loan market do not. … Bigger banks provide cheaper and more financing to fossil fuel firms, possibly giving rise to a novel “too-big-to-strand” concern for banking regulators“ (abstract).

ESG investment research (in: Biodiversity investment)

Green robo investing? Nudging Investors towards Sustainability: A Field Experiment with a Robo-Advisor by Lars Hornuf, Christoph Merkle, and Stefan Zeisberger as of Jan. 29^th, 2025 (#84): “In a field experiment with robo-advisor clients, we explore how default investment options shape sustainable investments choices. Setting sustainable investing as the default significantly increases adoption, with 36% of investors selecting it, compared to just 23% when conventional investing is the default. A follow-up survey reveals stark differences in expectations: most conventional investors believe that their choice offers higher returns and a better risk-return trade-off, while sustainable investors are confident that their portfolios will outperform. … the strong focus on financial returns suggests that investors remain reluctant to forgo substantial gains for sustainability in real-world scenarios” (abstract).

Performant decarbonization: Performance and Challenges of Net-Zero Strategies in the Context of the EU Regulation by Fabio Alessandrini, Eric Jondeau, and Lou-Salomé Vallée as of Sept. 3^rd, 2024 (#75): “… an NZ strategy that meets most of the EUSFD Regulation requirements can be implemented at a moderate cost …. The CTB would have resulted in a tracking error of approximately 0.6 0.8% per year, while the PAB would have been more costly, with a tracking error closer to 1.7-1.8% per year. … While tracking error minimization results in a lower ex-post tracking error … Some securities may become substantially overweighted, potentially raising concerns about a lack of liquidity for these securities. … PAB does not suffer from the exclusion of the energy sector in terms of risk-adjusted performance. The Sharpe ratio of the PAB is higher than that of the CTB across all strategies we considered …“ (p. 31). My comment: The authors mention that the results may be influenced by the data (2012-2021).

SDG investment research

Biodiversity investment growth: Current Trends and Projections in Biodiversity Finance by Zannatus Saba as of Feb. 7^th, 2025 (#16): “This chapter delves into the dynamic field of biodiversity finance, outlining key trends and future projections. It highlights the proliferation of specialized investment funds dedicated to biodiversity conservation, the integration of biodiversity considerations into Environmental, Social, and Governance (ESG) criteria, and the development of innovative financial mechanisms such as blended finance, green bonds, and nature bonds. The chapter explores how corporations are increasingly embedding biodiversity considerations into their strategic frameworks and examines the expanding roles of both the public and private sectors in driving investments. Looking forward, it projects a heightened emphasis on nature-based solutions, the evolution of regulatory landscapes, technological advancements in biodiversity monitoring, and enhanced methodologies for impact measurement. These insights underscore the critical necessity for effective biodiversity finance mechanisms to address the global biodiversity crisis and promote sustainable conservation practices. Additionally, the chapter underscores the growing practice of integrating biodiversity into financial decision-making and the development of biodiversity-sensitive financial products. Through relevant case studies, the chapter illustrates the implications for investors, corporations, and policymakers, advocating for the alignment of financial strategies with biodiversity objectives to ensure long-term environmental resilience. This nuanced exploration of current trends and future projections in biodiversity finance provides a comprehensive framework for understanding the multifaceted interactions between finance and biodiversity conservation, emphasizing the urgent need for robust financial solutions to safeguard our planet’s biodiversity“ (abstract) “ (abstract).

Supply decarbonization: Greening the Supply Chain: Financial Tools to Catalyze Decarbonization by Small Businesses (#10) by Kyle J. Blasinsky as of Feb. 10^th, 2025: “… small- and medium-sized enterprises (“SMEs”) … aggregate emissions … account for half of all emissions in the United States annually. … many SMEs express interest in decarbonization, but they often cite insufficient capital and expertise as central barriers to these efforts. … this Article proposes integrating energy savings performance contracts (“ESPCs”) into large firms’ supply chains … ESPCs allow firms to invest in energy efficiency upgrades with an experienced energy services company that oversees the project and accesses financing by guaranteeing savings from those upgrades. …” (abstract). My comment: This is a good idea for shareholder engagement, see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog

Other investment research (in: Biodiversity investment)

Pseudo-optimal portfolios: Low Risk, High Variability: Practical Guide for Portfolio Construction by Antonello Cirulli, Gianluca De Nard, Joshua Traut, and Patrick Walter as of January 20th, 2025 (#306): “This paper explores how various portfolio construction choices influence the performance of low-risk portfolios. We show that methodological decisions critically influence portfolio outcomes, causing substantial dispersion in performance metrics across weighting schemes and risk estimators. This can only be marginally mitigated by incorporating constraints such as short-sale restrictions and size or price filters. … Transaction costs are found to significantly affect performance and are vitally important in identifying the most attractive portfolios … ” (abstract). My comment: I use equal weighted portfolios with yearly rebalancing which typically perform well (for pseudo-optimization see e.g. Kann institutionelles Investment Consulting digitalisiert werden? Beispiele)

Investment AI: Generative AI and Investor Processing of Financial Information by Elizabeth Blankespoor, Joe Croom and Stephanie Grant as of Dec. 13^th, 2024 (#249): “… Our survey of 2,175 retail investors, complemented by an analysis of 40,000 investor questions posed to a GenAI chatbot … we observe widespread adoption, with nearly half of surveyed investors already using GenAI, … nearly two-thirds of investors plan to continue or start using GenAI and believe it will become a standard tool for investors, many non-users remain skeptical. This hesitancy toward future GenAI adoption appears related to concerns about data privacy and response quality, as well as younger and less sophisticated investors having difficulty identifying or leveraging the processing benefits of GenAI …” (abstract).

Good AI advice: Using Large Language Models for Financial Advice by Christian Fieberg, Lars Hornuf, Maximilian Meiler, and David J. Streich as of Feb. 11^th, 2025 (#9): “… we elicit portfolio recommendations from 32 LLMs for 64 investor profiles, which differ in their risk preferences, home country, sustainability preferences, gender, and investment experience. Our results suggest that LLMs are generally capable of generating suitable financial advice that takes into account important investor characteristics when determining market and risk exposures. The historical performance of the recommended portfolios is on par with that of professionally managed benchmark portfolios. We also find that foundation models and larger models generate portfolios that are easier to implement and more sensitive to investor characteristics than fine-tuned models and smaller models. Some of our results are consistent with LLMs inheriting human biases such as home bias. We find no evidence of gender-based discrimination, which can be found in human financial advice“ (abstract).

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Werbung (in: Biodiversity investment)

Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich außerordentlich hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement bei derzeit 28 von 30 Unternehmen (siehe auch My fund).

Zum Vergleich: Ein traditionelle globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 20%, für einen Gesundheits-ETF beträgt diese 7% und für einen ETF für erneuerbare Energien 43%.

Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Ein besonders konsequent nachhaltiges Portfolio mit markttypischen Renditen und (eher niedrigeren) Risiken. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.

Climate misbelieves: Researchpost 204

Climate misbelieves: 9x new practical research on nature in cities, climate misbelieves, lukewarm glow investments, Trump investment and IRA effects, short-lived controversy effects, impact fund criticism, climate VC benefits and thematic direct indexing (# shows SSRN full paper downloads as of Nov. 28^th, 2024).

Social and ecological research

Nature in cities-effects: How do nature-based solutions contribute to biodiversity in cities by Meng Li, Roy P. Remme, Peter M. van Bodegom, and Alexander P.E. van Oudenhoven as of Nov. 13^th, 2024 (#34): “… We analyzed the outcomes of 185 urban NbS (Sö: Nature-based solutions) cases in 87 cities across 33 countries, based on data collected in a systematic literature review. Our results show that 78% of NbS cases contribute positively to improving biodiversity when compared to non-NbS and, in some cases, their performance was comparable to that of natural reference sites. Moreover, NbS cases consistently showed positive additional effects on non-biodiversity outcomes, leading to predominantly ‘win-win’ solutions benefiting both biodiversity and human well-being“ (abstract).

Climate misbelieves? Who Bears Climate-Related Physical Risk? by David Wylie, Natee Amornsiripanitch, John Heilbron, and Kevin Zhao from the Federal Reserve Bank of Philadelphia as of Dec. 1^st, 2023 (#215): “This paper combines data on current and future property-level physical risk from major climate-related perils (severe convective storm, inland floods, hurricane storm surge, hurricane wind, winter storms, and wildfires) that single-family residences (SFRs) face with … in the contiguous United States. … Higher current physical risk is associated with lower household incomes, lower labor market participation rates, lower education attainment, higher in-migration, higher increase in expected physical risk by 2050, and lower belief in climate change“ (abstract). My comment: Social disadvantages are associated with higher climate risks but – contrary to public opinion – climate change beliefs may diminish.

ESG investment research (in: Climate misbelieves)

Lukewarm glow? Revisiting the ESG-Performance Association in Light of the Theory of Warm-Glow Investing by Mirel Tatomir, Johannes K. Dreyer, and Kristian J. Sund as of Nov. 23^rd, 2024 (#6): “Firstly, there are recent indications that the (Sö: warm glow: investors have a higher willingness to pay for sustainable assets) effect is limited to the signal value of sustainable investing, not to the actual level of impact … Secondly, there are indications that the warm glow disappears in periods of high uncertainty … Thirdly, our results indicate that the warm-glow effect may vary significantly by industry. … Fourthly, our results confirm that once ESG is broken into pillars, the effect becomes less prominent“ (p. 20/21). My comment: Sustainable investment should not be more expensive than traditional investments, see ESG Fund Fees Myth busting: ESG funds aren’t more expensive than non-ESG funds by Morningstar Sustainalytics as of June 24th, 2024

Anti-green Trump effects: Political elections and market reactions: the ‘Trump effect’ on green stocks by Simona Cosma, Stefano Cosma, Luca Gambarelli, Daniela Pennetta and Giuseppe Rimo as of Nov. 22^nd, 2024 (#33): “.. we use the event study methodology with a sample of 498 firms that are part of the S&P 500 index. Our results reveal strong investor reactions and re-adjustments in anticipation of and following Trump’s election, with heterogeneous sensitivity among sectors. Energy, Financials, and Industrials sectors show more pronounced positive CARs (Sö: Cumulative abnormal returns), likely reflecting expectations of favourable policies. In contrast, sectors such as Materials, Real Estate, Utilities, and Consumer Staples display negative and significant CARs. The most important result is that firms performing better on environmental issues were characterized by a worse performance within the event windows …“ (p. 8). My comment: Let’s see how long such effects last: My ESG SDG fund had a negative performance in October but an almost equal positive performance this month.

Sustainable fund risks ahead? Greening thy Neighbor: How the US Inflation Reduction Act Drives Climate Finance Globally by Daniel Marcel te Kaat, Alexander Raabe, and Yuanjie Tian as of Oct. 15^th, 2024 (#30): “This paper studies international spillovers of the IRA announcement in September 2021 through investment fund flows … The IRA is the most forceful climate policy action in US history, combining tax credits, grants, and loans worth at least $370 billion to accelerate the transition to net-zero in the US by stimulating private sector investments in clean energy. We document … that the IRA triggered significantly increased investor flows into sustainable investment funds, notably those domiciled outside of the US. … the IRA … improved the realized returns of sustainable funds in expectation of higher future cash flows of sustainable relative to conventional assets. In turn, sustainable funds increased their cross-border portfolio investments worldwide. Non-US domiciled funds investing in the US or US-domiciled funds with a global portfolio do not mechanically account for this result. … Moreover, we show that countries with more effective climate policies … not only attract higher inflows from sustainable funds, but also from conventional funds … “ (p. 37). My comment: The new political leaders of the US want to reduce the IRA effects which may be bad for sustainable funds and their investors worldwide (but this maybe is already priced-in)

Short-lived controversy effects: Resilience of Market Returns around ESG Controversies: Insights from the S&P 100 by Tomaso Aste, Emilio Baruccib Maxime L.D. Nicolas, and Davide Stocco as of Nov. 23^rd, 2024 (#41): “We examine the impact of ESG–controversial events on the stock prices of companies belonging to the S&P 100 index, … companies with stronger (Sö: social media) reputation experience a shorter, non statistically significant impact, while those with lower reputation face statistically significant negative effects, lasting up to four days“ (abstract).

Impact investment research

Unsustainable impact funds? Exploring the Essence of the EU Sustainable Finance Disclosure Regulation: defining Sustainability by what it is or what it is not? Danny R. Dekker, Suzana Grubnic, Andreas G.F. Hoepner, and Andrew Vivian as of Oct. 8^th, 2024 (#54): “Sustainable Finance Disclosure Regulation (SFDR) requires funds to classify themselves as disclosing at pre-specified sustainability transparency levels. Since the implementation of the regulation, there has been a tension between two perspectives on how financial market participants view and utilise the SFDR … In the first view, sustainability in the SFDR is defined by ‘what it is’, i.e. doing good (e.g. renewable energy). In the second view, sustainability is defined by ‘what it is not’, specifically by avoiding adverse impacts. … We find that the sustainability strategies, in particular, provide support for the view that the SFDR is defined by ‘what it is not’. … Supporting evidence for the alternative view is limited to some fund managers employing more nuanced strategies like engagement to classify their funds highest on sustainability. Notably, only funds employing the exclusion strategy consistently have better sustainability outcomes, suggesting that funds employing supposedly more sophisticated strategies run the risk of not delivering on their sustainability commitments“ (abstract). My comment: The authors use ESG ratings and “severe E/S issues” as measure for sustainability outcomes. My fund (and potentially some others as well) use both negative and positive sustainability criteria. For my fund these are many strict exclusions, high ESG-rating requirements including ESG issues and thus resulting in very few severe issues, high SDG-revenues and shareholder engagement activities. Such negative+positive funds ideally should have been analysed as well.

Climate VC signaling: Catalysts for Climate Solutions: Corporate Responses to Venture Capital Financing of Climate-tech Startups by Shirley Lu, George Serafeim, and Simon Xu as of Nov. 21^st, 2024 (#26): “… we find that incumbents in similar product markets as VC-backed startups increase their product focus on climate solutions. … the increase is more pronounced when the VC investment demonstrates more promising financial prospects and has higher visibility. Additionally, incumbents with a pre-existing focus on climate solutions are more likely to respond, and their stock prices respond positively in anticipation of future benefits from the commercial potential of climate solutions …” (abstract). My comment: Investments in exchange-listed climate-focused incumbents should to be (more) attractive in the future than recently.

Other investment research (in: Climate misbelieves)

Custom thematic portfolios: AI-Powered Direct Indexing: Exploring Thematic Universes for Enhanced Risk-Adjusted Returns by Moritz Schroeder and Christian Kronseder as of November 14^th, 2024 (#24): “This paper explores direct indexing (DI) in the stock market using FINDALL. FINDALL is our self-engineered Transformers-based search engine which detects thematically relevant stock tickers in websites and PDFs. We demonstrate creating thematic indices in minutes … We study thematic indices such as Bionic, Defense, Energy, and Luxury. … our key finding is that the rule-based FINDALL approach is more accurate in selecting thematically relevant stocks compared to portfolio manager curated ETF stock selection. … Secondly, the Sharpe ratio indicators for all indices are higher than the ETF benchmarks showing enhanced risk-adjusted returns”. My disclaimer: I am an ESG-Advisor to Allindex, the company run by Christian Kronseder, and I offer SDG ETF-Portfolios and SDG direct equity portfolios.

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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).

Compensation greenwashing? Researchpost 201

Compensation greenwashing: 13x new research on climate facts, green (fintech) nudges, greentech, ESG data, ESG risks, ESG ratings, sustainable investors, climate news effects, fiduciary climate duty, forestation effects and FinAI (# shows SSRN full paper downloads as of Nov. 7^th, 2024)

Social and ecological research

Climate fact checking AI: Automated Fact-Checking of Climate Change Claims with Large Language Models by Markus Leippold and many more as of March 8^th, 2024 (#126): „This paper presents Climinator, a novel AI-based tool designed to automate the fact-checking of climate change claims. Utilizing an array of Large Language Models (LLMs) informed by authoritative sources like the IPCC reports and peer-reviewed scientific literature … Our model demonstrates remarkable accuracy when testing claims collected from Climate Feedback and Skeptical Science. Notably, when integrating an advocate with a climate science denial perspective in our framework, Climinator’s iterative debate process reliably converges towards scientific consensus, underscoring its adeptness at reconciling diverse viewpoints into science-based, factual conclusions” (abstract).

Green nudges? Creating pro-environmental behavior change: Economic incentives or norm-nudges? by Mathias Ekström, Hallgeir Sjåstad and Kjetil Bjorvatn as of Sept. 26^th, 2024 (#27): “… we present causal evidence from a two-year field experiment, comparing how a small price incentive and a social norm-nudge affect the recycling behavior of more than 2,000 households. The results show a large, immediate, and persistent positive effect of incentives on both the quantity and quality of recycling, but no effect of the norm-nudge. However, the price incentive reduced customer satisfaction, unless it was combined with the norm-nudge …“ (abstract).

Fintech climate nudging: Fighting Climate Change with FinTech by Antonio Gargano and Alberto G. Rossi as of Oct. 23^rd, 2024 (#25): “We study the environmental sustainability of individuals’ consumption choices using unique data from a FinTech App that tracks users’ spending and emissions at the transaction level. … we show that individuals are likely to purchase carbon calculator services that provide them with detailed transaction-level information about their emissions. However, such a tool does not cause significant changes in their consumption and emissions. On the other hand, services that offset individuals’ emissions by planting trees are less likely to be adopted but prove effective in reducing users’ net emissions. … the lack of effectiveness likely stems from users not viewing climate change as more important than other socio-economic problems to alter their habits. The lack of adoption of carbon offsetting is instead driven by limited attention and users’ desire to directly benefit from the externality associated with having trees planted in their country of origin“ (abstract).

ESG investing research (in: Compensation greenwashing)

Greentech-rewards: Technological greenness and long-run performance by Stefano Battiston, Irene Monasterolo and Maurizio Montone as of Oct. 25^th, 2024 (#339): “Using a science-based technological measure of greenness, we find that adopting sustainable technologies leads to a long-run improvement in fundamentals that is only partially reflected in stock prices. Correspondingly, firms with greener technologies achieve higher returns over a multi-year period and are better positioned for the transition to a low-carbon economy. These effects are especially pronounced in financially developed countries and among firms with better climate-related disclosure”. My comment: This is encouraging since I invest in green technologies through my mutual fund.

Missing ESG data: ESG Data Imputation and Greenwashing by Giulia Crippa as of Nov. 4^th, 2024 (#87): “This paper provides a simple and comprehensive tool to tackle the issue of missing ESG data. Firstly, it allows to shed light on the failure of ESG ratings due to data sparsity. Exploiting machine learning techniques, we find that the most significant metrics are promises, targets and incentives, rather than realized variables. Then, data incompleteness is addressed, which affects about 50% of the overall dataset. Via a new methodology, imputation accuracy is improved with respect to traditional median-driven techniques. Lastly, exploiting the newly imputed data, a quantitative dimension of greenwashing is introduced. We show that when rating agencies do not efficiently impute missing metrics, ESG scores carry a quantitative bias that should be accounted by market players“ (abstract). My comment: My ESG data provider Clarity.ai extensively uses AI (also to handle missing data) and recently switched to more focus on “realized” data.

Imbalanced ESG risk: Imbalanced ESG investing? by Maria-Eleni K. Agoraki, Georgios P. Kouretas, Haoran Wu, and Binru Zhao as of Nov. 2^nd, 2024 (#49): “Our findings reveal a pronounced focus on environmental risks, particularly among funds with higher sustainability ratings, suggesting that E risks receive more strategic attention than S and G risks. Our analysis also demonstrates that ESG imbalances can adversely impact fund flows, particularly for funds with high sustainability ratings, as investors appear to favor a more balanced approach to ESG integration. However, we observe that this negative effect is moderated by growing public concern over climate change, which may influence investor tolerance for certain imbalances in favor of environmental priorities. … we find an association between ESG imbalance and higher risk profiles, including volatility, downside risk, and fund concentration, suggesting that prioritizing one ESG dimension, especially environmental factors, could compromise portfolio diversification, increasing the overall risk borne by investors“ (p. 26/27). My comment: Since many years I select stocks with high Best-in-universe-scores for E, S and G separately. The volatility of my fund with only 30 stocks from a relatively small number of market segments and countries is low with <13%.

Green prospectus beats rating: What attracts Sustainable Fund Flows? Prospectus vs. Ratings by Kevin Birk, Stefan Jacob, Marco Wilkens as of June 4^th, 2024 (#45): “We investigate the effect of sustainability information in fund prospectuses on fund flows and find that it strongly affects investor decisions. The economic relevance of prospectus information outweighs that of external sustainability ratings by far. … We posit that investors may use ratings to verify a fund’s self-proclaimed sustainability. … We find that sustainability cues in fund names attract more investors, likely because they make such funds easier to find or identify. … while retail investors prefer thematic funds with trendy investment approaches (e.g., climate change), institutional investors opt for funds combining exclusions and ESG criteria“ (p. 17/18). My comment: The results surprise me somewhat: Fund names often do not explain much and the fund prospectus typically only documents minimum sustainability requirements whereas sustainability ratings are based on much more and more recent information.

Negative climate news and positive returns: Climate Risk Perception and Mutual Fund Flows: Implications for Performance by Viktoriya Lantushenko and Gulnara R. Zaynutdinova as of June 7^th, 2024 (#27): “… We propose a measure of a fund’s flow sensitivity to negative climate news, namely climate-risk-flow sensitivity, and investigate its effect on fund alpha. Our findings reveal that mutual funds experiencing increased inflows in response to negative climate news outperform other funds in the sample. This performance differential is economically meaningful: a one-standard-deviation rise in climate-risk-flow sensitivity corresponds to a 0.48% increase in annualized risk-adjusted returns. The results are pronounced only for mutual funds that experience inflows when more negative climate-related news are published. … we find that our results are driven by more actively managed funds. Our findings reveal that mutual funds with stronger stock-selection abilities are better positioned to capitalize on the influx of new capital as climate concerns strengthen“ (p. 23).

SDG investment research

Sustainable investor identification: A First Step Towards a Standardized Framework for Identifying Sustainable Investors: A Comparison of Common Measures by David Shkel as of Nov. 1st, 2024 (#10): “… there is no consensus on a standard set of control variables to identify sustainable investors. This study compares measures from three categories: (i) financial literacy/sustainable finance literacy, (ii) sustainability literacy, and (iii) human-nature interaction. … We recommend a concise set of measures: the financial literacy measure by Lusardi and Mitchell (2008), a question assessing the „warm glow“ effect, and the environmental literacy measure by Anderson and Robinson (2022)” (abstract).

Fiduciary climate duty: Sustainable Fiduciary Duties – The time has come for financial fiduciaries to adapt to the new climate reality by Andreas Wildner and Maurits Dolmans as of Oct. 31^st, 2024 (#17): “Preserving and maximizing financial returns on investment means actively pursuing climate mitigation, and ensuring that investee companies and public authorities do so, too. The key points in this paper are two: the importance of market failure as a cause of the climate change and nature loss crises; and the recognition of the role existing principles of fiduciary duties can play to help solve this market failure, by avoiding the associated prisoners’ dilemma” (abstract). My comment: I hope that more and more investors (and advisors) will recognize this fiduciary duty.

Effective forests? Serious errors impair an assessment of forest carbon projects: A rebuttal of West et al. (2023) by Edward T. A. Mitchard et al. as of Dec. 20^th, 2023 (#1519): “West et al. conclude that “only a minority of projects achieved statistically significant reductions in comparison with ex post counterfactuals”, but we have shown that this result is highly uncertain given the lack of sensitivity of their approach given their input satellite data, use of inappropriate synthetic controls resulting in poor synergies between control and project sites and sensitivity of their results to small changes in methodology, and calculation errors …“ (p. 9).

ESG compensation greenwashing? All Hat and No Cattle? ESG Incentives in Executive Compensation by Matthias Efing, Patrick Kampkötter, Stefanie Ehmann, and Raphael Moritz as of Oct. 2^nd, 2024 (#253): “… this study reveals significant heterogeneity in the role of ESG metrics in executive compensation across industries, firms, and executive positions. While ESG metrics are increasingly prevalent, their integration into executive pay often lacks material weight and incentive power. Discretionary ESG metrics dominate in financial firms and large, visible companies, raising concerns of greenwashing rather than genuine incentive alignment. In contrast, firms in energy-intensive and high-polluting industries, as well as those with highly volatile stock prices, tend to adopt binding ESG metrics with more substantial weights” (p.35/36). My comment: Many shareholder engagement (and voting) activities focus on ESG compensation. I focus on other points e.g. employee and customer (ESG) satisfaction, see Shareholder engagement: 21 science based theses and an action plan – including low CEO pay ratios (see Wrong ESG bonus math? Content-Post #188).

Other investment research (in: Compensation greenwashing)

FinAI bets GenAI: Re(Visiting) Large Language Models in Finance by Eghbal Rahimikia and Felix Drinkall as of October 13, 2024: “This study introduces a novel suite of historical large language models (LLMs) pre-trained specifically for accounting and finance ….. Empirical analysis reveals that, in trading, these specialised models outperform much larger models, including the state-of-the-art LLaMA 1, 2, and 3, which are approximately 50 times their size” (abstract).

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Werbung (in: Compensation greenwashing)

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Green brownies: Researchpost 197

Green brownies: 10x new research on positive migration effects, warmer winter disappointments, severe greenwashes, institutional investor problems, biodiversity risks, green performance, ESG risks, green brownies, alternatives misbeliefs and communist memories (# shows number of full paper SSRN downloads as of October 11^th, 2024)

Social and ecogical research

Positive migration effects: Migration into the EU: Stocktaking of Recent Developments and Macroeconomic Implications by Francesca Caselli, Huidan Lin, Frederik Toscani, and Jiaxiong Yao from the International Monetary Fund as of Oct. 7^th, 2024 (#15): “… immigration into the European Union (EU) reached a historical high in 2022 and stayed significantly above pre-pandemic levels in 2023. The recent migration has helped accommodate strong labor demand, with around two-thirds of jobs created between 2019 and 2023 filled by non-EU citizens, while unemployment of EU citizens remained at historical lows. Ukrainian refugees also appear to have been absorbed into the labor market faster than previous waves of refugees in many countries. The stronger-than-expected net migration over 2020-23 into the euro area (of around 2 million workers) is estimated to push up potential output by around 0.5 percent by 2030—slightly less than half the euro area’s annual potential GDP growth at that time—even if immigrants are assumed to be 20 percent less productive than natives. … On the flipside, the large inflow had initial fiscal costs and likely led to some congestion of local public services such as schooling” (abstract).

Warmer winters disappointments: Rising Temperature, Nuanced Effects: Evidence from Seasonal and Sectoral Data by Ha Minh Nguyen and Samuel Pienknagura from the International Monetary Fund as of Oct. 7th, 2024 (#6): “Using quarterly and sectoral data, this paper uncovers nuanced effects of temperature. It finds that, for EMDEs (Sö: emerging markets and developing economies), hotter spring and summer temperatures reduce growth in real value-added of manufacturing, and most significantly, of agriculture—a 1-Celsius degree hotter spring reduces yoy growth in agricultural value-added in the same quarter by about 0.8 percentage points and by more than 1 percentage point for the following fall and winter. By contrast, a warmer winter boosts agricultural activity. For advanced countries (AEs), a hotter spring hurts growth in real value-added of all considered sectors: services, manufacturing and agriculture. Overall, for both country groups, the negative effect of a hotter spring is larger and more persistent than the positive effect of a warmer winter. …. The potentially increasing economic costs of rising temperature is also indicated by the fact that the adverse impacts of hotter temperatures in advanced economies and to a less extent, EMDEs, have accentuated in recent decades“ (p. 23).

Severe greenwashes: A turning tide in greenwashing? Exploring the first decline in six years by RepRisk as of October 2024: “Despite an overall 12% decline in greenwashing cases, high-risk incidents surged by over 30% in 2023-2024. Nearly 30% of companies linked to greenwashing in 2022-2023 were repeat offenders in 2024. In the EU’s Banking and Financial Services sector, climate-related greenwashing incidents declined by 20% in 2024, a likely consequence of stricter regulations”.

Institutional investor problems: Institutional Investor Distraction and Unethical Business Practices: Evidence from Stakeholder-Related Misconduct by Daniel Neukirchen, Gerrit Köchling, and Peter N. Posch as of July 6^th, 2024 (#371): “… we … exploit exogenous shocks to institutional investors’ portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. … The effects are stronger when CEOs have more outside options in the executive the labor market, stronger career concerns and equity incentives, as well as for firms in competitive environments, which speaks to a potential underlying pattern in which CEOs weigh up the benefits and disadvantages before exploiting periods of institutional distraction to commit misconduct. … we provide some evidence suggesting that employees may be particularly vulnerable. … our cross-sectional tests suggest that career concerns drive this behavior” (p. 34).

ESG investment research (in: Green brownies)

Corporate biodiversity risks: Does biodiversity matter for firm value? by Simona Cosma, Stefano Cosma, Daniela Pennetta and Giuseppe Rimo as of October 7^th, 2024 (#50): “In our article we introduce the Corporate Biodiversity Footprint as a proxy for the corporate-generated impact on biodiversity. By analyzing a sample of 1,848 publicly listed companies, we empirically estimate the effect the biodiversity loss caused by a firm’s annual activities on firm value. Our results … show that firms‘ impact on biodiversity negatively affects their firm value” (abstract).

Green outperformance? Managing Climate-Change Risks vs. Chasing Green Opportunities — What Works? by Elchin Mammadov, Xinxin Wang, and Drashti Shah from MSCI as of September 30^th, 2024: “Constituents of the MSCI ACWI Investable Market Index (IMI) with high scores on the climate-change theme outperformed globally across most sectors over the past 11 years. Over this period, leaders in the environmental-opportunities theme recorded higher market returns compared to laggards, although outperformance has sharply reversed since 2021. Despite this reversal, analysts’ consensus estimates suggest an improved outlook for environmental-opportunity leaders, with expected improvements in profitability from 2024 to 2027”.

Good ESG reduces risks: ESG risks and Corporate Viability: Insights from Default Probability Term Structure Analysis by Fabrizio Ferriani and Marcello Pericoli as of Oct. 8^th, 2024 (#18): “We analyze the impact of ESG risks on the term structure of default probabilities of European non-financial corporations from 2014 to 2022. Our findings reveal that higher ESG scores decrease a company’s inherent risk implicit in its probability of default, with a more pronounced effect as the time horizon for default probability increases. The relevance of ESG risks on corporate viability fluctuates over time and tends to intensify following major events related to sustainability risks, such as the Paris Agreement or the Covid-19 pandemic. … ESG considerations … also influence the credit risk premium required by investors“ (abstract).

Green brownies: Do Investors Use Sustainable Assets as Carbon Offsets? by Jakob Famulok, Emily Kormanyos, and Daniel Worring as of Sept. 24, 2024 (#345): “We find evidence that high-emission consumers tend to invest more sustainably, suggesting a compensatory behavior. Our analyses, using unique transaction-level data, show that these consumers prefer investments with favorable environmental ratings. Additional evidence from a survey with the same bank whose data we analyze supports that this is a conscious choice. We address several associated concerns in a series of robustness analyses, providing evidence that this behavior is not driven by income or consumption levels, financial motives, or heterogeneous sustainability preferences. Furthermore, we conduct a randomized control trial showing causally that individuals are more likely to choose sustainable investments after learning about their high carbon footprints. This behavior diminishes when direct carbon offsets are an option, indicating that sustainable investments and direct offsets are viewed as substitutes” (p.19/20). My comment: Perhaps I should market my fund especially to “brownies”.

Other investment research (in: Green brownies)

Alternatives misbelieves? The Rise of Alternatives by Juliane Begenau, Pauline Liang, and Emil Siriwardane as of Oct. 1st, 2024 (#165): “Since the early 2000s, public pensions in the United States have substantially altered the composition of their risky investments, shifting out of public equities and into alternative investments like private equity, real estate, and hedge funds. Explanations based on a desire to take risk, such as those caused by underfunding, have limited empirical support. Instead, we propose a new perspective rooted in beliefs: U.S. pensions increasingly perceive alternative investments to provide a more favorable risk-return profile than public equities, some more so than others. This belief-based perspective follows from textbook portfolio theory … While our study provides suggests beliefs about alternatives are shaped by consultants, peers, and experience during the 1990s, more research is needed to fully understand the process by which pensions form beliefs” (p.38/39). My comment: Recent research shows no or very little outperformance of alternative investments especially after direct and opportunity costs.

Communist memories: The long-lasting effects of experiencing communism on attitudes towards financial markets by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi as of Oct. 3^rd,2024 (#505): “We show that exposure to anti-capitalist ideology can exert a lasting influence on attitudes towards capital markets and stock-market participation. Utilizing novel survey, bank, and broker data, we document that, decades after Germany’s reunification, East Germans invest significantly less in stocks and hold more negative views on capital markets. … Results are strongest for individuals remembering life in the German Democratic Republic positively …. Results reverse for those with negative experiences like religious oppression, environmental pollution, or lack of Western TV entertainment” (abstract).

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Werbehinweis (in: Green brownies)

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).

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

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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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Biodiversity risks: Researchpost 192

Biodiversity risks: 10x new research regarding ESG disclosure effects, green innovation, food waste reduction, biodiversity models and investments, climate equity risks, AI investment opportunities, listed equity impact, sustainability questionnaires, hedge funds, open-source investment AI (#shows SSRN full paper downloads as of Sept. 5^th, 2024)

Social and ecological research

Competitive disclosure effects: Do ESG disclosure mandates affect the competitive position of public and private firms? by Peter Fiechter, Jörg-Markus Hitz, and Nico Lehmann as of May 23^rd, 2024 (#202): “… we explore economic effects of mandatory ESG disclosure, specifically the impact of these regulations on the competitive position of public and private suppliers in domestic markets. Using granular data on customer-supplier contracts, we find that the staggered adoption of ESG disclosure mandates in different economies around the globe has an economically meaningful impact on competition in these domestic markets, as private suppliers gain contracts at the expense of public suppliers. Our cross-sectional results provide evidence for two non-mutually exclusive mechanisms that help explain this finding: (i) ESG regulated corporate customers shift contracts from public to private suppliers, consistent with a preference for ESG opaque over ESG transparent supply chains, and (ii) adverse price competition effects for treated suppliers due to incremental direct and indirect costs associated with the ESG disclosure mandate. We also show that treatment effects are concentrated in contractual relations with suppliers of low importance to their corporate customers“ (p. 27/28).

Disclosure innovation push: Mandatory Disclosure and Corporate Green Innovation by Brian Bratten, Sung-Yuan (Mark) Cheng, and Tyler Kleppe as of May 29^th, 2024 (#69): “Adopting a difference-in-differences research design surrounding the adoption of state-level greenhouse gas (GHG) emissions disclosure mandates, we find that disclosure mandates are associated with an increase in the quantity of patents related to climate change mitigation/adaptation technologies (i.e., “green innovations”). This increase is stronger among firms with more social investors …. We also document a positive association between GHG emissions disclosure mandates and future environmental performance ratings … However, we find that these mandates are associated with a reduction in future financial performance for some firms, suggesting a potential negative effect on shareholder welfare“ (abstract).

Good food AI: Using Artificial Intelligence To Reduce Food Waste by Yu Nu, Elena Belavina, and Karan Girotra as of June 3^rd, 2024 (#219): “Technology companies … have launched (AI-powered) granular food waste information gathering systems that can easily measure and stratify food waste in an automated manner … The quasi-experimental … implementation at almost 900 commercial kitchens … reduces food waste, on average, by 29% three months post-adoption. … In addition, we estimate that upgrading to the computer-vision-based automatic recognition system induces a further 30% average reduction in food waste level one year post-upgrade“ (p. 38).

Biodiversity risks of models: Assessing Integrated Assessment Models for Building Global Nature-Economy Scenarios by Mathilde Salin, Katie Kedward, and Nepomuk Dunz as of August 22^nd, 2024: “… we review how different ecosystem services, drivers of nature loss, and mitigation policies are represented in global integrated assessment models (Sö: IAM) that incorporate aspects of nature loss. … First, we find that applied global IAMs represent economic dependencies on only a subset of ecosystem services (mostly provisioning services, in particular food and water) and capture selected drivers of biodiversity loss (mainly climate and land use–related). Only a few models represent regulating and maintenance ecosystem services (focusing mainly on pollination and climate) albeit with only partial connections to the economy. … Second, we find that the representation of nature/policy dimensions in applied models is linked to macroeconomic variables by limited and in some cases indirect mechanisms. Important nature-to-economy transmission mechanisms are missing, such as those involving the role of critical ecosystem services to production … and human health and nutrition. … As a result, applied global models are likely to underestimate the economic impacts stemming from nature-related shocks“ (p. 17).

ESG investment research (in: Biodiversity risks)

Biodiversity risks of investments: Biodiversity Risk and Dividend Policy by Md Noman Hossain, Md Rajib Kamal, and Monika K. Rabarison as of Aug. 6^th, 2024 (#33): “… we examine whether the increased corporate awareness of the potential loss of biodiversity affects dividend policy in relation to biodiversity risk. Using ,,, a sample of 26,811 firm-year observations in the United States, we found strong evidence that firms that are exposed to high-biodiversity risk pay lower dividends than those that are less exposed to biodiversity risk. … Additionally, we observe that financially constrained firms experience significantly lower dividend payouts when exposed to biodiversity risk. … The aforementioned negative association is more pronounced for firms with higher … biodiversity scores, and firms that get more public attention about their biodiversity risk“ (p. 32).

Climate equity risks: How Does Climate Risk Affect Global Equity Valuations? A Novel Approach by Ricardo Rebonato, Dherminder Kainth, and Lionel Melin from EDHEC as of July 10^th, 2024: “1. A robust abatement policy, i.e., roughly speaking, a policy consistent with the 2°C Paris-Agreement target, can limit downward equity revaluation to 5-to-10%. 2. Conversely, the correction to global equity valuation can be as large as 40% if abatement remains at historic rates, even in the absence of tipping points. … 3. Tipping points exacerbate equity valuation shocks but are not required for substantial equity losses to be incurred. … 4. When state-dependent discounting is used for valuation, physical damages, even if ‘back-loaded’, are not fully ‘discounted away’, and contribute significantly to the equity valuation“ (p. 6).

Wrong sustainability questions? Explaining the Attitude-Behavior Gap for Sustainable Investors: Open vs. Closed-Ended Questions by Tobias Wekhof as of May 23^rd, 2024 (#39): “We analyzed the attitude-behavior gap in sustainable investing … with open- and closed-ended questions. Our results indicate that open-ended responses have several advantages that can help to narrow the “gap.” Respondents tend to focus on fewer topics, making ranking topics across the entire sample more distinct. The written answers also allowed the expression of topics not included in the closed-ended options. However, respondents would often select a topic among the closed-ended options but not write about it. … the open-ended responses showed a higher predictive power“ (p. 18).

Other investment research

Listed equity impact? Who Clears the Market When Passive Investors Trade? by Marco Sammon and John J. Shim as of April 15^th, 2024 (#832): “Over the past 20 years across all stocks, firms are the largest providers of shares to passive investors on average and on the margin: For every 1 percentage point (pp) change in ownership by index funds, firms take the other side at a rate of 0.64 pp. When restricting to stock-quarters where index funds are net buyers, firms issue at a rate of 0.95 pp. … firms, through adjustments in the supply of shares, are the single-most responsive group to inelastic demand. More than half of the adjustment comes through stock compensation, stock options, and restricted stock units …“ (abstract). My comment: Investing in “responsible” ETFs may therefore have more impact by providing additional capital (like private equity investments) than previously thought.

Hedge fund AI benefits: Generative AI and Asset Management by Jinfei Sheng, Zheng Sun, Baozhong Yang, and Alan Zhang as of April 8^th, 2024 (#236): “… we develop a novel measure of the usage or reliance on generative AI (RAI) of investment companies based on their portfolio holdings and AI-predicted information. We study the adoption and implications of generative AI in hedge funds and 28 other asset management companies. … Hedge fund companies with higher RAI produce superior returns, both unadjusted and risk-adjusted. … we find hedge fund companies generate more returns from using AI-predicted firm-specific information related to firm policies and performance than from macroeconomic and sectorwise information. … Non-hedge fund companies do not produce significant returns. Furthermore, large and more active hedge fund companies adopt the technology early and perform better than others” (p. 28/29). My comment see AI: Wie können nachhaltige AnlegerInnen profitieren? or How can sustainable investors benefit from artificial intelligence?

Free Investment-AI: FinRobot: An Open-Source AI Agent Platform for Financial Applications using Large Language Models by Hongyang (Bruce) Yang et al. as of May 29th, 2024 (#54): “… we introduce FinRobot, a novel open-source AI agent platform supporting multiple financially specialized AI agents, each powered by LLM. Specifically, the platform consists of four major layers: 1) the Financial AI Agents layer that formulates Financial Chain-of-Thought (CoT) by breaking sophisticated financial problems down into logical sequences; 2) the Financial LLM Algorithms layer dynamically configures appropriate model application strategies for specific tasks; 3) the LLMOps and DataOps layer produces accurate models by applying training/finetuning techniques and using task-relevant data; 4) the Multi-source LLM Foundation Models layer that integrates various LLMs and enables the above layers to access them directly. Finally, FinRobot provides hands-on for both professional-grade analysts and laypersons to utilize powerful AI techniques for advanced financial analysis. We open-source FinRobot at https://github. com/AI4Finance-Foundation/FinRobot“ (abstract).

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Werbehinweis (in: Biodiversity risks)

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Smallcap-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 93% 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).