Archiv der Kategorie: Bonds

Illiquid impact investments: Researchpost 220

Illiquid impact illustration from Pixabay by Kohji Asakawa

11x new research on green/brown ideology, tax pollution, solar risks, brown sovereign risk, green backtest risk, green supplier engagement, greening M&A, biodiversity startups, impact private equity, liquid impact, SDG revenues (# shows the number of SSRN full paper downloads as of April 3^rd, 2025)

Ecological Research

Green/brown ideology: Public Support for Environmental Regulation: When Ideology Trumps Knowledge by Markus Dertwinkel-Kalt and Max R. P. Grossmann as of April 1^st, 2025 (#8) “When environmental regulations are unpopular, policymakers often attribute resistance to information frictions and poor communication. We test this idea in the context of a major climate policy: Germany’s Heating Law of 2023, which mandates the phase-out of fossil fuel heating. … Despite successfully increasing factual knowledge, information provision has no significant effect on intended technology adoption, policy support, or incentivized measures of climate preferences. Instead, pre-existing environmental preferences and demographic characteristics emerge as the key predictors of responses to the regulation. A feeling that existing systems still work well and cost considerations dominate fossil fuel users’ stated reasons for non-adoption, while independence from fossil fuels and perceived contributions to the common good drive adoption among switchers. Our findings suggest that opposition to climate policy stems from fundamental preference heterogeneity rather than information frictions“ (abstract).

Tax pollution: Dirty Taxes: Corporate Taxes and Air Pollution by …. Thilo Erbertseder, Martin Jacob, Constance Kehne, and Hannes Taubenböck as of March 11^th, 2025 (#128): “… We use satellite data on nitrogen dioxide (NO2) levels and exploit local business tax variation in Germany over 2008-2020. We find that a 1% tax increase leads to 0.15% higher NO2 levels. … This increase in pollution can be explained by higher taxes preventing firms from shifting towards cleaner assets“ (abstract).

Sustainable investment research (in: Illiquid impact)

Solar risks: Solar Flare Up: Systemic Organizational Risk in the Residential Solar Industry by David F. Larcker and Brian Tayan as of Dec. 3^rd, 2024 (#87): “… A systemic risk is one in which the system itself — through its incentives, structure, and culture — encourages or fails to detect behavior contrary to what is intended by those who developed or manage the system. To illustrate the potential for systemic organizational risk to arise, we consider the curious case of the residential solar industry, in which complex financing, generous tax credits, generous sales commissions, and uncertain costs — coupled with widespread public interest in the adoption of solar — have combined to create an incredibly complex industry with multiple points of potential breakdown” (abstract) … iSun, a publicly traded solar company based in Vermont, has been accused of misappropriating funds; the company went bankrupt in 2024 and delisted from the NASDAQ. One firm estimates that as many as 75 percent of solar companies in California face bankruptcy because of the state’s revision of net-metering rules. Major publicly traded companies, such as Sunrun and Sunnova, have seen their stock prices fall in excess of 80 percent from their peak. Recently, the external auditor for SunPower resigned because the company did not have the “internal controls necessary to develop reliable financial statements” and therefore it was “unwilling to be associated with the financial statements prepared by management.” The company subsequently declared bankruptcy“ (p. 5). My comment: See Neues Research: Systemische Risiken von Solarinvestments | CAPinside

Brown sovereign risk: Creditworthy: do climate change risks matter for sovereign credit ratings? By Lorenzo Cappiello, Gianluigi Ferrucci, Angela Maddaloni, and Veronica Veggente from the European Central Bank as of March 26^th, 2025 (#32): “… higher temperature anomalies and more frequent natural disasters—key indicators of physical risk—are associated with lower credit ratings. In contrast, transition risk factors do not appear to be systematically integrated into credit ratings throughout the entire sample period. … Additionally, more ambitious CO2 emission reduction targets and actual reductions in CO2 emission intensities are associated with higher ratings post-Paris Agreement, … countries with high levels of debt and those heavily reliant on fossil fuel revenues tend to receive lower ratings after the Paris Agreement …“ (abstract). My comment: I use bonds of multilateral development banks instead of sovereign bonds for my portfolios.

Green backtest risk: Performance of sustainable indices: Are there differences between pre- and post-inception by Niklas Kestler and Hendrik Scholz as of April 1^st, 2025 (#14) “… this paper conducts a comprehensive analysis of 141 sustainable indices … There is evidence that the pre-inception period seems to perform better than the post-inception period. This is especially visible for Smart-Beta-ESG and Thematic-ESG indices. … Moreover, we find some indication of outperformance for Broad-ESG indices“ (p. 13/14). My comment: Since many years, I do not use backtests anymore

Green supplier engagement: Climate Disclosures and Decarbonization along the Supply Chain by Pietro Bonetti, Yang (Ellen) En, Igor Kadach, and Gaizka Ormazabal as of Dec. 26^th, 2024 (#338): „… Our … exploit the unique features of the CDP, the world-leading platform of corporate climate risk disclosures. We find a strong positive association between customer and supplier disclosures to the CDP. … We also observe that supplier CDP disclosures likely induced by customers’ demand are associated with subsequent lower carbon emissions. Moreover, customers are more (less) likely to terminate relationships with the most (least) polluting suppliers and with those not meeting their disclosure demands”. My comment: With my shareholder engagement I ask to publish GHG Scope 3 emissions (including suppliers) and I also ask for independent ESG-Scoring of all significant suppliers (which typically prominently include GHG-effects), see Shareholder engagement: 21 science based theses and an action plan

Greening M&A: Environmental Disclosure, Regulatory Pressure, and Sustainable Investment: Evidence from Mergers and Acquisitions by Kee-Hong Bae, Hamdi Driss, and Nan Xiong as of April 1^st, 2025 (#1): “We investigate how environmental disclosure regulations influence firms’ mergers and acquisitions. Leveraging the staggered adoption of 26 environmental disclosure mandates across the globe as shocks that pressure companies to improve their environmental performance, we find that 1) acquirers increasingly target firms with better environmental performance following the mandates, 2) these acquirers realize positive short-term and long-term abnormal stock returns, and 3) they achieve substantial reductions in greenhouse gas emissions and environmental damage costs post-acquisition” (abstract). My comment: This speaks against the often-used hypothesis, that public companies sell brown businesses to private companies which may not care much about environmental issues.

Biodiversity startups: Biodiversity Entrepreneurship by Sean Cao, G. Andrew Karolyi, William W. Xiong, and Hui Xu as of March 31^st, 2025 (#14) “… we identify 630 biodiversity-linked start-ups in PitchBook and compare their financing dynamics to other ventures. We find biodiversity start-ups raise less capital but attract a broader coalition of investors, including … mission-aligned impact funds and public institutions (“values-driven investors”). Values investors provide incremental capital rather than substituting value investors, but funding gaps persist. …” (abstract).

Illiquid impact: Impact Investing and Worker Outcomes by Josh Lerner, Markus Lithell, and Gordon M. Phillips as of March 26^th, 2025 (#199): “… Consistent with earlier studies, impact investors are more likely than other private equity firms to fund businesses in economically disadvantaged areas, and the performance of these companies lags behind those held by traditional private investors. We show that post funding impact-backed firms are more likely to hire minorities, unskilled workers, and individuals with lower historical earnings, perhaps reflecting the higher representation of minorities in top positions. They also allocate wage increases more favorably to minorities and rank-and-file workers than VC-backed firms“ (abstract).

SDG-Revenues: ESG rating providers: Survey on impact ratings by the DVFA Sustainability Committee as of April 1st, 2025: „Impact ratings are often the basis for calculating the proportion of sustainable investments in investment funds. …10 of the 18 rating providers surveyed answered our questions about their impact ratings in the period from September to November 2024. … The participants in the survey have a combined market share of up to 90% for sustainability data and ratings … The approach of the various rating providers shows, in addition to a large number of similarities, some significant differences…. almost all providers use the UN Sustainable Development Goals (SDGs) as the basis for their rating system … It turns out that almost all providers place a strong focus on the impact of a company’s products and services. The impact is often quantified on the basis of sales data. … Three providers determine impact purely on a company basis and three providers purely on an activity basis. A further three calculate both company and activity-based impact. This reflects the DVFA’s impression that neither investors nor regulators have developed a uniform standard for measuring sustainable investments. …“ My comment: I am a member of the DVFA Sustainability Committee (Translated with the free version of DeepL.com)

German impact research studies (in: Illiquid impact)

SDG-Umsätze: ESG-Ratinganbieter: Befragung zu Impact-Ratings vom DVFA-Fachausschuss Sustainability vom 1. April 2025: „Impact-Ratings sind oftmals die Grundlage zur Berechnung des Anteils nachhaltiger Investitionen in In vestmentfonds. …10 der 18 befragen Ratinganbieter beantworteten im Zeitraum von September bis November 2024 unsere Fragen zu ihren Impact-Ratings. … Die Teilnehmer der Umfrage haben gemeinsam einen Marktanteil bei Nachhaltigkeitsdaten und -ratings von bis zu 90 % … Die Vorgehensweise der verschiedenen Ratinganbieter zeigt, neben einer Vielzahl von Gemeinsamkeiten, einige wesentliche Unterschiede…. nahezu alle Anbieter nutzen die UN Sustainable Development Goals (SDGs) als Grundlage für ihr Bewertungssystem … Es zeigt sich, dass fast alle Anbieter einen starken Fokus auf die Wirkung der Produkte und Dienstleistungen eines Unternehmens legen. Dabei wird die Wirkung oft anhand von Umsatzdaten quantifiziert. … Drei Anbieter ermitteln Impact rein unternehmensbasiert und drei Anbieter rein aktivitätsbasiert. Weitere drei ermitteln gleichermaßen unternehmens- und aktivitätsbasiert. Das spiegelt den Eindruck der DVFA wider, dass weder bei Investoren noch bei Regulierern ein einheitlicher Standard zur Messung der nachhaltigen Investitionen entwickelt hat. …“ Mein Kommentar: Ich bin Mitglied des DVFA Fachausschusses Sustainability. Mein Ansatz siehe auch SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl

Liquid impact: Wirkungen der nachhaltigen Kapitalanlage von Rolf Häßler von NKI Research vom März 2025: „… Ergebnisse der Befragung der größten börsennotierten Unternehmen im deutschsprachigen Raum … 41,9 % der befragten Unternehmen stellen fest, dass die Anforderungen der nachhaltigen Kapitalmarktakteure einen sehr oder eher großen Einfluss auf ihre Gesamtstrategie haben – Tendenz steigend. Noch höher ist dieser Einfluss mit Blick auf Ziele und Strategie im ESG-Management (58,1 %) und die konkreten Maßnahmen (67,8 %). Im Hinblick auf den Einfluss der verschiedenen ESG-Anlagestrategien bewerten die Unternehmen die beiden Dialogstrategien als besonders einflussreich“ (S. 3). My comment: Impact is possible even with exchange-listed investments (for my shareholder engagement activities see e.g. My shareholder engagement: Failures, successes and adaption)

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Werbung (in: Illiquid impact)

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 bei 29 von 30 Unternehmen (siehe auch My fund).

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

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.

Say on pay shareholder voting problems: Researchpost 219

Say on pay illustration from Pixabay by Tumisu

5x new research on hate crimes, ESG comparability, say on pay, costly heuristics and bond factors (#shows full paper SSRN downloads as of March 26^th,2025)

Hate signals: The Cost of Tolerating Intolerance: Right-wing Protest and Hate Crimes by Sulin Sardoschau and Annalí Casanueva-Artís as of Mach 20^th, 2025 (#33): “… This paper investigates how right-wing demonstrations affect the incidence of hate crimes, focusing on Germany’s largest far-right movement since World War II … we find that a 20% increase in local protest attendance nearly doubles hate crime occurrences. … large protests primarily act as signals of broad xenophobic support, legitimizing extremist violence. This signaling effect propagates through right-wing social media net works and is intensified by local newspaper coverage and Twitter discussions. Consequently, large protests shift local equilibria, resulting in sustained higher levels of violence primarily perpetrated by repeat offenders. Notably, these protests trigger resistance predominantly online, rather than physical counter-protests“ (abstract).

ESG comparability? Accounting Comparability, ESG Reputational Risk and Corporate Investment Efficiency by Kostantinos Chalevas, Maria Giaka, Dimitrios Gounopoulos, and Dimitrios Konstantios as of Oct. 20^th, 2024 (#313): “…. we present robust evidence that firms with greater (Sö: accounting) comparability benefit from lower ESG reputational risk, reduced cost of capital, and increased investment activity. … Our findings underscore the critical role of comparability in enhancing financial decision-making …”

Good say on pay? Shareholder Votes and Executive Strategic Disclosures: Evidence from Say-on-Pay by Summer Zhao as of Feb. 28^th,2025 (#105): “… Say-on-Pay (SoP) in the United States … requires regular shareholder votes on executive compensation. … I present causal evidence that executives subject to SoP provide abnormally optimistic disclosures to potentially influence shareholders’ perceptions of their performance and voting decisions. This tone inflation is associated with more favorable SoP voting results but subsequent declines in firm value … the documented tone inflation is driven by executives’ heightened career concerns and compensation more closely tied to stock performance after SoP adoption … the findings highlight the unintended consequences of shareholder votes on managers’ strategic disclosure incentives“ (abstract).

Costly heuristics: How Costly are Trading Heuristics? By Hee-Seo Han, Xindi He, and Daniel Weagley as of March 7^th, 2025 (#140): “… Our set of heuristics is derived from processing articles published in top finance journals over the past 75 years. … We find a negative relationship between heuristic usage and future returns for retail investors. … In contrast, institutional investors selectively employ a limited subset of heuristics and generate superior returns on trades incorporating these heuristics. … We also document that heuristic usage is more prevalent among female investors and investors with larger balances …“ (p.39/40).

Bond factor failures: The Corporate Bond Factor Zoo by Alexander Dickerson, Christian Julliard, and Philippe Mueller as of March 6^th, 2025 (#39): “Analyzing 563 trillion possible models, we find that the majority of tradable factors designed to price bond markets are unlikely sources of priced risk …” (abstract).

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Werbung (in: Say on pay)

Zum Vergleich: Ein Gesundheits-ETF hat eine netto SDG-Umsatzvereinbarkeit von 12%, Artikel 9 Fonds haben 21%, Impactfonds 38% und ein ETF für erneuerbare Energien 45% (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!).

Maximale Portfolio-Nachhaltigkeit: Was geht?

Maximale Portfolio-Nachhaltigkeit: Illustration von Pixabay

Wenn man Anlageportfolios mit den nachhaltigsten Investments beginnt, reduziert Diversifikation die Nachhaltigkeit. Im Folgenden zeige ich zunächst die Unterschiede von jeweils besonders nachhaltigen Portfolios aus Aktien, ETFs oder aktiv gemanagten Fonds. Anschließend erläutere ich mögliche Nachhaltigkeitskompromisse bzw. Nachhaltigkeitskosten stärker diversifizierter Portfolios. Abschließend diskutiere ich, ob man mit ETFs oder aktiv gemanagten Fonds nachhaltiger investieren kann.

Unterschiedlichste Nachhaltigkeitsaspekte vergleichbar machen

Diese Analyse bezieht sich nur auf börsennotierte Wertpapiere, die allerdings einen sehr großen Anteil am Kapitalmarkt haben. Die potenzielle Nachhaltigkeitswirkung von börsennotierten Geldanlagen ist limitiert, denn Wertpapieremittenten wird kein zusätzliches Kapital zur Verfügung gestellt. Aber Angebot und Nachfrage bestimmen Finanzierungskosten von Unternehmen und auch Shareholder Engagement kann Wirkung haben. Ich meine, dass börsennotierte Investments so nachhaltig wie möglich sein sollten, zumindest so lange das ohne nennenswerte Performance-Einbußen möglich ist.

Nachhaltigkeit kann sehr unterschiedlich definiert werden. Die Deutsche Vereinigung für Finanzanalyse und Asset Management (DVFA) hat dafür ein Nachhaltigkeitskonzept mit 18 Dimensionen veröffentlicht (DVFA FRIPI: 18 Dimensionen nachhaltiger Anlagepolitik). Für diesen Portfoliovergleich habe ich nur wenige Kennzahlen für die aus meiner Sicht wichtigsten Dimensionen genutzt: SDG-Umsätze, ESG-Scores, Ausschlüsse und eine für mich nicht so wichtige aber häufig genutzte CO2-Kennzahl. Regulatorische Kennzahlen nutze ich bewusst nicht (vgl. Nachhaltigkeitsinvestmentpolitik_der_Soehnholz_Asset_Management_GmbH).

Mit dem kostenlosen Tool können Interessenten die für sie relevanten Kennzahlen individuell zusammenfassen. Aber auch ohne eine solche Aggregation zeigen die Werte der unten aufgeführten Tabelle deutlich, wie stark sich unterschiedliche nachhaltige Investments voneinander unterscheiden können.

Drei bis vier besonders wichtige Nachhaltigkeitskennzahlen (in: Maximale Portfolio-Nachhaltigkeit)

Hier ist zunächst eine kurze Erläuterung der hier genutzten Kennzahlen:

SDG-Umsätze weisen die Anteile aller positiv mit den nachhaltigen Entwicklungszielen der Vereinten Nationen (UN SDG) vereinbaren Umsätze abzüglich etwaiger negativer Umsätze aus. Beispiel: 70% Umsätze mit erneuerbaren und 30% mit fossilen Energien ergeben „netto“ 40% SDG-Umsätze (vgl. SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl).
ESG-Scores werden nach hier dem Best-in-Universe Ansatz berechnet, also verglichen mit allen relevanten Unternehmen der Datenbank und nicht nur mit den Unternehmen derselben Branche (Best-in-Class-Ansatz). Dafür werden alle Unternehmen mit mindestens 25% ESG-Datenrelevanz genutzt. Die Aggregation der Daten erfolgt anhand eines Industrie-Konsens (zu alternativen ESG-Socres vgl. Best-in-Universe und Best-in-Class ESG-Scores: Große Unterschiede). Hohe ESG-Scores der Skala von 0 bis 100 bedeuten dabei relativ geringe ESG-Risiken.
Für die Ausschlüsse werden auf Basis einer umfangreichen Liste von potenziell kritischen Aktivitäten (vgl. „Potenziell kritische Aktivitäten“ mit 0-Toleranz FutureVest Equity Sustainable Development Goals) alle betroffenen Unternehmen zusammengezählt. 50% bedeutet, dass jedes zweite Unternehmen des Portfolios eine oder mehrere der in der Liste aufgeführten kritischen Aktivitäten aufweist. Dabei wird nicht zwischen unterschiedlichen Aktivitäten wie Umsätzen mit fossilen Brennstoffen oder Tierversuchen für medizinische Zwecke differenziert und auch nicht, wie viel Prozent der Aktivitäten des jeweiligen Unternehmens betroffen sind.
Die CO2-Äquivalenz Kennzahl gibt die gewichtete durchschnittliche Kohlenstoffintensität in Tonnen CO2e pro Million US-Dollar Umsatz aller Wertpapiere mit CO-2 Daten an. Scope 1 umfasst direkte Emissionen aus eigenen oder kontrollierten Quellen und Scope 2 indirekte Emissionen aus der Erzeugung von eingekauftem Strom, Dampf, Wärme und Kälte, die von den Unternehmen verbraucht werden.

Analyse von Portfolios mit maximaler Nachhaltigkeit

Die ersten Spalte der unten aufgeführten Tabelle enthält Portfolios, die mit dem Ziel höchster Nachhaltigkeit zusammengestellt wurden. Der FutureVest Fonds beinhaltet 30 Aktien mit höchster SDG-Vereinbarkeit. Zusätzlich gibt es diversifiziertere (SDG-) Portfolios aus aktiven Fonds oder ETFs, die möglichst gut mit den SDG vereinbar sind. Diese Portfolios sind auf ökologische und soziale Themen konzentriert und bestehen überproportional aus Europäischen Mid-Caps.

Für die konzeptionell erheblich stärker diversifizierten (ESG-)Portfolios aus aktiven Fonds oder ETFs wird vor allem nach hohen ESG-Scores selektiert.

Zum Vergleich mit traditionellen Aktienportfolios nutze ich einen sogenannten voll-replizierenden Weltaktienindex-ETF (All countries) mit ungefähr 1800 Aktien. Für Mischportfolios nutze ich mein „most-passive“ Weltmarkt ETF Portfolio mit einer Allokation von ca. 60% zu Aktien und Alternativen Investments sowie 40% zu Anleihen als traditionellen Vergleichsmaßstab (Details zu den Portfolios siehe Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf).

Daten von Clarity.ai vom 16.3.2025, Portfolios und Analyse der Soehnholz ESG GmbH

Limitierte SDG-Umsatzvereinbarkeit von ETFs und aktiven Fonds (in: Maximale Portfolio-Nachhaltigkeit)

Meines Erachtens ist SDG-Umsatzvereinbarkeit die wichtigste Nachhaltigkeitskennzahl. Es gibt aber nicht sehr viele Aktien bzw. Emittenten von Anleihen, die zu 100% SDG-vereinbare Umsätze haben. Demensprechend habe ich weniger als 30 ETFs oder Fonds mit aktivitätsbasierten netto SDG-Umsätzen von mindestens 80% gefunden (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!). Fast alle sind auf Gesundheit spezialisiert.

Der von mir beratene SDG-Fonds mit 30 Aktien, davon ca. 2/3 Gesundheits- und 1/3 ökologischen Investments, liegt bei 99% SDG-vereinbaren Umsätzen. Das überwiegend auf Umwelt ausgerichtete SDG ETF Multithemenportfolio mit 12 ETFs und fast 600 Aktien kommt immerhin noch auf knapp 80% SDG-Umsatzvereinbarkeit. Das SDG-Portfolio aus sechs überwiegend diversifizierten „aktiven“ Fonds erreicht dagegen nur relativ gering erscheinende 70%.

Aber selbsternannte Impact-Fonds haben nur durchschnittlich 38% SDG-Umsatzvereinbarkeit und Fonds nach Artikel 9 der Offenlegungsverordnung sogar nur 21% (SDG Revenue Alignment: Bringing Clarity to Impact Investing). ESG ETF-Portfolios erreichen sogar nur 5 bis 11% SDG-Umsätze. Das weicht kaum von traditionellen Portfolios aus Aktien und/oder Anleihen ab, die auf 5 bis 6% SDG-Umsatzvereinbarkeit kommen.

Das erklärt, warum Laien oft enttäuscht sind, wenn sie sich die Umsätze der Wertpapiere von angeblich nachhaltigen Investmentfonds ansehen.

Nur wenige Fonds mit sehr hohen ESG-Scores

Bezüglich des von mir genutzten anspruchsvollen Best-in-Universe ESG-Scores habe ich untere tausenden Fonds nur einen mit dem besten Durchschnitt von 72 gefunden. Der von mir beratene SDG-Fonds hat mit einem Score von 70 ebenfalls sehr geringe ESG-Risiken. Mit einem konzeptionell etwas diversifizierteren Portfolio aus aktiven Fonds und insgesamt knapp 300 Aktien komme ich auf einen ESG-Score von 68. Das ist etwas besser als das vergleichbar diversifizierte ESG-ETF Portfolio Aktien mit 66. Die Unterschiede zu einem traditionellen Weltaktienindex, der 63 aufweist, sind jedoch relativ gering.

Anleiheportfolios, selbst wenn die Fonds primär nach ESG-Risiken selektiert werden, kommen sogar nur auf einen ESG-Score von 57.

Das SDG-Aktienportfolio aus aktiven Fonds hat mit 65 erheblich geringere ESG-Risiken als das vergleichbare SDG ETF-Portfolio mit 60. Dieser relativ niedrige ESG-Score erklärt sich vor allem daraus, dass Midcaps (60) und Smallcaps (54) niedrigere ESG-Scores haben als Large-Caps (vgl. Best-in-Universe und Best-in-Class ESG-Scores: Große Unterschiede).

Bisher wurden ESG-Score-Unterschiede von traditionellen und nachhaltigen Portfolios selten thematisiert. Interessenten an nachhaltigen Portfolios können nur mit dieser Kennzahl aber wohl nur schwer von der Nachhaltigkeit von Portfolios überzeugt werden.

„Nachhaltige“ Fonds mit vielen potenziell kritischen Wertpapieren (in: Maximale Portfolio-Nachhaltigkeit)

In der oben aufgeführten Tabelle sind zwei Spalten zu kritischen Aktivitäten aufgeführt. Die 52 für den Weltaktien-ETF bedeutet, dass Unternehmen des ETFs insgesamt 52 unterschiedliche kritische Aktivitäten aufweisen. Bei dem von mir beratenen Fonds sind dagegen nur drei genannt. Diese werden im Nachhaltigkeitsreport und Monatsbericht aufgeführt: „Für insgesamt drei Unternehmen wurden potenziell kritische Aktivitäten in Bezug auf Lieferungen an die Agrar-, Cannabis- und Fleischindustrie identifiziert. Allerdings sind das keine für den Fonds grundsätzlich unzulässigen Aktivitäten. Außerdem machen diese weniger als 5 % des Umsatzes der jeweiligen Unternehmen aus“ (vgl. Bericht für Februar 2025 auf www.futurevest.fund).

3 von 30 Unternehmen des Fonds ergeben 9% potenziell kritische Unternehmen. Bei meinen ESG- und SDG-Portfolios liegt die vergleichbare Zahl bei 43% bis 54% und beim traditionellen Weltaktien-ETF bei 60%.

Das macht deutlich, warum es einfach ist, angebliches Greenwashing zu finden. Anleger, denen der sichere und vollständige Ausschluss bestimmter oder vieler kritischer Aktivitäten sehr wichtig ist, müssen sich tendenziell maßgeschneiderte Portfolios aus Aktien und Anleihen zusammenstellen.

CO2 Intensitäten können bei nachhaltigen Portfolios sehr hoch sein

Ich nutze Mindestanforderungen von 50 von 100 für Umweltscores, aber keine expliziten Höchstgrenzen für CO2 für meine Wertpapierselektionen. Bei einigen meiner nachhaltigen Portfolios (v.a. FutureVest Fonds und ESG ETF Aktien) führt das zu sehr niedrigen Emissionen der jeweiligen Portfolios. Das SDG ETF-Portfolio weist jedoch relativ hohe Emissionen auf, während das SDG Portfolio aus aktiven Fonds eher niedrige Emissionen hat.

Andererseits sind Anleger, denen ESG wichtiger als SDG ist, mit ESG ETF-Portfolios aus CO2-Sicht besser aufgehoben als mit ESG-Portfolios aus aktiven Fonds. Das ist eine für mich überraschende Erkenntnis, denn ich hatte damit gerechnet, dass aktive Fondsmanager mit ESG-Fokus mehr Wert auf niedrige Emissionen legen als vergleichbare ETFs.

Die relativ hohen Unterschiede der CO2 Scores unterschiedlicher nachhaltiger Portfolios eignen sich aber besser zur Nachhaltigkeitsdifferenzierung als näher die beieinanderliegenden ESG-Scores.

Geringer Grenznutzen von Diversifikation? Gemischte Renditen von SDG-Investments (in: Maximale Portfolio-Nachhaltigkeit)

Die aktuellen Diskussionen um die Konzentrationsrisiken von US-Tech-lastigen Weltaktienindizes zeigen, dass die Anzahl der Investments nicht unbedingt ein guter Diversifikationsindikator ist.

Wenn man ein Portfolio aus nur wenigen Wertpapieren zusammenstellt, die sich z.B. in Bezug auf Marktsegmente und Länder unterscheiden, reichen oft schon wenige Wertpapiere für eine gute Diversifikation aus. Zusätzliche Wertpapiere bringen dann wenig zusätzlichen Diversifikations(grenz)nutzen (vgl. 30 stocks, if responsible, are all I need).

Leider kenne ich keine unabhängigen Studien zur Performance von SDG Portfolios.

Ende 2017 habe ich das Global Equities ESG SDG Modellportfolio aus 30 möglichst gut SDG-vereinbaren unterschiedlichen Aktien entwickelt. Im Laufe der Jahre ist aus dem Portfolio mit überwiegend mittleren Marktkapitalisierungen inzwischen der FutureVest-Fonds mit Aktien von eher kleineren Unternehmen geworden. Gegenüber einem typischen Weltaktienindex sind US-Aktien stark unterrepräsentiert. Das Modellportfolio bzw. der Fonds haben bisher eine ähnliche Performance wie aktiv gemanagte traditionelle globale Small- und Midcapfonds erreicht (vgl. Excel-Download: Historische Zeitreihen der Portfolios mit Tagesdaten bis Anfang November 2024).

Die Performance des nach Anzahl der Wertpapiere breiter diversifizierten SDG ETF-Portfolios von Ende 2019 ist dagegen sehr viel volatiler: 2020 und 2021 war sie besser als die eines traditionellen Weltaktienindex und seitdem teilweise erheblich schlechter.

Das SDG-Fondsportfolio ist neu. Eine einfache Rückrechnung zeigt eine relativ schlechte Performance.

In Bezug auf ESG-Investments zeigen zahlreiche wissenschaftliche Studien für die meisten der vergangenen Jahre ganz überwiegend, dass diese keine systematischen Renditenachteile gegenüber traditionellen Geldanlagen haben. Weil ESG-Anlagen meistens relativ niedrige Umwelt-, Sozial- und Governance (ESG-) Risiken haben, sind die Gesamtrisiken solcher Investments zudem tendenziell geringer als die von traditionellen Investments. Das entspricht auch meinen Erfahrungen mit meinen ESG-Portfolios.

Fazit: Mehr Mut zu SDG-Investments

Viele sogenannte nachhaltige Portfolios haben nur relativ geringe ESG-Vorteile gegenüber traditionellen Investments. Außerdem beinhalten sie viele Wertpapiere mit potenziell kritischen Aktivitäten.

SDG-Umsätze sind relativ einfach nachvollziehbar und können sich viel stärker zwischen Portfolios unterscheiden als ESG-Scores. Beim Fokus auf SDG-Umsätze sind Rendite-Risiken aber höher als bei diversifizierteren ESG-Investments. Mittelfristig waren bisher aber keine systematischen Renditenachteile gegenüber traditionellen oder ESG-Investments erkennbar.

Insgesamt spricht deshalb viel für Portfolios mit hohen SDG-vereinbaren Umsätzen.

Es gibt aber bisher nur wenige ETFs und aktive Fonds mit hohen SDG-vereinbaren Umsätzen. Portfolios aus aktiven Fonds sind nach SDG-Umsätzen sogar eher schlechter als solche aus ETFs, können dafür aber ESG- und CO2-Vorteile haben.

An Nachhaltigkeit interessierte Anleger sollten deshalb offen für Portfolios mit relativ wenigen Wertpapieren sowie individualisierte Nachhaltigkeitsportfolios sein.

Disclaimer (in: Maximale Portfolio-Nachhaltigkeit)

Ich bin Mitglied von DVFA Nachhaltigkeitskommissionen und habe an dem o.g. Konzept mitgearbeitet. Der von mir beratene „most-sustainable“ Fonds kann in Deutschland ab EUR 50 gekauft werden. Außerdem biete ich grundsätzlichen allen Vermögensverwaltern kosteneffiziente nachhaltige SDG-Modellportfolios aus Aktien, ETFs oder aktiven Fonds an.

Dieser Beitrag ist von der Soehnholz ESG GmbH erstellt worden. Die Erstellerin übernimmt keine Gewähr für die Richtigkeit, Vollständigkeit und/oder Aktualität der zur Verfügung gestellten Inhalte. Die Informationen unterliegen deutschem Recht und richten sich ausschließlich an Investoren, die ihren Wohnsitz in Deutschland haben. Sie sind keine Finanzanalyse und nicht als Verkaufsangebot oder Aufforderung zur Abgabe eines Kauf- oder Zeichnungsangebots für Anteile der/s in dieser Unterlage dargestellten Aktie/Fonds zu verstehen und ersetzen nicht eine anleger- und anlagegerechte Beratung.

Die in diesem Artikel enthaltenen Informationen dienen ausschließlich zu Bildungs- und Informationszwecken. Sie sind weder als Aufforderung noch als Anreiz zum Kauf oder Verkauf eines Wertpapiers oder Finanzinstruments zu verstehen. Die in diesem Artikel enthaltenen Informationen sollten nicht als alleinige Quelle für Anlageentscheidungen verwendet werden.

Anlageentscheidungen sollten nur auf der Grundlage der aktuellen gesetzlichen Verkaufsunterlagen (Wesentliche Anlegerinformationen, Verkaufsprospekt und – sofern verfügbar – Jahres- und Halbjahresbericht) getroffen werden, die auch die allein maßgeblichen Anlagebedingungen enthalten.

Die Verkaufsunterlagen des Fonds werden bei der Kapitalverwaltungsgesellschaft (Monega Kapitalanlagegesellschaft mbH), der Verwahrstelle (Kreissparkasse Köln) und den Vertriebspartnern zur kostenlosen Ausgabe bereitgehalten. Die Verkaufsunterlagen sind zudem im Internet unter www.monega.de erhältlich. Die in dieser Unterlage zur Verfügung gestellten Inhalte dienen lediglich der allgemeinen Information und stellen keine Beratung oder sonstige Empfehlung dar. Die Kapitalanlage ist stets mit Risiken verbunden und kann zum Verlust des eingesetzten Kapitals führen. Vor einer etwaigen Anlageentscheidung sollten Sie eingehend prüfen, ob die Anlage für Ihre individuelle Situation und Ihre persönlichen Ziele geeignet ist.

Diese Unterlage enthält ggf. Informationen, die aus öffentlichen Quellen stammen, die die Erstellerin für verlässlich hält. Die dargestellten Inhalte, insbesondere die Darstellung von Strategien sowie deren Chancen und Risiken, können sich im Zeitverlauf ändern. Einschätzungen und Bewertungen reflektieren die Meinung der Erstellerin zum Zeitpunkt der Erstellung und können sich jederzeit ändern. Es ist nicht beabsichtigt, diese Unterlage laufend oder überhaupt zu aktualisieren. Sie stellt nur eine unverbindliche Momentaufnahme dar. Die Unterlage ist ausschließlich zur Information und zum persönlichen Gebrauch bestimmt. Jegliche nicht autorisierte Vervielfältigung und Weiterverbreitung ist untersagt.

Green bond issues: Researchpost 218

Green bond issues: Picture from Pixabay by Petra Tesarova

6x new research on methane abatement, brown green funds, ESG education effects, green bond issues, bond segmentation, and bad crypto influence (#shows number of SSRN full paper downloads as of March 20^th, 2025)

ESG investment research

Cheap abatement: Methane Abatement Costs in the Oil and Gas Industry: Survey and Synthesis by Robert N. Stavins, Forest L. Reinhardt and Joseph E. Aldy as of March 5th, 2025 (#58): “… We find significant potential for low-cost methane abatement in the O&G sector in the United States and elsewhere …. Whereas it appears that cutting methane emissions in half would be relatively inexpensive, a sharp uptick in marginal abatement cost may occur when reductions exceed 60 to 80 percent below baseline levels. This threshold may change over time with technological advances in remote sensing …“ (abstract).

Brown green funds: Finanzrecherche deckt massives Greenwashing in europäischen ESG-Fonds auf von Urgewald und Facing Finance vom 19.3.2025: „… Von den über 14.000 analysierten ESG-Fonds, die in europäischen Ländern gehandelt werden, investierte weit mehr als ein Drittel (4.792 Fonds) über 123 Milliarden Euro in Unternehmen, die fossile Expansionsprojekte vorantreiben oder aber keinen glaubhaften und Paris-konformen Ausstiegsplan aus Kohle vorgelegt haben … Allein auf die sechs größten Öl- und Gasmultis TotalEnergies, Shell, ExxonMobil, Chevron, Eni und BP entfallen Investitionen in Höhe von 23,5 Milliarden Euro. Alle davon haben Expansionspläne, die mit dem 1,5-Grad-Limit unvereinbar sind und die Klimaüberhitzung weiter verschärfen werden … Die neuen Regeln zur Benennung von ESG-Fonds … sind ein erster Schritt in die richtige Richtung. Die Finanzrecherche zeigt jedoch: Von den knapp 14.300 untersuchten Artikel-8/9-Fonds werden zwei Drittel (9.420) durch die ESMA-Leitlinien nicht erfasst, da in ihren Namen keine ESG- oder nachhaltigkeitsbezogenen Begriffe verwendet werden …“. My comment: Portfolios with 0 fossil fuel exposure are easy to develop. At least, fund providers should make potential critical exposures transparent. My monthly reporting see “Potenziell kritische Aktivitäten und Ausschlüsse here: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

ESG education effects: The Impact of Sustainable Finance Literacy on Investment Decisions by Massimo Filippini, Markus Leippold, and Tobias Wekhof as of Oct. 29^th, 2024 (#354): “Our findings demonstrate that the SFL educational treatment significantly improves literacy …. Participants exposed to the SFL program were more likely to invest in highly sustainable funds by 6 percentage points and less likely to choose less sustainable options with magnitudes between 3 and 2.5 percentage points. The treatment effects increased by up to one half among investors with pre-existing green attitudes. In addition, we provide suggestive evidence that a higher SFL leads to more accurate sustainability perceptions and reduces the tendency to chase high past returns” (abstract). My comment: Good sustainable finance education may not so easy since e.g. investing in Article 9 funds may not be very sustainable (see previous research).

Green bond issues: Sovereign Green, Social, Sustainability, and Sustainability-Linked Bonds by Hyae Ryung Kim and Christina Laskaridis as of March 12^th, 2025 (#16): “This study provides an in-depth evaluation of sovereign green, social, sustainability, and sustainability-linked (GSS+) bonds, focusing on their ability to bridge financing gaps for climate, social, and development goals in emerging and developing countries. … this research reveals that these bonds often fail to meet their potential due to high issuance costs, shorter maturities, and administrative complexities. … while sovereign GSS+ bonds in developing markets show promise, they frequently fall short in delivering the “greenium” (reduced borrowing cost) and longer maturity terms needed to fulfill their promise. The study highlights that, in many cases, sovereign GSS+ bonds are issued at rates comparable to or higher than conventional bonds, providing limited financial advantage. Additionally, the effectiveness of these bonds in meeting sustainability targets is challenged by varying reporting standards, risks of greenwashing, and a lack of stringent monitoring” (abstract). My comment: I do not use sovereign bond funds but (also imperfect) ETFs of bonds issues by multilateral development banks.

Other investment research (in: Green bond issues)

Bond segmentation: Investing in Safety by Johannes Breckenfelder, Veronica De Falco and Marie Hoerova as of Nov. 15^th, 2024 (#97): “… we exploit the largest ever joint issuance of supranational bonds by the European Commission to link how different investors re balance their portfolios following this large shock to the supply of safe assets. We show that … the marginal investors in supranational bonds … when they acquire Commission bonds, they re-balance away from other supranational bonds and, as a result, the yields on those bonds increase. However, investors do not view the Commission bonds as substitutes for national government bonds. We show that this result is driven by the domestic investors who do not substitute away from national bonds following the Commission bond issuance. Such home bias of domestic investors towards national bonds may help explain why the AAA-rated Commission bonds have substantially higher yields compared to national government AAA-rated securities“ (abstract).

Bad crypto influence: The Impact of Financial Influencers on Crypto Markets: Systemic Risks and Regulatory Challenges by David Krause as of Feb. 19^th, 2025 (#151): “… the research has revealed consistent negative returns associated with finfluencer recommendations, the methodological flaws in finfluencer analyses, and the inadequacy of current regulatory frameworks. The Elon Musk and Dogecoin case illustrated the power of celebrity endorsements to manipulate market sentiment, while the Dave Portnoy and LIBRA meme coin controversy exposed the potential for undisclosed agreements and market manipulation … “ (p. 17/18).

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Werbung (in: Green bond issues)

Die Portfoliounternehmen haben einzigartig hohe 99% SDG-vereinbare Umsätze und sehr hohe E-, S- und G-Best-in-Universe-Scores, sehr geringe potenziell kritische Aktivitäten und es gibt ein besonders umfangreiches Aktionärsengagement bei derzeit 29 von 30 Unternehmen.

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.

Polluting AI: Researchpost 217

Polluting AI illustration from Pixabay by Gerd Altmann

8x new research papers on migration, cities, ESG Ratings, ESG (credit) risks, climate versus financial investors, green companies, polluting AI, biodiversity (# shows the number of full paper SSRN downloads as of March 13th, 2025)

Social and ecological research

BILD beats migration: Attitudes to Migration and the Market for News by Razi Farukh, Matthias Heinz, Anna Kerkhof, and Heiner Schumacher as of May 29^th, 2024 (#32): “We examined the coverage of the topic of migration in three different news markets: Germany, Hungary, and the US. … For Germany, we found that most national news outlets adopt an attitude to migration that is in between the two ideological extremes, but closer to pro- than to anti-migration campaigns. … Only the largest newspaper in Europe– the tabloid newspaper Bild– changed its attitude to migration from very positive to fairly negative within a few months … for the US, we found that, the average attitude to migration in the market for news is comparable to that in Germany. However, both the most positive and the most negative news outlet in the our US sample are fairly large …“ (p. 29).

Good city growth: Cities, Aggregate Welfare, and Growth by Katja Gehr, and Michael Pflüger as of March 10^th, 2025 (#6): ”Escalating housing costs and a lack of affordable housing in desirable places have brought cities in the focus of public and political debate, in recent years. Current research converges on the idea that these housing market pressures stem not only from the interplay of demand and supply but are significantly influenced by regulatory measures, enacted by local policymakers to protect the interests of city incumbents (‘city insiders’) at the expense of ‘city outsiders’. … Our key policy counterfactual involves a reduction of land-use regulations in Germany’s Top 7 such that the population in each grows by 10%. This yields an overall welfare benefit of 1.11% per person, but only mild losses for city incumbents, which indicates that urban containment policies in Germany have significant societal costs …“ (p. 35/36).

ESG investment research (in: Polluting AI)

Reputation ratings: Measuring ESG Risk Management: Are ESG Ratings Reliable Predictors? by W. Chad Carlos, Shon R. Hiatt and Bell Piyasinchai as of Nov. 14^th, 2024 (#88): “Our analysis reveals that while ESG ratings are strongly tied to firm reputation, only one MSCI appears to consistently predicts future ESG-related risks …. Furthermore, we found that both ESG risk management and firm reputation contribute to the relationship between ESG ratings and financial performance, with reputation playing a more significant role. … In contrast to credit ratings …the breadth of dimensions that ESG ratings attempt to capture may make it unlikely for different ESG ratings to achieve the level of convergence similar to credit ratings” (p.23/24).

ESG credit risks: ESG Ratings, ESG News Sentiment and Firm Credit Risk Perception by Fangfang Wang, Florina Silaghi, Steven Ongena, and Miguel García-Cestona as of March 7^th, 2025 (#93): “We document a significant increase in CDS (Sö: Credit default Swap) spreads following ESG rating downgrades, especially for the social pillar, while we find a muted reaction to ESG upgrades. A similar asymmetrical effect is documented for ESG news. We further show that the adverse effect of ESG downgrades on the CDS market is mitigated in the presence of positive ESG sentiment, a transparent information environment and higher rating disagreement. Lastly, the reaction is stronger for firms with lower creditworthiness, higher bankruptcy probability and tighter financial constraints” (abstract). My comment: I focus on firms with good ESG-ratings and divested much more than expected because of ESG-downgrades and the portfolio volatility is rather low.

SDG investments

Green vs. brown investor? The Alignment of Corporate Carbon Performance and Shareholder Preferences: Evidence of a Capital Market Separation by Johannes Leister, Martin Rohleder, and Marco Wilkens as of March 5^th, 2025 (#46): “… This study is the first to empirically test the predicted capital market separation, wherein climate-conscious investors primarily hold firms with strong carbon performance, while financially driven investors retain those with weaker climate records. … We show that green firms consistently concentrate in sustainability-focused portfolios, whereas brown firms remain in traditional investor holdings. The market separation intensifies over our sample period … the Paris Agreement significantly altered market dynamics: post-Paris, separation intensified in the U.S., while were less pronounced in the EU …“ (abstract).

Seriously green? Commitment to Climate Action: Global Evidence from Carbon Performance Disclosure by Hai Hong Trinh and H. Kent Baker as of March 11^th, 2025 (#12): “… “How Do We Know Firms Seriously Commit to Climate Action?” Our findings show that firms commit to climate action if they simultaneously present the following outcomes. First and foremost, firms should have to disclose their carbon performance with improving environmental performance. Second, carbon-disclosing firms maintain progressive and sound ESG performance with no ESG controversies expected. Third, financial analysts and the management boards of carbon-disclosing firms pay increasing attention to climate change risks …” (abstract). My comment: I focus on firms with good ESG ratings and very few serious controversies and engage with them to disclose broad (Scope 3) carbon performance

Polluting AI: The Silent Polluter: Artificial Intelligence and CO2 Emissions by Ashrafee T. Hossain and Neal Willcott as of March 8^th, 2025 (#19): “We find statistically significant and economically consequential results supporting a positive association between AI investments and CO2 emissions. Additional analyses indicate that this positive association is prominent for firms that lack ethical behavior or those that are poorly governed. … the market provides support for AI investments in the form of higher valuations as long as CO2 emissions remain low; however, valuations decline when AI investments are accompanied by higher emissions. Concurrently, we find that CEO compensation is lower for firms that invest in AI while causing more CO2 emissions compared to their counterparts that make such investments but keep CO2 emissions at a lower level“ (p.59/60).

Biodiversity lecture: Lecture Notes On Biodiversity by Thierry Roncalli as of March 10^th, 2025 (#33): 266 pages on biodiversity with lots of interesting data and sources (amazing as always with Thierry Roncalli).

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Werbung (in: Polluting AI)

Climate risks: Researchpost 216

Climate risks illustration from Pixabay

16x new research on bigger EU benefits, green conservatives, green US deposits, cool country risks, deforestation cost, ESG rating deficits, climate risks, carbon ratings, green VCs, life-cycle analysis, carbon offsets, transition bonds, green procurement, German impact and luxury watches (#shows the numer of SSRN full downloads as of March 6th, 2025)

Social and ecological research

Bigger EU benefits: Economic Benefits from Deep Integration: 20 years after the 2004 EU Enlargement from the International Monetary Fund by Robert Beyer, Claire Yi Li, and Sebastian Weber as of Feb. 26^th, 2025 (#23): “EU enlargement has stalled since the last member joined over ten years ago … we estimate that EU membership has increased per capita incomes by more than 30 percent. Capital accumulation and higher productivity contributed broadly equally, while employment effects were small. Gains were initially driven by the industrial sector and later by services. Despite substantial regional heterogeneity in gains—larger for those with better financial access and stronger integration in value chains prior to accession—all regions that joined the EU benefited. Moreover, existing members benefited too, with average income per capita around 10 percent higher …“ (abstract).

Green conservatives: How natural disasters and environmental fears shape American climate attitudes across political orientation by Christopher R. H. Garneau, Heather Bedle, and Rory Stanfield as of Nov. 5^th, 2024:”results support hypotheses that conservatives demonstrate lower climate concern and that fear of natural and environmental disasters increases climate concern. Interaction results show that fear of anthropogenic environmental disasters elicits greater climate concern amongst conservatives. At high levels of ecological fear, the political divisions diminish as all orientations converge on higher levels of acknowledging climate risks and causes”.

Greening US deposits: Climate change and bank deposits by H. Özlem Dursun-de Neef and Steven Ongena as of Feb. 27^th, 2025 (#381): “Using branch-level deposit data from the U.S., we find that depositors divest from fossil fuel-financing banks when they experience warmer-than-usual temperatures. This is because of an upward shift in their climate change beliefs. Deposit reallocation is mainly due to prosocial motives rather than financial preferences” (abstract).

Cool country climate risks: A New Perspective on Temperature Shocks from the International Monetary Fund by Nooman Rebei as of Feb. 26th, (#23): “… While cold and wealthy nations experience smaller output losses than warm and poor countries in response to temporary temperature increases, the situation reverses with the permanent temperature rises associated with climate change. In this scenario, cold and rich countries suffer greater economic damage than their warmer and poor counterparts. The rationale behind this result is that, according to country-specific estimates, the magnitude of permanent temperature shocks is greater in both absolute and relative terms in colder regions. Additionally, in recent decades, these countries have faced a notorious increase in the frequency and intensity of climate-related disasters, namely storms and wildfires ,,,“ (p. 24).

Deforestation costs: Not Just Knocking on Wood: The Short- and Long-Term Pricing of Deforestation Risk on Global Financial Markets by Marc-Philipp Bohnet, Philip Fliegel, and Tycho Max Sylvester Tax as of Feb. 26^th, 2025 (#49): “… We … conduct long-term asset pricing analyses of a Brown Minus Green (BMG) deforestation risk portfolio and a short-term event study of the EU Deforestation Regulation (EUDR). We find that the BMG deforestation risk portfolio does not pay a deforestation risk premium in the long term, but actually underperforms significantly by roughly 0.5% per month …” (abstract).

ESG investment research (in: Climate risks)

ESG rating deficits: Behind ESG ratings: Unpacking sustainability metrics by the OECD as of Feb.19^th, 2025: “… this report aims to assess the scope and characteristics of over 2 000 ESG metrics from eight major ESG rating products. The analysis helped identify four key findings as presented below. Metric scope: significant imbalances and gaps across ESG topics … over 20 different metrics are used on average to measure performance related to topics such as corporate governance, business ethics and environmental management, compared to less than five metrics for topics such as biodiversity, business resilience, and community relations. In some cases, certain topics are entirely omitted from ESG rating products, including human rights and corruption. … Metric comparability: Considerable divergences in measurement approaches across products … For instance, one rating product uses 28 times more metrics to measure Corporate Governance performance compared to another. The range varies from 1 to 47 metrics to measure corporate GHG Emissions, and from 4 to 113 metrics to gauge a company’s corporate governance. … Metric characteristics: … ESG rating products rely primarily on input-based metrics (68%). These metrics capture self-reported policies and activities put in place to address potential and actual ESG impacts, risks, and opportunities. … Moreover, ESG performance is predominantly assessed using qualitative metrics (72%). … Moreover, most ESG rating products assess observance or “violations” of the OECD Guidelines through controversy-related metrics as a proxy … rather than evaluating a company’s due diligence efforts and effectiveness in mitigating sustainability impacts. 15% of all metrics could be broadly identified as ‘controversy-based’. Finally, measurement of ESG performance beyond an entity direct operation is limited, including measurement of how businesses identify, prevent, mitigate and account for adverse impacts in their business relationships and global supply chains …“ (p. 7/8). My comment: See this detailed comment Neues Research: Lieber keine ESG-Daten nutzen? | CAPinside and watch out for my upcoming blog post on ESG rating differences based on the same data pool

ESG lowers risk: Sustainability and financial risks of the best-in-class: A comprehensive analysis by Almudena García-Sanz, Juan-Ángel Jiménez-Martín, and M.-Dolores Robles as of March 3^rd, 2025 (#14): ” We investigate the implications of firms‘ sustainability practices in mitigating their financial risks between 2000 and 2021 in the USA and Europe. … We find that the commitment to sustainability, as indicated by Thomson Reuters ESG scores, significantly impacts financial risks … the analysis by pillars highlights the Environmental pillar as the primary driver of risk mitigation …“ (abstract).

Many sectors with cli-risk: Climate risk and corporate valuations from Allianz Research by Jordi Basco Carrera and Patrick Hoffmann as of February 25^th, 2025: “Investors today face dual climate risks that stem from both the transition to a sustainable economy and the increasing severity of physical climate events. Transition risks arise from rapid policy changes, technological innovations and evolving market behaviors, while physical risks include the damaging impacts of extreme weather, rising sea levels, prolonged droughts or productivity losses for workers exposed to heat. … Fossil fuels are not the only sector on the watchlist. Real estate, automotive, agriculture and heavy industry are also increasingly vulnerable due to stricter energy standards, rapid technological advancements and tighter regulatory measures. … Overall, we find that the technology and healthcare sectors show resilience under all climate transition scenarios in both the US and Europe, while the energy sector faces heightened vulnerability due to rising operational costs and regulatory pressures …” (p. 3). My comment: I am happy with the strong healthcare focus of the mutual fund which I advise

Carbon rating dominance: Environmental ratings and stock returns: The dominant role of climate change by Rients Galema and Dirk Gerritsen as of Feb. 27^th, 2025 (#13): “We analyze the effect of MSCI’s environmental rating changes on stock returns for U.S. listed firms. … We find that the positive effect of aggregate environmental rating changes on subsequent stock returns is completely driven by changes in the underlying climate change rating with no significant impact of any of the other underlying theme ratings. Specifically, a one point increase in climate change rating, measured on a ten-point scale, is associated with stock returns increasing by about one percentage point over a subsequent period of six months. The impact of climate change rating changes is driven by changes of the underlying carbon emissions rating. Further analyses highlight the forward-looking nature of carbon emissions ratings in capturing emissions-related risks. Specifically, they show carbon emissions rating changes predict changes in future carbon emissions and carbon emission intensity” (abstract).

Green VC premium: Birds of a Feather Flock Together – How Investors Select and Affect Startups Based on Sustainability Signaling by Markus Koenigsmarck, Florian Kiesel, Martin Geissdoerfer and Dirk Schiereck as of Feb. 25^th,2025 (#6): “Our results show that both startups select their investors, and investors select startups, according to sustainability signaling. In addition, we identified a substantial treatment on sustainability signaling when a green VC invests. Conversely, brown VCs do not influence the sustainability of their portfolio investments. Finally, we found a green alignment premium, with investors allocating more funding to startups with similar sustainability signals to themselves” (p. 32).

SDG and impact investment research

Carbon life analysis: Simplifying Life Cycle Assessment: Basic Considerations for Approximating Product Carbon Footprints Based on Corporate Carbon Footprints by Maximilian Schutzbach, Robert Miehe, and Alexander Sauer as of March 3^rd, 2025 (#9): “.. calculating individual product carbon footprints (PCF) for each product remains impractical for companies, especially with extensive product portfolios … This article addresses this gap by proposing basic considerations that enable PCF approximation based on a CCF” (Sö: corporate carbon footprints, in: abstract).

Offsetting premium: Do Investors Care About Offsetting Carbon Risk? by Yumeng Gao, Andreas G. F. Hoepner, Florent Rouxelin, and Tushar Saini as of Feb. 26^th, 2025 (#19): “…This paper provides empirical evidence that investors price carbon emissions as a material risk, demanding a higher transition risk premium for firms with substantial Scope 1 and Scope2 emissions. Regulatory pressures, shifting investor sentiment, and energy transition drive this premium, with proactive climate policies and higher renewable adoption reducing risk, while weak regulations and fossil fuel dependence amplify it. We also find that carbon offset inventory can help mitigate this premium, as firms located in regions with higher offset inventory tend to experience reduced transition risk …” (abstract).

Transition & bonds: Understanding climate risk in Europe: Are transition and physical risk priced in equity and fixed-income markets? by Nicola Bartolini, Silvia Romagnoli, and Amia Santini as of Oct. 29^th,2024 (#42): “… climate risk variables have different effects on stocks and bonds, with stock returns appearing mostly unaffected by climate-related variables. In contrast, bond z-spreads show significant statistical relationships with both physical and transition climate risks. Physical risk, on average, rewards the green bonds in the sample, and penalizes the traditional bonds. As for transition risk, the two proxies are shown to capture different types of information and to affect different bonds. This suggests that credit default swaps are pricing a transition risk that goes beyond carbon emissions” (abstract).

Good green procurement: The Greener, the Better? Evidence from Government Contractors by Olga Chiappinelli, Ambrogio Dalò, Leonardo M. Giuffrida, and Vitezslav Titl as of Oct. 24^th, 2024 (#45): “Governments support the green transition through green public procurement. Using US data, this paper provides the first empirical analysis of the causal effects of green contracts on corporate greenhouse gas emissions and economic performance. We focus on an affirmative program for sustainable products, which represents one-sixth of the total federal procurement budget, and publicly traded firms, which account for one-third of total US emissions. Our results show that securing green contracts reduces emissions relative to firm size and increases productivity. We find no evidence that the program selects greener firms, nor that green public procurement sales crowd out private sales” (abstract). My comment: For a reason, I focus on green procurement with my shareholder engagement activities

German impact: Beyond grants: Foundations‘ responses to the hybrid practice of impact investing by Marie-Christine Groß as of Jan. 29^th, 2025 (#23): “… this study conducts a multiple case study with ten large German foundations. Drawing on institutional logics, the paper constructs a conceptual model to enhance the understanding of foundations‘ responses to impact investing. … the affiliation to both logics at play and the level of risk aversion shape how foundations respond to impact investing. These factors influence whether foundations reject the hybrid practice, engage directly in impact investing, or support indirectly via system building. … Approaches of foundations engaged in impact investing are analyzed in detail …” (abstract). My comment: Investors can have some impact with my “most responsible” investment fund

Other investment research (in: Climate risks)

Double-luxury watches: Time is Money: an Investment in Luxury Watches by Philippe Masset and Jean-Philippe Weisskopf as of Feb. 24^th, 2025 (#72): “The luxury watch market offers lower returns than equities but is less volatile. It also outperforms fixed income and real estate, with significant performance variation across brands. Illiquidity, analogous to other collectables, is an important feature, yet luxury watches enhance portfolio diversification and reduce risk. Additionally, the study contrasts the distinct features of investing in physical watches versus stocks of watch manufacturers …”. My comment: Lower returns with high illiquidity (and high costs): The marginal diversification benefits most be really high to add luxury watches to investment portfolios.

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Werbung (in: Climate risks)

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 illustration from Pixabay by Clkr-Free Vector Images

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

Social and ecological research

Slow Green Deal? Delivering the EU Green Deal – Progress towards targets by Marelli Luisa et al. from the European Commission as of Feb. 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.

Return on sustainability: Researchpost 210

Return on sustainability illustration from pIxabay by mageephoto

14x new research on decarbon-now, biodiversity-climate interaction, green investment gap, regulation benefits, ESG literature overview, ESG disclosure effects, confusing supplier ESG, climate bond potential, water costs, return on sustainability, low-beta outperformance, active ETF benefits, trend-following and investment AI problems (#shows the number of SSRN full paper downloads as of Jan. 23rd, 2025: A low number shows a high news-potential).

Social and ecological research

Decarbon-now: Climate Transition: Why Decarbonize Now Not Later? A Literature Review from An Asset Owner Perspective by Wendy Fang, Skye King, Michael Mi, Mohamed Noureldin, Ben Squires, Eliza Wu, and Jing Yu as of Jan. 9^th, 2025 (#39): “… Integrating insights from climate science, economics, and finance, we present three key angles: (1) Scientific evidence demands urgent action to avert irreversible damage from exceeding 1.5◦C global warming. (2) Economic models may underestimate climate impacts by not fully accounting for systemic shocks, nonlinearities, and tipping points. (3) Asset pricing theory predicts a higher carbon premium (higher cost of capital for high-climate-risk assets), yet empirical evidence shows that green assets outperform brown counterparts, especially in recent years. We reconcile this debate by arguing that markets have not fully priced in climate risks; investors’ underestimation of the urgency and magnitude of damage leads to complacency and inaction, exacerbating irreversible physical risks in a feedback loop. Thus, expecting a carbon premium is unwarranted until equilibrium is reached …“ (abstract).

Intertwined risks: Nature Loss and Climate Change: The Twin-Crises Multiplier by Stefano Giglio, Theresa Kuchler, Johannes Stroebel, Olivier Wang as of Jan. 2025: “We study the economic effects of the interaction of nature loss and climate change in a model that incorporates important aspects of both processes. We capture the distinct ways in which they affect economic activity—with nature constituting a key factor of production and climate change destroying parts of output—but also the ways in which they interact: climate change causes nature loss, and nature provides both a carbon sink and adaptation tools to reduce climate damages. Our analysis of these feedback loops reveals a novel amplification channel—the Twin-Crises Multiplier—that systematically affects optimal climate and nature conservation policies” (abstract).

Green investment gap: Investing in Europe’s green future – Green investment needs, outlook and obstacles to funding the gap by Carolin Nerlich and many more from the European Central Bank as of Jan. 10^th, 2025 (#59): “The green transition of the EU economy will require substantial investment to 2030 and beyond. Estimates … all point to a requirement for faster and more ambitious action. Green investment will need to be financed primarily by the private sector. … capital markets need to deepen further, especially to support innovation financing. Progress on the capital markets union would support the green transition. Public funds will be vital to complement and de-risk private green investment. Structural reforms and enhanced business conditions should be tailored to encourage firms, households and investors to step up their green investment activities” (abstract).

Regulation benefits: More Constraints, More Consensus? How Regulation Shapes Investor Information Asymmetry by John M. Barrios, Zachary R. Kaplan, and Yongzhao Vincent Lin as of Nov. 23^rd, 2024 (#144): “We examine the relation between product market regulation (PMR) and information asymmetry among investors. … greater PMR significantly reduces bid-ask spreads and insider trading. This reduction in information asymmetry is driven by decreased operating profit volatility, which lowers uncertainty about firm operations. However, the impact of PMR diminishes when government commitment to regulation is weak, particularly during periods of elevated economic policy uncertainty or among politically active firms capable of strategically influencing regulation …” (abstract).

ESG investment research (in: Return on sustainability)

ESG overview: A Review on ESG Investing by Javier Vidal-García and Marta Vidal as of Jan. 11^th, 2025 (#86): “The overall results show significant heterogeneity, evidencing three predominant positions: some research suggests that ESG investments outperform conventional ones, others indicate a lower performance for ESG, implying a premium paid for sustainability criteria, and a third position indicates an equivalence in performance between the two. These discrepancies are attributed to the period analyzed, the sample, the statistical methodology, the culture and the ESG rating provider” (p. 25/26). My comment: If the performance is similar, why invest traditionally instead of sustainably?

ESG disclosure effects: Profit or Planet? Both! ESG Drivers of Efficient Portfolios and the Costs of Disclosure by Nico Rosamilia as of Jan. 2^nd, 2025 (#13): “This study integrates the ESG variables in the five-factor asset pricing model by Fama and French and a model-free methodology represented by machine learning. The markets‘ main focus for the governance pillar relates to board characteristics and functions. The social pillar shows the significance of employee-related issues, while greenhouse emissions for the environmental pillar. The machine learning results provide the main drivers yielding the excess returns of the best sustainable portfolios. Finally, we test the ESG prediction power of fundamentals and find that ESG disclosure diverts company resources toward long-term sustainable investment over investment for profitability in the short term“ (abstract).

Confusing supplier ESG? ESG Alignment and Supply Chain Dynamics: Evidence from U.S. Customer-Supplier Relationships by Stefan Hirth and Sai Palepu as of Jan. 15^th, 2025 (#21): “We study the role of Environmental, Social, and Governance (ESG) alignment in shaping customer-supplier relationships within U.S. supply chains. … we find that major customers significantly influence supplier ESG performance, with a 6.9% increase linked to one unit increase in the major customer ESG scores. Positive ESG divergence, where a supplier outperforms its major customer, increases the likelihood of relationship termination by 18.1% …. Replacement suppliers generally exhibit higher ESG ratings than their predecessors …” (abstract). My comment: The “positive ESG divergence” confuses me, because I don’t expect suppliers to stop selling to lower-ESG customers and neither I expect customers stop buying from higher-ESG suppliers. My supplier activities see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog

SDG investment research

Climate bond potential: Climate-linked bonds by Dirk Broeders, Daniel Dimitrov, and Niek Verhoeven from the European Central Bank as of Jan. 10^th, 2025 (#68): “Climate-linked bonds, issued by governments and supranational organizations, are pivotal in advancing towards a net-zero economy. These bonds adjust their payoffs based on climate variables such as average temperature and greenhouse gas emissions, providing investors a hedge against long-term climate risks. … The price differential between climate-linked bonds and nominal bonds reflects market expectations of climate risks. This paper introduces a model of climate risk hedging and estimates that approximately three percent of government debt in major economies could be converted into climate-linked bonds” (abstract).

Water opportunity costs: The Pricing of Water Usage by Adrian Fernandez-Perez, Ivan Indriawan and Yiuman Tse as of Jan. 14^th, 2025 (#61) “…we examine the relationship between firms’ water usage and stock returns. Our analysis shows a negative relationship between water usage and excess returns, with high-water-usage firms generating lower returns compared to their industry peers. This effect is stronger in high-water-consumption sectors like mining and manufacturing. We also find a positive link between water usage and operating costs …” (abstract).

Return on sustainability: The Sustainability Dividend: A Primer on Sustainability ROI by Matteo Tonello as of January 4^th,2025: “… companies face growing pressure to determine the return on investment (ROI) of their sustainability efforts, a critical factor in gaining stakeholder trust and ensuring long-term success. This report highlights insights from a series of Member roundtables and polls, discusses the current state of sustainability ROI, and provides guidance for companies to get started. … Few companies are capitalizing on the power of authentic and transparent sustainability communication to showcase their sustainability results and gain internal and stakeholder support for sustainability“ (p. 2).

Other investment research (in: Return on sustainability)

Low-beta outperformance? Persistence in Alphas without Persistence in Skill by Sina Ehsani and Juhani Linnainmaa as of Jan. 8^th, 2025 (#33): “The persistence of mutual fund alphas is often viewed as evidence that some funds possess skill and that this skill persists. … high-alpha funds are predominantly low-beta funds and vice versa. Thus, a strategy of investing in high-alpha funds benefits not from skill, but from a betting-against-multiple-betas effect …” (abstract).

Active ETF (AETF) benefits: ETFs as a disciplinary device by Yuet Chau, Karamfil Todorov and Eyub Yegen as of Jan. 6^th, 2025 (#126): “… Unlike mutual fund shares, ETF shares can be shorted, which enables investors to bet against manager performance. We show that AETFs exhibit over five times greater flow-performance sensitivity than mutual funds, indicating that AETF managers face harsher penalties for poor performance. When an underperforming manager joins an AETF, investors respond by shorting more shares of the fund. Consequently, this manager is more likely to exit the fund management industry, thereby enhancing overall sector efficiency and allowing more high-performing managers to remain. Moreover, the stocks held within AETFs exhibit improved price informativeness. We also find that AETF managers outperform both mutual fund and passive fund managers” (abstract).

Sensible trend-following: Can the variability of trend-following signals add value? By Philippe Declerck and Thomas Vy as of Dec. 6^th,2024 (#67): “We document that there is information in the variability of binary signals used to build a cross-asset trend-following strategy. This information may help building trend-following strategies with slightly higher Sharpe ratios. This added value may come with higher maximum drawdown to vol ratios for short lookback periods (up to one month), while the longest period tested (2.5 months) lead to a reduction of both ratios. The optimal results are obtained for observation periods of 1 to 2 months” (abstract). My comment: Since quite some time, I use 40-day averages for risk-signals if clients want to have risk-managed portfolios.

AI model overload: Design choices, machine learning, and the cross-section of stock returns by Minghui Chen, Matthias X. Hanauer and Tobias Kalsbach as of Dec. 2^nd, 2024 (#3367): “We fit over one thousand machine learning models for predicting stock returns, systematically varying design choices across algorithm, target variable, feature se lection, and training methodology. … we observe a substantial variation in model performance, with monthly mean top-minus-bottom returns ranging from 0.13% to 1.98%. These findings underscore the critical impact of design choices on machine learning predictions, and we offer recommendations for model design. Finally, we identify the conditions under which non-linear models outperform linear models“ (abstract).

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Werbung (in: Return on sustainability)

Zum Vergleich: Ein traditionelle globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 5%, für einen Gesundheits-ETF beträgt diese 1% und für einen ETF für erneuerbare Energien 44%.

Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Man erhält ein besonders konsequent nachhaltiges Portfolio mit markttypischen Renditen und Risiken.

Climate hedge? Researchpost 203

Climate hedge illustration by pixur from Pixabay

Climate hedge: 10x new practical research on life-saving trees, good emission trades, complex ESG effects, cost reducing ESG, ESG incident effects, SRI effects, concentrated and thematic ETFs (#shows number of SSRN full paper downloads as of Nov. 21^st, 2024)

Social and ecological research

Life-saving trees: Trade, Trees, and Lives by Xinming Du, Lei Li, and Eric Zou as of Nov. 5^th, 2024 (#36): “We examine Brazil, which has ramped up agricultural export over the last two decades to meet rising global demand. … we first show that export shocks cause substantial local agricultural expansion and a virtual one-for-one decline in forest cover. .. we establish a causal link between deforestation upstream and subsequent rises in air pollution and premature deaths downstream, with the mortality effects predominantly driven by cardiovascular and respiratory causes. Our estimates reveal a large telecoupled health externality of trade deforestation: over 700,000 premature deaths in Brazil over the past two decades. This equates to $0.18 loss in statistical life value per $1 agricultural exports over the study period“.

Good emission trades: Firms’ Response to Climate Regulations: Empirical Investigations Based on the European Emissions Trading System by Fotios Kalantzis, Salma Khalid, Alexandra Solovyeva, and Marcin Wolski from the International Monetary Fund as of July 15^th, 2024 (#41): “Using a novel cross-country dataset, which merges firm-level financials with information on firms’ participation in the European Unions’ Emissions Trading System (ETS) … We find that more stringent policies do not have a strong negative impact on the profitability of ETS-regulated or non-ETS firms. While firms report an increase in their input costs during periods of high carbon prices, their reported turnover is also higher. Among ETS-regulated firms which must purchase emission certificates under the EU ETS, tightening of climate policies in periods of high carbon prices results in increased investment, particularly in intangible assets. … Our findings provide support for the benefits of EU ETS on accelerating firms’ climate transition, while keeping firm-level financial costs at bay” (abstract).

ESG investment research (in: Climate hedge research post)

Climate hedge? Investor Behavior in Response to Climate Risks: Insights from Fund Flows by Camille Baily, Amal Dabbous, Jean-Yves Gnabo, Matthias Horn, and Andreas Oehler as of Sept. 6^th, 2024 (#25): “This study examines the impact of climate risk on capital flows in U.S. equity mutual funds using a dataset of 2,633 funds from 2013 to 2018. … Funds with high sustainability ratings have lower average net flows. Yet, they attract significantly higher net flows during periods of negative climate news. These results suggest a strategic allocation of capital to hedge against climate risks or to reflect preferences for environmentally friendly investments“ (abstract). My comment: I expect climate risks to become more prominent. That should favor sustainable fund investment flows.

Climate hedge? Oil-Driven Greenium by Zhan Shi and Shaojun Zhang as of Oct. 24^th, 2024 (#215): “As climate attention grows, many argue that investors discipline carbon-intensive firms by increasing their costs of capital, creating a “greenium” favoring green firms. We challenge this view, demonstrating that the observed greenium variation is largely driven by oil demand fluctuations, which boost product prices and growth options for carbon-intensive firms, reducing the greenium. … Revisiting key climate-related events, like the Paris Agreement, we find that once oil’s impact is considered, investor discipline often plays a negligible role. Our findings indicate investors may be less responsive to the climate crisis than anticipated” (abstract). My comment: Investors should focus much more on sustainable investments.

Complex ESG effects? Nonlinear Impact of ESG on Stock Market Performance among Manufacturing and Banking Firms by Ralph Sonenshine and Yan Wang as of Nov.13^th, 2024 (#11): “This study assesses the impact of ESG ratings on excess stock market returns and risk adjusted returns among a group of large, U.S. manufacturing and banking companies. … Our findings indicate a non-linear relationship exists between ESG ratings and financial performance. The relationship is usually, but not always, characterized by a U-shape pattern. … In banking, we see increasing returns to governance and decreasing returns to environmental projects relative to excess returns. In manufacturing, there are decreasing returns to investing in governance and environmental projects up to a certain threshold, suggesting large investments in these areas are needed to generate a payback for these investments. Finally, social responsibility ratings appear to have a negative, linear effect on financial performance, with the effect found primarily in the banking industry” (p. 26/27). My comment: I think that separate analysis of E, S and G scores is very important for risk reasons, because I do not want to accept high social risks to be offset by low ecological risks etc.

Good ESG reduces costs: ESG Performance and the Cost of Debt. Evidence from the Corporate Bond Market by Paolo Fiorillo, Antonio Meles, Antonio Ricciardi and Vincenzo Verdoliva as of Nov. 18^th, 2024 (#11): “… Using an international sample of 25,234 bonds by 2,677 ESG rated issuers … finding lower yields (by approximately 10 bps) for high-ESG firms. … Finally, we observe lower yield spreads for bond issues occurred after the introduction of the SFDR …Overall, our results suggest that firms can benefit from superior ESG performance in terms of lower cost of debt on the corporate bond market” (abstract). My comment: I only invest in stocks with above-average best-in-universe E, S and G scores

Different incident effects: Beyond Borders: Asset Price Reaction to ESG Incidents at Horne and Abroad by Tomasz Orpiszewski and Mark Thompson as of Nov. 18^th, 2024 (#12): “This study examines the impact of ESG incidents on the stock and corporate bond prices … First, environmental incidents are generally associated with a downward movement in both stocks and corporate bonds. ln Europe, governance-related news also triggers a pronounced negative reaction. Second, ESG incidents occurring within the home jurisdiction in the US and Europe often lead to a price increase or a milder drop, … Third, we observe that incidents reported in non-English languages or occurring farther from the corporate headquarters tend to elicit stronger negative market reactions … Incidents in wealthier countries with higher GDP per capita result in a greater price drop across all assets, whereas bond prices exhibit a smaller decline or even increase when incidents occur in developing countries” (abstract). My comment: My data provider includes the effects of ESG-incidents within the ESG-scores. I only divest from stocks if the respective best-in-universe E, S and G scores fall >10% below the average scores (which happened more often than I thought, see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds

No SRI disadvantage: Socially Responsible Investment Funds: A Robust Test of Efficiency by Kwasi Boateng, Dan Daugaard, Vladimir Volkov and Faisal Khan as of Aug. 7^th, 2024 (#54): “We test the efficiency of socially responsible investment (SRI) equity mutual funds using linear factor pricing models (LFPM) … the method finds no significant performance difference between SRI mutual funds and the broader fund universe” … (abstract). My comment: I f there is no return and risk difference, why not invest everything sustainably?

SDG investment research

Thematic problems: Morningstar Global Thematic Funds Landscape 2024 by Kenneth Lamont, Monika Calay, Daisuke Motori, and Madeleine Black from Morningstar Fund Research as of October 2024: “Despite several years of widespread underperformance, … Thematic funds attracted USD 360 billion in net flows in the postpandemic recovery period, before losing USD 43 billion in net outflows in the subsequent three and a half years. … In the first half of 2024, fund closures marginally surpassed new launches globally for the first time since 2013. … In Europe, 86% of thematic fund assets are in actively managed funds. In contrast, 81% of US thematic fund assets are in indexed strategies. … Broad thematic funds, which invest across many different themes, represent the most popular theme by assets globally. … Eighteen percent of thematic funds in our global universe both survived and outperformed the Morningstar Global Target Market Exposure Index over the trailing year to mid-2024. … Sixty percent of the thematic funds that were available to investors at the onset of that period have since been closed“ (p. 1 and 2). My comment: I focus on SDG-compliant thematic (fund) investments which – unfortunately- have not performed better than other themes recently.

Inflated thematic ETFs: Ponzi Funds by Philippe van der Beck, Jean-Philippe Bouchaud, and Dario Villamaina as of May 21^st, 2024 (#2001): “Many active funds hold concentrated portfolios. Flow-driven trading causes price pressure, which pushes up the funds’ existing positions resulting in realized returns. … We find that flows chasing self-inflated returns predict bubbles in ETFs and their subsequent crashes, and lead to a daily wealth reallocation of $500 Million from ETFs alone. We provide a simple regulatory reporting measure– fund illiquidity– which captures a fund’s potential for self-inflated returns“ (abstract).

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Werbung (in: Climate hedge research post)

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 94% 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).

Good green returns: Researchpost 202

Good green returns picture from Monika Schroeder from Pixabay

Good green returns: 14x new research on 20% energy efficiency returns, profitable green nudging, externalization returns, SRI value investing, green bond investor motives, private ownership ESG deficits, good biodiversity measures, biodiversity policy recommendations, wrong sustainable investment advice, huge green investment potential, investors love high CEO pay, planetary limits, real estate diversification limits, and ChatGPT financial deficits (# shows number of SSRN downloads as of Nov. 14th, 2024).

Social and ecological research

20% energy efficiency return: The Efficacy of Energy Efficiency: Measuring the Returns to Home Insulation by Linde Kattenberg, Piet Eicholtz and Nils Kok as of Nov. 7^th, 2024 (#14): “… this study examines the effect of roof, wall and basement insulation on gas consumption in a large sample of (rental and owner-occupied) residential homes. The results of the difference-in-difference analysis show that home insulation measures significantly reduce gas consumption, with an average treatment effect of about 19%. … we observe an average reduction in the energy bill of €350 per year. Compared to the investment to install insulation, this yield an annual return of 19.9%, translating into a payback period of 5 years. Wall insulation has the highest return, of 21.8%, while basement insulation returns 14.9% and roof insulation returns 11,8% per year” (p. 21/22).

Profitable green nudging: Small Changes, Big Impact: Nudging Employees Toward Sustainable Behaviors by Laura Cappellucci, Lan Ha, Jeremy Honig, Christopher R. Knittel, Amy Vetter, and Richard Wilner as of June 25^th, 2024 (#25): “… in partnership with a large biopharmaceutical company … we focused on reducing operational errors that led to dropped collection materials, long freezer door open times, and improper recycling practices. To achieve these goals, we employed social norms to nudge employees towards 1) reducing wasted collection materials, 2) minimizing the duration of freezer door openings, and 3) improving recycling practices. We found an average reduction of roughly 70 percent in plastic waste from dropped collection materials and cost associated with these materials. The frequency of freezer door alarms decreased by over 80 percent, and the duration of alarms decreased by over 45 percent, depending on the empirical specification. We also observed a roughly 40 percent reduction in uncollapsed cardboard …” (abstract).

ESG investment research (in: Good green returns)

Externalization returns: Peer Evaluations of Corporate Externalities by Darren Bernard, Elsa Juliani, and Alastair Lawrence as of Sept. 23^rd, 2024 (#62): “Using responses from corporate executives across Australia, Europe, and North America, we form a measure of the perceived externalities of peer firms and validate it based on the extent of agreement among independent respondents, correlations with popular ESG ratings and measures of environmental impact, firm- and industry-level determinants, and other tests. Our extensions suggest that private companies are rated well, as are public companies with powerful CEOs (namely, CEOs who founded their firms). … We find that firms deemed deficient by peers have higher stock returns … We also find that named firms are more likely to be included in compensation peer groups, and deficient peers are more likely to be included than aspirational peers“ (p. 28/29).

SRI = value investing? Finding Value in Sustainable and Responsible Investments by Sebastian Lobe and Gerhard Halbritter as of June 20^th, 2024 (#20): “Collecting a comprehensive set of 100 international sustainable and responsible invest ments (SRI) indices from mainly developed markets we find that SRI pursues first and foremost a “pure” value strategy … SRI’s pure value strategy is present in most interna tional markets. … By and large, the financial performance is neutral with slight indications that score-weighted indices and a combined screening approach (positive and negative screens) are financially more beneficial“ (p. 15/16). My comment: This is a surprising result since previous research such as the one mentioned in this paper (p. 3) showed a growth rather than a value tilt of ESG-investments. My own small cap SDG fund also has a slight growth tilt.

Green bond investor motives: Who pays the greenium and why? A decomposition by Daniel Fricke and Christoph Meinerding from Deutsche Bundesbank as of Nov. 1^st, 2024 (#26): “… the average greenium in our sample amounts to minus 3 basis points. Decomposing this average greenium along the bonds’ ownership, we then document that it is largely borne by banks, investment funds and insurance companies (or their clients). … Investment funds generally overweight green over matched conventional bonds, potentially reflecting strong non-pecuniary green preferences of their clients. … banks display a tilt towards specific green bonds with a relatively pronounced greenium. This tilt is particularly sizeable when the sample is restricted to young bonds, small bonds, bonds with a long residual maturity, or bonds issued by the financial sector. … intermediaries may be marginal investors for certain green bonds because of market making, underwriting or liquidity management activities“ (p. 24/25).

Private ownership ESG: Corporate Ownership and ESG Performance by Belén Villalonga, Peter Tufano, and Boya Wang as of Nov. 8^th, 2024 (#36): “Firms whose material owners include managers and governments perform better on ESG metrics, while those with individual, family, and corporate shareholders perform worse. … While firms with family ownership show less commitment to ESG activities, management matters. In particular, firms with family CEO-owners do better than those in which the CEO is not a family member (both family and non-family firms). The revealed preference of family CEOs for ESG seems to be greater among descendants than among founders of family firms“ (p. 39).

Good biodiversity measures: Mapping the transgression of the planetary boundary for functional biosphere integrity by Fabian Stenzel, Liad Ben Uri, Johanna Braun, Jannes Breier, Karlheinz Erb, Dieter Gerten, Helmut Haberl, Sarah Matej, Ron Milo, Sebastian Ostberg, Johan Rockström, Nicolas Roux, Sibyll Schaphoff, and Wolfgang Lucht as of Oct. 25^th, 2024 (#18): “Two new control variables have been suggested for quantitatively assessing the core planetary boundary for functional biosphere integrity: 1) Human appropriation of net primary production (HANPP) and 2) a metric for ecological disruption (EcoRisk). … We find that EcoRisk and BioCol are good predictors of degradation for a variety of ecological empirical datasets. … We find that the local boundary is currently transgressed on 66% of the global ice-free land surface, with 47% already at high risk of degradation” (p. 1).

Biodiversity policy recommendations: Biodiversity and Financial Risk Assessments by Timo Busch, Alexander Bassen, Kerstin Lopatta, Lisa Knob, and Sven Remer from the Research Platform Sustainable Finance as of May 2024: “The rapid loss of biodiversity is threatening the ecosystem services that many industries rely on, also posing significant risks to financial institutions and the overall financial system. Regulations like the SFDR, Taxonomy, and CSRD, therefore, aim to push companies and financial institutions to be more transparent about how their activities affect and depend on biodiversity. But financial institutions have been slow to account for biodiversity risks in their decision-making, often blaming the complexity of the issue and the lack of reliable, high-quality data. While several tools and metrics exist to help assess biodiversity risks, each has limitations and often needs to be used in combination to be effective. In addition, gaps and inconsistencies in current disclosure requirements do make this task even more daunting. This policy brief offers recommendations to policymakers, financial institutions, and businesses on how they can better analyse and manage biodiversity risks” (p. 1).

Wrong sustainable investment advice: Do advisors respond to investors’ preferences? by Thomas Cauthorn, Julia Eckert, Christian Klein, and Bernhard Zwergel as of Feb. 1^st, 2024: “To understand if investment advisors are responsive to private investors’ preferences, we send trained mystery shoppers to 414 investment consultations. Our findings show that investment advisors generally recommend products that match investors’ risk preferences but only show limited consideration of investors’ sustainability preferences even when preferences are explicitly signaled. … Sustainability preferences that limit advisors’ ability to make an offer are altered in legal preference documentation. Investment advisors working for banks that primarily sell products from a single asset manager are more likely to wrongly document investors’ sustainability preferences. Inaccurate documentation persists even if advisors are monitored” (abstract). My comment: I recommend to use SDG-aligned revenues as key metric to measure sustainability. It is rather easy to determine and easy to understand.

SDG and impact investment research

Huge green investment potential: Household Climate Finance: Theory and Survey Data on Safe and Risky Green Assets by Shifrah Aron-Dine, Johannes Beutel, Monika Piazzesi, and Martin Schneider as of July 1^st, 2024: “We use (Sö: German) household survey data …We find that the net effect of green investing is to increase the price of green assets and lower the cost of capital for green firms. … Green convenience yields and hedging demand for green equity are actually holding back green investment. Without them, green equity demand would be roughly 30% larger than its current level. … Many households currently invest in traditional equity to hedge a slower-than-expected transition to a green economy. Looking ahead, we show that widespread availability of green safe assets to households, in the form of green bank deposit accounts, could dramatically increase green investment. … If, for instance, green deposits could be offered at a 50 basis points lower interest rate than traditional deposit accounts, the overall share of green assets in the economy would grow from 8% to 37% of total financial wealth. This effect is entirely driven by a rise in the share of green safe assets. We show that the share of green equity would remain largely unchanged. We document that households’ current holdings of green assets are overwhelmingly in equity, while they generally prefer to hold safe assets. … in our model, we show that more information about green finance leads to a dramatic rise in the demand for green equity“ (p. 46/47). My comment see Neues Research: Warum grüne Geldanlagen noch gering sind | CAPinside

Investors love high CEO pay: Failed Say on Pay: How Do Companies Course Correct after to a ‚No‘ Vote? by Amit Batish, David F. Larcker, Lucia Song, Brian Tayan and Courtney Yu as of Oct. 14th, 2024 (#90): “When “say on pay” was legislated in the U.S. under the Dodd Frank Act of 2010, many observers hoped an advisory vote on executive compensation would provide a catalyst to “reign in” CEO pay that was perceived to be out of control … Over the last 14 years, companies in the Russell 3000 Index received average support of 91 percent for their pay programs. Moreover, average support has proven remarkably stable, fluctuating narrowly between a low of 89.2 percent (in 2022) and a high of 91.7 percent (in 2017). Meanwhile, the annual failure rate (companies receiving less than 50 support) averaged a mere 2 percent” (p. 1). My comment: Shareholder engagement focusing on CEO pay has not been effective in the past. We should not expect much from the introduction of ESG incentives, therefore.

Planetary limits: Boundary Conditions for Organizations in the Anthropocene: A Review of the Planetary Boundaries Framework Ten Years On by Amanda Williams, Paolo Perego, and Gail Whiteman as of Nov. 7^th, 2024 (#18): “Our systematic review of the business literature demonstrates that business research on the planetary boundaries concept and on the climate boundary is increasing, though work on the other boundaries remains limited. Despite increased attention in business research, key gaps remain—scholarly conversations related to the planetary boundaries remain confined to sustainability journals, and there is little cross-analysis between the boundaries. … We propose a framework that addresses these gaps and establishes the planetary boundaries as cross-scale ecological boundary conditions for all organizations and managers operating under volatile and non-linear ecosystem conditions—key characteristics of the Anthropocene. Implementing our framework requires a transformation of the field in how scholars theorize, measure, and engage“ (p. 29/30).

Other investment research (in: Good green returns)

Real estate diversification limits: Market Risk of Real Estate: Using Direct Data to Understand Direct Risk by Hongyuan Zhang and Felix Schlumpf from the Zurich Insurance Company as of June 26^th, 2024 (#245): “This research aimed to develop and validate an unsmoothing technique within the risk factor analysis framework to provide a more accurate representation of real estate market risk. By incorporating distributed lags in the risk factor model, we addressed the smoothing effects inherent in appraisal based data … The higher volatility and increased correlation with equity markets observed in the unsmoothed data suggest that real estate investments may not provide as much diversification as previously thought“ (p. 9/10).

ChatGPT financial limits: How Much Does ChatGPT Know About Finance? by Douglas (DJ) Fairhurst and Daniel Greene as of Oct. 11^th, 2024 (#141): “This paper investigates the extent that large language models (LLMs) understand finance by analyzing responses to licensing exam preparation questions. … Our findings suggest that LLMs could be used to augment to finance professionals, as LLMs are skilled at summarizing large quantities of data and text. They also appear to be proficient at generating descriptions of basic finance principles and investment strategies. However, the frequency of inaccurate answers implies that caution and human oversight are required. … findings suggest that LLMs may be best used to give an overview of a topic and answer higher-level, broader questions rather than more specific, detailed, or nuanced prompts” (p. 29/30).

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