Archiv der Kategorie: Direct Indexing

Climate misbelieves: Researchpost 204

Climate misbelieves illustration by mmadilkvp vonn Pixabay

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

Social and ecological research

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

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

ESG investment research (in: Climate misbelieves)

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

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

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

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

Impact investment research

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

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

Other investment research (in: Climate misbelieves)

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

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

Sustainability deficits: Researchpost 188

Sustainability deficits picture from Pixabay by Alexas Fotos

11x new research on green jobs, carbon prices, GHG reporting, accountants, ESG disclosures, institutional ESG, Governance returns, kid investments, ETF liquidity, loss aversion and customized investments (# shows SSRN full paper downloads as of August 8^th, 2024)

Social and ecological research

Good green job effects: The Green Future: Labor Market Implications for Men and Women by Naomi-Rose Alexander, Longji Li, Jorge Mondragon, Sahar Priano, and Marina M. Tavares from the International Monetary Fund as of July 25^th, 2024 (#15): “In AEs (Sö: Advanced economies), green jobs are predominantly found among high-skilled workers and cognitive occupations, whereas in EMs, many green jobs are manual positions within the construction sector …. green jobs are disproportionately held by men in both AEs and Ems … Additionally, we observe a green wage premium and narrower gender pay gaps in green jobs … many green jobs are well-positioned to harness the benefits of AI advancements … green jobs with a greater capacity to leverage AI exhibit a reduced gender pay gap” (p. 40/41).

Sustainability deficits (1): Negative carbon price effects: Firms’ heterogeneous (and unintended) investment response to carbon price increases by Anna Matzner and Lea Steininger as of July 29^th, 2024 (#13): “Using balance sheet data of 1.2 million European firms and identified carbon policy shocks, we find that higher carbon prices reduce investment, on average. However, less carbon-intensive firms and sectors reduce their investment relatively more compared to otherwise similar firms after a carbon price tightening shock. Following carbon price tightening, firms in demand-sensitive industries see a relative decrease not only in investment but also in sales, employment and cashflow. Moreover, we find no evidence that higher carbon prices incentivise carbon-intensive firms to produce less emission-intensively. Overall, our results are consistent with theories of the growth-hampering features of carbon price increases and suggest that carbon pricing policy operates as a demand shock“ (abstract).

Sustianbility deficits (2): Corporate carbon deficits: The MSCI Sustainability Institute Net-Zero Tracker from the MSCI Sustainability Institute as of July 2024: “A series of indicators that investors use to guide transition finance … suggest that the world’s listed companies remain largely misaligned with global climate goals … Just over one-fifth (22%) of listed companies have set a decarbonization target that aims to reduce their financially relevant GHG emissions to net-zero by 2050 in line with a science-based pathway, as of May 31, 2024, an increase of eight percentage points from a year earlier … 38% of companies disclosed at least some of their upstream Scope 3 emissions, up eight percentage points from a year earlier, while 28% disclosed at least some of their downstream Scope 3 emissions, up seven percentage points over the same period” (p. 4). My comment: I ask every company within my fund to fully disclose GHG Scope 3 data so that all stakeholders can engage regarding these data.

Sustainability deficits (3): Accountant ESG deficits: ESG Assurance and Comparability of Greenhouse Gas Emission Disclosures by Jenna Burke, Jiali Luo, Zvi Singer, and Jing Zhang as of Aug. 7^th, 2024 (#7): “… a recent rule from the SEC mandates expanded ESG disclosure, including external assurance of reported greenhouse gas (GHG) emissions. …. we … find that companies with ESG assurance report more comparable GHG emissions. Comparability is further enhanced when companies use the same assurance provider and when the provider is more experienced. We also find some evidence that comparability is higher when assurance is provided by consulting and engineering firms than by accounting firms“ (abstract).

ESG investment research (in: Sustainability deficits)

Sustainability deficits (4): No ESG disclosure benefits? Does mandating corporate social and environmental disclosure improve social and environmental performance?: Broad-based evidence regarding the effectiveness of Directive 2014/95/EU by Charl de Villiers, John Dumay, Federica Farneti, Jing Jia, and Zhongtian Li as of July 11^th, 2024 (#33): “The Directive …requires companies that are (i) listed on EU exchanges or have significant operations within the EU; (ii) employing more than 500 people; or (iii) deemed to be public-interest entities; to report their performance on non-financial matters, including environmental issues, social and employee matters, human rights, anti-corruption, and bribery” (p. 1). … “Analysing a cross-country sample from 2009-2020, we find that social and environmental performance has not meaningfully improved since the Directive was enacted, and instead of EU companies increasing their performance more than US companies, there was either no difference (for social performance) or US companies improved more than EU companies (for environmental performance). Thus, the results suggest that the Directive did not have the intended impact on the social and environmental performance of EU companies “ (p. 19). My comment: Is more regulatory pressure required or more stakeholder engagement or both?

Sustainability deficits (5): Institutional ESG deficits: Comparisons of Asset Manager, Asset Owner, and Wealth and Retail Portfolios by Peter Jacobs, Ursula Marchioni, Stefan Poechhacker, Nicolas Werbach, and Andrew Ang from BlackRock as of April 16^th,2024 (#183): “We examine 800 portfolios from European asset managers, asset owners, and wealth/retail managers … The average European institutional portfolio exhibits a total risk hovering between 10 to 11%, with little difference across the average asset manager, asset owner, and wealth/retail portfolios. Equity risk … accounting for almost 90% of the total portfolio risk. Decomposing equity risk further, country-specific tilts are the primary driver of equity risk, contributing approximately half of the overall equity risk. Style factors and sectors represent 35% and 17% of the equity risk, respectively. … the largest style factor exposure is small size. … the average European institution has lower carbon intensities, but perhaps surprisingly lower ESG scores, than the MSCI ACWI benchmark“ (p. 22). My comment: I do not expect significant positive share- and bondholder pressure from these investors. This opens room for more customized investor-driven solutions (see the last research publication of this blog post).

Governance returns: From Crisis to Opportunity: The Impact of ESG Scores and Board Structure on Firms’ Profitability by Luis Seco, Azin Sharifi and Shiva Zamani as of Aug. 6^th, 2024 (#13): “This study … of firms listed in the S&P 500 index from 2016 to 2022 reveals that firms with a higher BSI index (Sö: Board structure index) demonstrate enhanced financial profitability …. Among the ESG components, only the Governance score significantly impacts financial profitability, … whereas Environmental and Social scores do not show a significant direct effect on net profit margins … the positive impact of robust board structures and governance practices is more pronounced in the post-COVID period “ (p. 16/17). My comment: Our study from 2014 revealed similar results, see Fetsun, A. and Söhnholz, D. (2014): A quantitative approach to responsible investment: Using ESG multifactor models to improve equity portfolios, Veritas Investment Arbeitspapier, presented at PRI Academic Network Conference in Montreal, September 23^rd (140227 ESG_Paper_V3 1 (naaim.org))

Other investment research (in: Sustainability deficits)

Kids beat adults: Invest Like for Your Kids: Performance and Implications of Children’s Investment Accounts on Portfolios in Adulthood by Denis Davydov and Jarkko Peltomäki as of April 16^th, 2024 (#78): “… we explore the performance of custodial investment accounts for children and their subsequent impact on portfolio performance in adulthood. We find that children’s investment accounts demonstrate superior performance, boasting an average Sharpe ratio over 35% higher and an annual return three times greater compared to adults’ accounts. Notably, the observed trading activity and account behavior in children’s accounts suggest a preference for passive investment strategies. In addition, the combination of lower volatility and higher returns in children’s accounts may indicate a more effective diversification strategy adopted by parents. … the risk-taking and overall account activity of teenage boys become significantly higher than those of girls, resulting in deteriorated investment performance. … individuals who had investment accounts during childhood consistently demonstrate superior performance compared to their peers who started investing in adulthood” (p. 26/27).

ETF liquidity risk: Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests by Lennart Dekker, Luis Molestina Vivar, and Christian Weistroffer as of Aug. 1^st, 2024 (#12): “Investment funds are the largest group of ETF investors in the euro area. Our results … show that investment funds were the most run-prone investor type during the COVID-19 crisis. We then show that ETF selling by open-ended funds during March 2020 was stronger for funds facing larger outflows. … This finding is consistent with funds using ETFs for managing liquidity and raising cash if needed“ (p. 16).

Loss aversion? A meta-analysis of disposition effect experiments by Stephen L. Cheung as of pril 3^rd, 2024 (#53): “This paper reports a meta-analysis of the disposition effect – the reluctance to liquidate losing investments – in three standard experimental environments in which this behaviour is normatively a mistake. … the literature finds that investors are around 10% more willing to sell winning compared to losing assets, despite optimal choice dictating the opposite“ (abstract).

Hyper-managed customized investments? Beyond Active and Passive Investing: The Customization of Finance from the CFA Institute Research Foundation by Marc R. Reinganum and Kenneth A. Blay as of Aug. 6^th, 2024: “…The overwhelming ascendancy of index funds associated within the US Equity Large-Cap Blend category is the exception rather than the rule. … The economics of customizable portfolios, enabled by technology facilitating hyper-managed separate accounts, will yield better outcomes for investors in terms of after-tax returns and alignment with investor attitudes and preferences. … In the future, active and passive investing will coexist but will increasingly take place within hyper-managed separate accounts, where the passive component will be implemented in an unbundled way rather than in a fund to maximize net economic benefits and other objectives. … The next frontier for asset managers and their service providers will be the era of low-cost customization“ (p. 76/77). My comment: See Index- und Nachhaltigkeits-Investing 2.0? | CAPinside

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Werbehinweis

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Green salt: Researchpost 187

Green salt picture by H. Hach from Pixabay

10x new research on green salt, digital aid, ESG risks, ESG ratings, direct ESG indexing, environmental engagement, green regulation, stock return dispersion and equal weigthing

Social and ecological research

Green salt? Expanding the Use of Molten Salt for Renewable Energy Storage and the Role of Green Technology Policies by Lavinia Heisenberg and Richhild Moessner as of July 31^st, 2024 (#6): “This paper discussed expanding the use of molten salt for renewable energy storage and generation, in an environmentally friendly way and making use of existing infrastructure. These include using molten salt to store solar energy in concentrated solar plants, replacing coal by molten salt to power thermal plants and thereby convert existing coal thermal plants to renewables, and linking these two uses. They also include molten salt thermal batteries for grid-scale energy storage, and using molten salt in green hydrogen production” (p. 9).

Digital humanitarian aid: Can Digital Aid Deliver during Humanitarian Crises? by Michael Callen, Miguel Fajardo-Steinhäuser, Michael G. Findley, and Tarek Ghani as of July 31^st, 2024 (#3): “We experimentally evaluated digital payments to extremely poor, female-headed households in Afghanistan …. The payments led to substantial improvements in food security and mental well-being. Despite beneficiaries’ limited tech literacy, 99.75% used the payments, and stringent checks revealed no evidence of diversion. … Delivery costs are under 7 cents per dollar, which is 10 cents per dollar less than the World Food Programme’s global figure for cash-based transfers” (abstract).

ESG investment research (in: Green salt)

Low ESG risks pay: MSCI ESG Ratings and Cost of Capital by Jakub Malich and Anett Husi from MSCI Research as of July 22^nd, 2024: “The objective of our study was to determine whether companies with higher resilience to financially material sustainability-related risks (as measured by MSCI ESG Ratings) did benefit from a lower cost of capital. Key takeaways: We found a significant historical correlation between a company’s MSCI ESG Rating and its financing costs. This relationship held in both equity and debt markets … Companies assessed to be the most resilient to financially material sustainability-related risks consistently financed themselves more cheaply than those considered more vulnerable“ (p. 4). My comment: I invest in stocks with low ESG risks and my returns have been good so far, see e.g. Fonds-Portfolio: Mein Fonds | CAPinside

Better social than green? The Influence of ESG Ratings on the Performance of Listed Companies in Germany during by Crisis by Katharina Neuenroth and Alexander Zureck as of July 29^th, 2024 (#8): “Data of a sample of 20 companies listed in the Deutscher Aktienindex (DAX) was utilised for the analysis and a time period of two years (2020 – 2021) was considered. The required information was gathered from the Refinitiv Thomson Reuters database. The research found no significant influence of environmental and governance ratings on EBITDA. However, a significant positive influence of the social rating was observable.“ (abstract). My comment: My SDG-portfolios have more social than green exposure and most have performed rather well over time see www.soehnholzesg.com

Direct ESG Indexing: Smart Beta, Direct Indexing, and Index-Based Investment Strategies by from Jordan Doyle and Genevieve Hayman from the CFA Research Institute as of July 30^th, 2024: “…. we review the origins of index investing and develop an indexing framework that captures incremental levels of active management for new index-based products within the evolving index investing landscape. This conceptual framework helps investors, firms, and policymakers better understand and define index-based products. Additionally, we offer policy recommendations to clarify terminologies with respect to smart beta products and direct indexing, and we encourage increased disclosure on the part of index providers regarding indexing methodologies” (p. 3). …. “Several recent studies have highlighted the increased calls for personalized strategies and product offerings within investment management. In a Charles Schwab Asset Management (2023) survey, 88% of ETF investors expressed interest in further personalizing their investment portfolio, with 78% wishing to better align investments with their personal values” (p. 7). My comment: I offer direct ESG and SDG index solutions since quite some time now but demand has been very low, see Direct ESG Indexing: Die beste ESG Investmentmöglichkeit auch für Privatkunden?

Good ESG banks? Stock returns and ESG scores of banks by Silvia Bressan and Alex Weissensteiner as of July 29^th, 2024 (#12): “We analyze the relationship between United States bank stock returns and ESG scores from January 2013 to December 2022. Our findings indicate that during bear markets, high ESG banks perform slightly better than low ESG banks. However, during market rebounds, the outperformance of high ESG banks becomes significantly more pronounced. … during the more stable period from March 2021 to December 2022 … high ESG banks exhibiting lower equity performance“ (p. 30/31).

Impact investment research (in: Green salt)

Green bank returns: Does Banks’ Environmental Engagement Impact Funding Costs? by Md Jaber Al Islam, Fernando Moreira, and Mustapha Douch as of July 24^th, 2024 (#12): “This study investigates 853 banks across 59 countries from 2004 to 2021, identifying a significant relationship between banks’ environmental engagement and lower funding costs. This association is more pronounced among banks with better management, lower deposit levels, and operating in countries with higher GDP. Depositors and investors support ecofriendly banks due to their favourable conditions in risk, capital adequacy, profitability, and reputation. Besides, the Paris Agreement has been instrumental in heightening awareness among depositors and investors regarding climate change.” (abstract).

Effective green regulation: The impact of ECB Banking Supervision on climate risk and sustainable finance by Lena Schreiner and Andreas Beyer as of July 23rrd, 2024 (#37): “This paper provides a first empirical analysis of the impact of the European Central Bank’s (ECB’s) climate-risk-related supervisory efforts … We …. find a significant impact on both improvements in climate risk exposure and management and on an increase in banks’ green finance activities“ (abstract).

Oher investment research

Stock return dispersion: Which U.S. Stocks Generated the Highest Long-Term Returns? by Hendrik Bessembinder as of July 16^th, 2024 (#5538): “This report describes compound return outcomes for the 29,078 publicly-listed common stocks contained in the CRSP database from December 1925 to December 2023. The majority (51.6%) of these stocks had negative cumulative returns. However, the investment performance of some stocks was remarkable. Seventeen stocks delivered cumulative returns greater than five million percent (or $50,000 per dollar initially invested) … The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by Nvidia shareholders” (abstract).

Equal weigthing: Worth the Weight by Tim Edwards, Anu R. Ganti, and Hamish Preston from S&P Dow Jones Indices as of July 23^rd, 2024: “The S&P 500 Equal Weight Index has recently displayed underperformance in comparison to the S&P 500, driven primarily by historical extremes of performance in the market’s largest names. Moreover, concentration in the broader U.S. equity market has increased to its highest in many years, while single-stock momentum trends are showing unusual signs of extension. Historically, such periods have tended to eventually revert toward their historical means, with such reversion accompanied by stronger relative performance by equal weight indices” (p. 17). My comment: I use equal weighting for equity portfolios since many years and are happy with the results, see e.g. here Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com)

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Werbehinweis (in: Green salt)

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

Sustainable investment = radically different?

Sustainable investment can be radically different from traditional investment. „Asset Allocation, Risk Overlay and Manager Selection“ is the translation of the book-title which I wrote in 2009 together with two former colleagues from FERI in Bad Homburg. Sustainability plays no role in it. My current university lecture on these topics is different.

Sustainability can play a very important role in the allocation to investment segments, manager and fund selection, position selection and also risk management. Strict sustainability can even lead to radical changes: More illiquid investments, lower asset class diversification, significantly higher concentration within investment segments, more active instead of passive mandates and different risk management. Here is why:

Central role of investment philosophy and sustainability definition for sustainable investment

Investors should define their investment philosophy as clearly as possible before they start investing. By investment philosophy, I mean the fundamental convictions of an investor, ideally a comprehensive and coherent system of such convictions (see Das-Soehnholz-ESG-und-SDG-Portfoliobuch 2023, p. 21ff.). Sustainability can be an important element of an investment philosophy.

Example: I pursue a strictly sustainable, rule-based, forecast-free investment philosophy (see e.g. Investment philosophy: Forecast fans should use forecast-free portfolios). To this end, I define comprehensive sustainability rules. I use the Policy for Responsible Investment Scoring Concept (PRISC) tool of the German Association for Asset Management and Financial Analysis (DVFA) for operationalization.

When it comes to sustainable investment, I am particularly interested in the products and services offered by the companies and organizations in which I invest or to which I indirectly provide loans. I use many strict exclusions and, above all, positive criteria. In particular, I want that the revenue or service is as compatible as possible with the Sustainable Development Goals of the United Nations (UN SDG) („SDG revenue alignment“). I also attach great importance to low absolute environmental, social and governance (ESG) risks. However, I only give a relatively low weighting to the opportunities to change investments („investor impact“) (see The Soehnholz ESG and SDG Portfolio Book 2023, p. 141ff). I try to achieve impact primarily through shareholder engagement, i.e. direct sustainability communication with companies.

Other investors, for whom impact and their own opportunities for change are particularly important, often attach great importance to so-called additionality. This means, that the corresponding sustainability improvements only come about through their respective investments. If an investor finances a new solar or wind park, this is considered additional and therefore particularly sustainable. When investing money on stock exchanges, securities are only bought by other investors and no money flows to the issuers of the securities – except in the case of relatively rare new issues. The purchase of listed bonds or shares in solar and wind farm companies is therefore not considered an impact investment by additionality supporters.

Sustainable investment and asset allocation: many more unlisted or alternative investments and more bonds?

In extreme cases, an investment philosophy focused on additionality would mean investing only in illiquid assets. Such an asset allocation would be radically different from today’s typical investments.

Better no additional allocation to illiquid investments?

Regarding additionality, investor and project impact must be distinguished. The financing of a new wind farm is not an additional investment, if other investors would also finance the wind farm on their own. This is not atypical. There is often a so-called capital overhang for infrastructure and private equity investments. This means, that a lot of money has been raised via investment funds and is competing for investments in such projects.

Even if only one fund is prepared to finance a sustainable project, the investment in such a fund would not be additional if other investors are willing to commit enough money to this fund to finance all planned investments. It is not only funds from renowned providers that often have more potential subscriptions from potential investors than they are willing to accept. Investments in such funds cannot necessarily be regarded as additional. On the other hand, there is clear additionality for investments that no one else wants to make. However, whether such investments will generate attractive performance is questionable.

Illiquid investments are also far from suitable for all investors, as they usually require relatively high minimum investments. In addition, illiquid investments are usually only invested gradually, and liquidity must be held for uncertain capital calls in terms of timing and amount. In addition, illiquid investments are usually considerably more expensive than comparable liquid investments. Overall, illiquid investments therefore have hardly any higher return potential than liquid investments. On the other hand, mainly due to the methods of their infrequent valuations, they typically exhibit low fluctuations. However, they are sometimes highly risky due to their high minimum investments and, above all, illiquidity.

In addition, illiquid investments lack an important so-called impact channel, namely individual divestment opportunities. While liquid investments can be sold at any time if sustainability requirements are no longer met, illiquid investments sometimes have to remain invested for a very long time. Divestment options are very important to me: I have sold around half of my securities in recent years because their sustainability has deteriorated (see: Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds).

Sustainability advantages for (corporate) bonds over equities?

Liquid investment segments can differ, too, in terms of impact opportunities. Voting rights can be exercised for shares, but not for bonds and other investment segments. However, shareholder meetings at which voting is possible rarely take place. In addition, comprehensive sustainability changes are rarely put to the vote. If they are, they are usually rejected (see 2023 Proxy Season Review – Minerva).

I am convinced that engagement in the narrower sense can be more effective than exercising voting rights. And direct discussions with companies and organizations to make them more sustainable are also possible for bond buyers.

Irrespective of the question of liquidity or stock market listing, sustainable investors may prefer loans to equity because loans can be granted specifically for social and ecological projects. In addition, payouts can be made dependent on the achievement of sustainable milestones. However, the latter can also be done with private equity investments, but not with listed equity investments. However, if ecological and social projects would also be carried out without these loans and only replace traditional loans, the potential sustainability advantage of loans over equity is put into perspective.

Loans are usually granted with specific repayment periods. Short-term loans have the advantage that it is possible to decide more often whether to repeat loans than with long-term loans, provided they cannot be repaid early. This means that it is usually easier to exit a loan that is recognized as not sustainable enough than a private equity investment. This is a sustainability advantage. In addition, smaller borrowers and companies can probably be influenced more sustainably, so that government bonds, for example, have less sustainability potential than corporate loans, especially when it comes to relatively small companies.

With regard to real estate, one could assume that loans or equity for often urgently needed residential or social real estate can be considered more sustainable than for commercial real estate. The same applies to social infrastructure compared to some other infrastructure segments. On the other hand, some market observers criticize the so-called financialization of residential real estate, for example, and advocate public rather than private investments (see e.g. Neue Studie von Finanzwende Recherche: Rendite mit der Miete). Even social loans such as microfinance in the original sense are criticized, at least when commercial (interest) interests become too strong and private debt increases too much.

While renewable raw materials can be sustainable, non-industrially used precious metals are usually considered unsustainable due to the mining conditions. Crypto investments are usually considered unsustainable due to their lack of substance and high energy consumption.

Assuming potential additionality for illiquid investments and an impact primarily via investments with an ecological or social focus, the following simplified assessment of the investment segment can be made from a sustainability perspective:

Sustainable investment: Potential weighting of investment segments assuming additionality for illiquid investments:

Source: Soehnholz ESG GmbH 2023

Investors should create their own such classification, as this is crucial for their respective sustainable asset allocation.

Taking into account minimum capital investment and costs as well as divestment and engagement opportunities, I only invest in listed investments, for example. However, in the case of multi-billion assets with direct sustainability influence on investments, I would consider additional illiquid investments.

Sustainable investment and manager/fund selection: more active investments again?

Scientific research shows that active portfolio management usually generates lower returns and often higher risks than passive investments. With very low-cost ETFs, you can invest in thousands of securities. It is therefore no wonder that so-called passive investments have become increasingly popular in recent years.

Diversification is often seen as the only „free lunch“ in investing. But diversification often has no significant impact on returns or risks: With more than 20 to 30 securities from different countries and sectors, no better returns and hardly any lower risks can be expected than with hundreds of securities. In other words, the marginal benefit of additional diversification decreases very quickly.

But if you start with the most sustainable 10 to 20 securities and diversify further, the average sustainability can fall considerably. This means that strictly sustainable investment portfolios should be concentrated rather than diversified. Concentration also has the advantage of making voting and other forms of engagement easier and cheaper. Divestment threats can also be more effective if a lot of investor money is invested in just a few securities.

Sustainability policies can vary widely. This can be seen, among other things, in the many possible exclusions from potential investments. For example, animal testing can be divided into legally required, medically necessary, cosmetic and others. Some investors want to consistently exclude all animal testing. Others want to continue investing in pharmaceutical companies and may therefore only exclude „other“ animal testing. And investors who want to promote the transition from less sustainable companies, for example in the oil industry, to more sustainability will explicitly invest in oil companies (see ESG Transition Bullshit?).

Indices often contain a large number of securities. However, consistent sustainability argues in favor of investments in concentrated, individual and therefore mostly index-deviating actively managed portfolios. Active, though, is not meant in the sense of a lot of trading. In order to be able to exert influence by exercising voting rights and other forms of engagement, longer rather than shorter holding periods for investments make sense.

Still not enough consistently sustainable ETF offerings

When I started my own company in early 2016, it was probably the world’s first provider of a portfolio of the most consistently sustainable ETFs possible. But even the most sustainable ETFs were not sustainable enough for me. This was mainly due to insufficient exclusions and the almost exclusive use of aggregated best-in-class ESG ratings. However, I have high minimum requirements for E, S and G separately (see Glorious 7: Are they anti-social?). I am also not interested in the best-rated companies within sectors that are unattractive from a sustainability perspective (best-in-class). I want to invest in the best-performing stocks regardless of sector (best-in-universe). However, there are still no ETFs for such an approach. In addition, there are very few ETFs that use strict ESG criteria and also strive for SDG compatibility.

Even in the global Socially Responsible Investment Paris Aligned Benchmarks, which are particularly sustainable, there are still several hundred stocks from a large number of sectors and countries. In contrast, there are active global sustainable funds with just 30 stocks, which is potentially much more sustainable (see 30 stocks, if responsible, are all I need).

Issuers of sustainable ETFs often exercise sustainable voting rights and even engage, even if only to a small extent. However, most providers of active investments do no better (see e.g. 2023 Proxy Season Review – Minerva). Notably, index-following investments typically do not use the divestment impact channel because they want to replicate indices as directly as possible.

Sustainable investment and securities selection: fewer standard products and more individual mandates or direct indexing?

If there are no ETFs that are sustainable enough, you should look for actively managed funds, award sustainable mandates to asset managers or develop your own portfolios. However, actively managed concentrated funds with a strict ESG plus impact approach are still very rare. This also applies to asset managers who could implement such mandates. In addition, high minimum investments are often required for customized mandates. Individual sustainable portfolio developments, on the other hand, are becoming increasingly simple.

Numerous providers currently offer basic sustainability data for private investors at low cost or even free of charge. Financial technology developments such as discount (online) brokers, direct indexing and trading in fractional shares as well as voting tools help with the efficient and sustainable implementation of individual portfolios. However, the variety of investment opportunities and data qualities are not easy to analyze.

It would be ideal if investors could also take their own sustainability requirements into account on the basis of a curated universe of particularly sustainable securities and then have them automatically implemented and rebalanced in their portfolios (see Custom ESG Indexing Can Challenge Popularity Of ETFs (asiafinancial.com). In addition, they could use modern tools to exercise their voting rights according to their individual sustainability preferences. Sustainability engagement with the securities issuers can be carried out by the platform provider.

Risk management: much more tracking error and ESG risk monitoring?

For sustainable investments, sustainability metrics are added to traditional risk metrics. These are, for example, ESG ratings, emissions values, principal adverse indicators, do-no-significant-harm information, EU taxonomy compliance or, as in my case, SDG compliance and engagement success.

Sustainable investors have to decide how important the respective criteria are for them. I use sustainability criteria not only for reporting, but also for my rule-based risk management. This means that I sell securities if ESG or SDG requirements are no longer met (see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds).

The ESG ratings I use summarize environmental, social and governance risks. These risks are already important today and will become even more important in the future, as can be seen from greenwashing and reputational risks, for example. Therefore, they should not be missing from any risk management system. SDG compliance, on the other hand, is only relevant for investors who care about how sustainable the products and services of their investments are.

Voting rights and engagement have not usually been used for risk management up to now. However, this may change in the future. For example, I check whether I should sell shares if there is an inadequate response to my engagement. An inadequate engagement response from companies may indicate that companies are not listening to good suggestions and thus taking unnecessary risks that can be avoided through divestments.

Traditional investors often measure risk by the deviation from the target allocation or benchmark. If the deviation exceeds a predefined level, many portfolios have to be realigned closer to the benchmark. If you want to invest in a particularly sustainable way, you have to have higher rather than lower traditional benchmark deviations (tracking error) or you should do without tracking error figures altogether.

In theory, sustainable indices could be used as benchmarks for sustainable portfolios. However, as explained above, sustainability requirements can be very individual and, in my opinion, there are no strict enough sustainable standard benchmarks yet.

Sustainability can therefore lead to new risk indicators as well as calling old ones into question and thus also lead to significantly different risk management.

Summary and outlook: Much more individuality?

Individual sustainability requirements play a very important role in the allocation to investment segments, manager and fund selection, position selection and risk management. Strict sustainability can lead to greater differences between investment mandates and radical changes to traditional mandates: A lower asset class diversification, more illiquid investments for large investors, more project finance, more active rather than passive mandates, significantly higher concentration within investment segments and different risk management with additional metrics and significantly less benchmark orientation.

Some analysts believe that sustainable investment leads to higher risks, higher costs and lower returns. Others expect disproportionately high investments in sustainable investments in the future. This should lead to a better performance of such investments. My approach: I try to invest as sustainably as possible and I expect a normal market return in the medium term with lower risks compared to traditional investments.

First published in German on www.prof-soehnholz.com on Dec. 30^th, 2023. Initial version translated by Deepl.com

Nachhaltige Geldanlage = Radikal anders?

Nachhaltige Geldanlage kann radikal anders sein als traditionelle. „Asset Allocation, Risiko-Overlay und Manager-Selektion: Das Diversifikationsbuch“ heißt das Buch, dass ich 2009 mit ehemaligen Kollegen der Bad Homburger FERI geschrieben habe. Nachhaltigkeit spielt darin keine Rolle. In meiner aktuellen Vorlesung zu diesen Themen ist das anders. Nachhaltigkeit kann eine sehr wichtige Rolle spielen für die Allokation auf Anlagesegmente, die Manager- bzw. Fondsselektion, die Positionsselektion und auch das Risikomanagement (Hinweis: Um die Lesbarkeit zu verbessern, gendere ich nicht).

Strenge Nachhaltigkeit kann sogar zu radikalen Änderungen führen: Mehr illiquide Investments, erheblich höhere Konzentration innerhalb der Anlagesegmente, mehr aktive statt passive Mandate und ein anderes Risikomanagement. Im Folgenden erkläre ich, wieso:

Zentrale Rolle von Investmentphilosophie und Nachhaltigkeitsdefinition für die nachhaltige Geldanlage

Dafür starte ich mit der Investmentphilosophie. Unter Investmentphilosophie verstehe ich die grundsätzlichen Überzeugungen eines Geldanlegers, idealerweise ein umfassendes und kohärentes System solcher Überzeugungen (vgl. Das-Soehnholz-ESG-und-SDG-Portfoliobuch 2023, S. 21ff.). Nachhaltigkeit kann ein wichtiges Element einer Investmentphilosophie sein. Anleger sollten ihre Investmentphilosophie möglichst klar definieren, bevor sie mit der Geldanlage beginnen.

Beispiel: Ich verfolge eine konsequent nachhaltige regelbasiert-prognosefreie Investmentphilosophie. Dafür definiere ich umfassende Nachhaltigkeitsregeln. Zur Operationalisierung nutze ich das Policy for Responsible Investment Scoring Concept (PRISC) Tool der Deutschen Vereinigung für Asset Management und Finanzanalyse (DVFA, vgl. Standards – DVFA e. V. – Der Berufsverband der Investment Professionals).

Für die nachhaltige Geldanlage ist mir vor allem wichtig, was für Produkte und Services die Unternehmen und Organisationen anbieten, an denen ich mich beteilige oder denen ich indirekt Kredite zur Verfügung stelle. Dazu nutze ich viele strenge Ausschlüsse und vor allem Positivkriterien. Dabei wird vor allem der Umsatz- bzw. Serviceanteil betrachtet, der möglichst gut mit Nachhaltigen Entwicklungszielen der Vereinten Nationen (UN SDG) vereinbar ist („SDG Revenue Alignment“). Außerdem lege ich viel Wert auf niedrige absolute Umwelt-, Sozial- und Governance-Risiken (ESG). Meine Möglichkeiten zur Veränderung von Investments („Investor Impact“) gewichte ich aber nur relativ niedrig (vgl. Das-Soehnholz-ESG-und-SDG-Portfoliobuch 2023, S. 141ff). Impact möchte ich dabei vor allem über Shareholder Engagement ausüben, also direkte Nachhaltigkeitskommunikation mit Unternehmen.

Andere Anleger, denen Impact- bzw. eigene Veränderungsmöglichkeiten besonders wichtig sind, legen oft viel Wert auf sogenannte Additionalität bzw. Zusätzlichkeit. Das bedeutet, dass die entsprechenden Nachhaltigkeitsverbesserungen nur durch ihre jeweiligen Investments zustande gekommen sind. Wenn ein Anleger einen neuen Solar- oder Windparkt finanziert, gilt das als additional und damit als besonders nachhaltig. Bei Geldanlagen an Börsen werden Wertpapiere nur anderen Anlegern abgekauft und den Herausgebern der Wertpapiere fließt – außer bei relativ seltenen Neuemissionen – kein Geld zu. Der Kauf börsennotierter Anleihen oder Aktien von Solar- und Windparkunternehmen gilt bei Additionalitätsanhängern deshalb nicht als Impact Investment.

Nachhaltige Geldanlage und Asset Allokation: Viel mehr nicht-börsennotierte bzw. alternative Investments und mehr Anleihen?

Eine additionalitätsfokussierte Investmentphilosophie bedeutet demnach im Extremfall, nur noch illiquide zu investieren. Die Asset Allokation wäre radikal anders als heute typische Geldanlagen.

Lieber keine Mehrallokation zu illiquiden Investments?

Aber wenn Additionalität so wichtig ist, dann muss man sich fragen, welche Art von illiquiden Investments wirklich Zusätzlichkeit bedeutet. Dazu muss man Investoren- und Projektimpact trennen. Die Finanzierung eines neuen Windparks ist aus Anlegersicht dann nicht zusätzlich, wenn andere Anleger den Windpark auch alleine finanzieren würden. Das ist durchaus nicht untypisch. Für Infrastruktur- und Private Equity Investments gibt es oft einen sogenannten Kapitalüberhang. Das bedeutet, dass über Fonds sehr viel Geld eingesammelt wurde und um Anlagen in solche Projekte konkurriert.

Selbst wenn nur ein Fonds zur Finanzierung eines nachhaltgien Projektes bereit ist, wäre die Beteiligung an einem solchen Fonds aus Anlegersicht dann nicht additional, wenn alternativ andere Anleger diese Fondsbeteiligung kaufen würden. Nicht nur Fonds renommierter Anbieter haben oft mehr Anfragen von potenziellen Anlegern als sie akzeptieren wollen. Investments in solche Fonds kann man nicht unbedingt als additional ansehen. Klare Additionalität gibt es dagegen für Investments, die kein anderer machen will. Ob solche Investments aber attraktive Performances versprechen, ist fragwürdig.

Illiquide Investments sind zudem längst nicht für alle Anleger geeignet, denn sie erfordern meistens relativ hohe Mindestinvestments. Hinzu kommt, dass man bei illiquiden Investments in der Regel erst nach und nach investiert und Liquidität in Bezug auf Zeitpunkt und Höhe unsichere Kapitalabrufe bereithalten muss. Außerdem sind illiquide meistens erheblich teurer als vergleichbare liquide Investments. Insgesamt haben damit illiquide Investments kaum höhere Renditepotenziale als liquide Investments. Durch die Art ihrer Bewertungen zeigen sie zwar geringe Schwankungen. Sie sind durch ihre hohen Mindestinvestments und vor allem Illiquidität aber teilweise hochriskant.

Hinzu kommt, dass illiquiden Investments ein wichtiger sogenannter Wirkungskanal fehlt, nämlich individuelle Divestmentmöglichkeiten. Während liquide Investments jederzeit verkauft werden können wenn Nachhaltigkeitsanforderungen nicht mehr erfüllt werden, muss man bei illiquiden Investments teilweise sehr lange weiter investiert bleiben. Divestmentmöglichkeiten sind sehr wichtig für mich: Ich habe in den letzten Jahren jeweils ungefähr die Hälfte meiner Wertpapiere verkauft, weil sich ihre Nachhaltigkeit verschlechtert hat (vgl. Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (prof-soehnholz.com)).

Nachhaltigkeitsvorteile für (Unternehmens-)Anleihen gegenüber Aktien?

Auch liquide Anlagesegmente können sich in Bezug auf Impactmöglichkeiten unterscheiden. Für Aktien kann man Stimmrechte ausüben (Voting), für Anleihen und andere Anlagesegmente nicht. Allerdings finden nur selten Aktionärsversammlungen statt, zu denen man Stimmrechte ausüben kann. Zudem stehen nur selten umfassende Nachhaltigkeitsveränderungen zur Abstimmung. Falls das dennoch der Fall ist, werden sie meistens abgelehnt (vgl. 2023 Proxy Season Review – Minerva-Manifest).

Ich bin überzeugt, dass Engagement im engeren Sinn wirkungsvoller sein kann als Stimmrechtsausübung. Und direkte Diskussionen mit Unternehmen und Organisationen, um diese nachhaltiger zu machen, sind auch für Käufer von Anleihen möglich.

Unabhängig von der Frage der Liquidität bzw. Börsennotiz könnten nachhaltige Anleger Kredite gegenüber Eigenkapital bevorzugen, weil Kredite speziell für soziale und ökologische Projekte vergeben werden können. Außerdem können Auszahlungen von der Erreichung von nachhaltigen Meilensteinen abhängig gemacht werden können. Letzteres kann bei Private Equity Investments aber ebenfalls gemacht werden, nicht jedoch bei börsennotierten Aktieninvestments. Wenn ökologische und soziale Projekte aber auch ohne diese Kredite durchgeführt würden und nur traditionelle Kredite ersetzen, relativiert sich der potenzielle Nachhaltigkeitsvorteil von Krediten gegenüber Eigenkapital.

Allerdings werden Kredite meist mit konkreten Rückzahlungszeiten vergeben. Kurz laufende Kredite haben dabei den Vorteil, dass man öfter über die Wiederholung von Kreditvergaben entscheiden kann als bei langlaufenden Krediten, sofern man sie nicht vorzeitig zurückbezahlt bekommen kann. Damit kann man aus einer als nicht nachhaltig genug erkannter Kreditvergabe meistens eher aussteigen als aus einer privaten Eigenkapitalvergabe. Das ist ein Nachhaltigkeitsvorteil. Außerdem kann man kleinere Kreditnehmer und Unternehmen wohl besser nachhaltig beeinflussen, so dass zum Beispiel Staatsanleihen weniger Nachhaltigkeitspotential als Unternehmenskredite haben, vor allem wenn es sich dabei um relativ kleine Unternehmen handelt.

In Bezug auf Immobilien könnte man annehmen, dass Kredite oder Eigenkapital für oft dringend benötigte Wohn- oder Sozialimmobilien als nachhaltiger gelten können als für Gewerbeimmobilien. Ähnliches gilt für Sozialinfrastruktur gegenüber manch anderen Infrastruktursegmenten. Andererseits kritisieren manche Marktbeobachter die sogenannte Finanzialisierung zum Beispiel von Wohnimmobilien (vgl. Neue Studie von Finanzwende Recherche: Rendite mit der Miete) und plädieren grundsätzlich für öffentliche statt private Investments. Selbst Sozialkredite wie Mikrofinanz im ursprünglichen Sinn wird zumindest dann kritisiert, wenn kommerzielle (Zins-)Interessen zu stark werden und private Verschuldungen zu stark steigen.

Während nachwachsende Rohstoffe nachhaltig sein können, gelten nicht industriell genutzte Edelmetalle aufgrund der Abbaubedingungen meistens als nicht nachhaltig. Kryptoinvestments werden aufgrund fehlender Substanz und hoher Energieverbräuche meistens als nicht nachhaltig beurteilt.

Bei der Annahme von potenzieller Additionalität für illiquide Investments und Wirkung vor allem über Investments mit ökologischem bzw. sozialem Bezug kann man zu der folgenden vereinfachten Anlagesegmentbeurteilung aus Nachhaltigkeitssicht kommen:

Nachhaltige Geldanlage: Potenzielle Gewichtung von Anlagesegmenten bei Annahme von Additionalität für illiquide Investments und meine Allokation

Quelle: Eigene Darstellung

Anleger sollten sich ihre eigene derartige Klassifikation erstellen, weil diese entscheidend für ihre jeweilige nachhaltige Asset Allokation ist. Unter Berücksichtigung von Mindestkapitaleinsatz und Kosten sowie Divestment- und Engagementmöglichkeiten investiere ich zum Beispiel nur in börsennotierte Investments. Bei einem Multi-Milliarden Vermögen mit direkten Nachhaltigkeits-Einflussmöglichkeiten auf Beteiligungen würde ich zusätzliche illiquide Investments aber in Erwägung ziehen. Insgesamt kann strenge Nachhaltigkeit also auch zu wesentlich geringerer Diversifikation über Anlageklassen führen.

Nachhaltige Geldanlage und Manager-/Fondsselektion: Wieder mehr aktive Investments?

Wissenschaftliche Forschung zeigt, dass aktives Portfoliomanagement meistens geringe Renditen und oft auch höhere Risiken als passive Investments einbringt. Mit sehr günstigen ETFs kann man in tausende von Wertpapieren investieren. Es ist deshalb kein Wunder, dass in den letzten Jahren sogenannte passive Investments immer beliebter geworden sind.

Diversifikation gilt oft als der einzige „Free Lunch“ der Kapitalanlage. Aber Diversifikation hat oft keinen nennenswerten Einfluss auf Renditen oder Risiken. Anders ausgedrückt: Mit mehr als 20 bis 30 Wertpapieren aus unterschiedlichen Ländern und Branchen sind keine besseren Renditen und auch kaum niedrigere Risiken zu erwarten als mit hunderten von Wertpapieren. Anders ausgedrückt: Der Grenznutzen zusätzlicher Diversifikation nimmt sehr schnell ab.

Aber wenn man aber mit den nachhaltigsten 10 bis 20 Wertpapiern startet und weiter diversifiziert, kann die durchschnittliche Nachhaltigkeit erheblich sinken. Das bedeutet, dass konsequent nachhaltige Geldanlageportfolios eher konzentriert als diversifiziert sein sollten. Konzentration hat auch den Vorteil, dass Stimmrechtsausübungen und andere Formen von Engagement einfacher und kostengünstiger werden. Divestment-Androhungen können zudem wirkungsvoller sein, wenn viel Anlegergeld in nur wenige Wertpapiere investiert wird.

Nachhaltigkeitspolitiken können sehr unterschiedlich ausfallen. Das zeigt sich unter anderem bei den vielen möglichen Ausschlüssen von potenziellen Investments. So kann man zum Beispiel Tierversuche in juristisch vorgeschriebene, medizinisch nötige, kosmetische und andere unterscheiden. Manche Anleger möchten alle Tierversuche konsequent ausschließen. Andere wollen weiterhin in Pharmaunternehmen investieren und schließen deshalb vielleicht nur „andere“ Tierversuche aus. Und Anleger, welche die Transition von wenig nachhaltigen Unternehmen zum Beispiel der Ölbranche zu mehr Nachhaltigkeit fördern wollen, werden explizit in Ölunternehmen investieren (vgl. ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com)).

Indizes enthalten oft sehr viele Wertpapiere. Konsequente Nachhaltigkeit spricht aber für Investments in konzentrierte, individuelle und damit meist indexabweichende aktiv gemanagte Portfolios. Dabei ist aktiv nicht im Sinne von viel Handel gemeint. Um über Stimmrechtsausübungen und andere Engagementformen Einfluss ausüben zu können, sind eher längere als kürzere Haltedauern von Investments sinnvoll.

Immer noch nicht genug konsequent nachhaltige ETF-Angebote

Bei der Gründung meines eigenen Unternehmens Anfang 2016 war ich wahrscheinlich weltweit der erste Anbieter eines Portfolios aus möglichst konsequent nachhaltigen ETFs. Aber auch die nachhaltigsten ETFs waren mir nicht nachhaltig genug. Grund waren vor allem unzureichende Ausschlüsse und die fast ausschließliche Nutzung von aggregierten Best-in-Class ESG-Ratings. Ich habe aber hohe Mindestanforderungen an E, S und G separat (vgl. Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com). Ich interessiere mich auch nicht für die am besten geraten Unternehmen innerhalb aus Nachhaltigkeitssicht unattraktiven Branchen (Best-in-Class). Ich möchte branchenunabhängig in die am besten geraten Aktien investieren (Best-in-Universe). Dafür gibt es aber auch heute noch keine ETFs. Außerdem gibt es sehr wenige ETFs, die strikte ESG-Kriterien nutzen und zusätzlich SDG-Vereinbarkeit anstreben.

Auch in den in besonders konsequent nachhaltigen globalen Socially Responsible Paris Aligned Benchmarks befinden sich noch mehrere hundert Aktien aus sehr vielen Branchen und Ländern. Aktive globale nachhaltige Fonds gibt es dagegen schon mit nur 30 Aktien, also potenziell erheblich nachhaltiger (vgl. 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (prof-soehnholz.com)).

Emittenten nachhaltiger ETFs üben oft nachhaltige Stimmrechtsausübungen und sogar Engagement aus, wenn auch nur in geringem Umfang. Das machen die meisten Anbieter aktiver Investments aber auch nicht besser (vgl. z.B. 2023 Proxy Season Review – Minerva-Manifest). Indexfolgende Investments nutzen aber typischerweise den Impactkanal Divestments nicht, weil sie Indizes möglichst direkt nachbilden wollen.

Nachhaltige Geldanlage und Wertpapierselektion: Weniger Standardprodukte und mehr individuelle Mandate oder Direct Indexing?

Wenn es keine ETFs gibt, die nachhaltig genug sind, sollte man sich aktiv gemanagte Fonds suchen, nachhaltige Mandate an Vermögensverwalter vergeben oder seine Portfolios selbst entwickeln. Aktiv gemanagte konzentrierte Fonds mit strengem ESG plus Impactansatz sind aber noch sehr selten. Das gilt auch für Vermögensverwalter, die solche Mandate umsetzen könnten. Außerdem werden für maßgeschneiderte Mandate oft hohe Mindestanlagen verlangt. Individuelle nachhaltige Portfolioentwicklungen werden dagegen zunehmend einfacher.

Basis-Nachhaltigkeitsdaten werden aktuell von zahlreichen Anbietern für Privatanleger kostengünstig oder sogar kostenlos angeboten. Finanztechnische Entwicklungen wie Discount-(Online-)Broker, Direct Indexing und Handel mit Bruchstücken von Wertpapieren sowie Stimmrechtsausübungstools helfen bei der effizienten und nachhaltigen Umsetzung von individuellen Portfolios. Schwierigkeiten bereiten dabei eher die Vielfalt an Investmentmöglichkeiten und mangelnde bzw. schwer zu beurteilende Datenqualität.

Ideal wäre, wenn Anleger auf Basis eines kuratierten Universums von besonders nachhaltigen Wertpapieren zusätzlich eigene Nachhaltigkeitsanforderungen berücksichtigen können und dann automatisiert in ihren Depots implementieren und rebalanzieren lassen (vgl. Custom ESG Indexing Can Challenge Popularity Of ETFs (asiafinancial.com). Zusätzlich könnten sie mit Hilfe moderner Tools ihre Stimmrechte nach individuellen Nachhaltigkeitsvorstellungen ausüben. Direkte Nachhaltigkeitskommunikation mit den Wertpapieremittenten kann durch den Plattformanbieter erfolgen.

Risikomanagement: Viel mehr Tracking-Error und ESG-Risikomonitoring?

Für nachhaltige Geldanlagen kommen zusätzlich zu traditionellen Risikokennzahlen Nachhaltigkeitskennzahlen hinzu, zum Beispiel ESG-Ratings, Emissionswerte, Principal Adverse Indicators, Do-No-Significant-Harm-Informationen, EU-Taxonomievereinbarkeit oder, wie in meinem Fall, SDG-Vereinbarkeiten und Engagementerfolge.

Nachhaltige Anleger müssen sich entscheiden, wie wichtig die jeweiligen Kriterien für sie sind. Ich nutze Nachhaltigkeitskriterien nicht nur für das Reporting, sondern auch für mein regelgebundenes Risikomanagement. Das heißt, dass ich Wertpapiere verkaufe, wenn ESG- oder SDG-Anforderungen nicht mehr erfüllt werden.

Die von mir genutzten ESG-Ratings messen Umwelt-, Sozial- und Unternehmensführungsrisiken. Diese Risiken sind heute schon wichtig und werden künftig noch wichtiger, wie man zum Beispiel an Greenwashing- und Reputationsrisiken sehen kann. Deshalb sollten sie in keinem Risikomanagement fehlen. SDG-Anforderungserfüllung ist hingegen nur für Anleger relevant, denen wichtig ist, wie nachhaltig die Produkte und Services ihrer Investments sind.

Stimmrechtsausübungen und Engagement wurden bisher meistens nicht für das Risikomanagement genutzt. Das kann sich künftig jedoch ändern. Ich prüfe zum Beispiel, ob ich Aktien bei unzureichender Reaktion auf mein Engagement verkaufen sollte. Eine unzureichende Engagementreaktion von Unternehmen weist möglicherweise darauf hin, dass Unternehmen nicht auf gute Vorschläge hören und damit unnötige Risiken eingehen, die man durch Divestments vermeiden kann.

Traditionelle Geldanleger messen Risiko oft mit der Abweichung von der Soll-Allokation bzw. Benchmark. Wenn die Abweichung einen vorher definierten Grad überschreitet, müssen viele Portfolios wieder benchmarknäher ausgerichtet werden. Für nachhaltige Portfolios werden dafür auch nachhaltige Indizes als Benchmark genutzt. Wie oben erläutert, können Nachhaltigkeitsanforderungen aber sehr individuell sein und es gibt meiner Ansicht nach viel zu wenige strenge nachhaltige Benchmarks. Wenn man besonders nachhaltig anlegen möchte, muss man dementsprechend höhere statt niedrigere Benchmarkabweichungen (Tracking Error) haben bzw. sollte ganz auf Tracking Error Kennzahlen verzichten.

Nachhaltigkeit kann also sowohl zu neuen Risikokennzahlen führen als auch alte in Frage stellen und damit auch zu einem erheblich anderen Risikomanagement führen.

Nachhaltige Geldanlage – Zusammenfassung und Ausblick: Viel mehr Individualität?

Individuelle Nachhaltigkeitsanforderungen spielen eine sehr wichtige Rolle für die Allokation auf Anlagesegmente, die Manager- bzw. Fondsselektion, die Positionsselektion und auch das Risikomanagement. Strenge Nachhaltigkeit kann zu stärkeren Unterschieden zwischen Geldanlagemandaten und radikalen Änderungen gegenüber traditionellen Mandaten führen: Geringere Diversifikation über Anlageklassen, mehr illiquide Investments für Großanleger, mehr Projektfinanzierungen, mehr aktive statt passive Mandate, erheblich höhere Konzentration innerhalb der Anlagesegmente und ein anderes Risikomanagement mit zusätzlichen Kennzahlen und erheblich geringerer Benchmarkorientierung.

Manche Analysten meinen, nachhaltige Geldanlage führt zu höheren Risiken, höheren Kosten und niedrigeren Renditen. Andere erwarten zukünftig überproportional hohe Anlagen in nachhaltige Investments. Das sollte zu einer besseren Performance solcher Investments führen. Meine Einstellung: Ich versuche so nachhaltig wie möglich zu investieren und erwarte dafür mittelfristig eine marktübliche Rendite mit niedrigeren Risiken im Vergleich zu traditionellen Investments.

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Achtung: Werbung für meinen Fonds

Mein Fonds (Art. 9) ist auf soziale SDGs fokussiert. Ich nutze separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement bei derzeit 27 von 30 Unternehmen: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T oder Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds

AI: Wie können nachhaltige AnlegerInnen profitieren?

AI (Artificial Intelligence oder KI für künstliche Intelligenz) kann theoretisch helfen, mehr, bessere, aktuellere und kostengünstigere Informationen für nachhaltige Investments zu generieren. Die Frage ist, wie das erreicht werden kann. Hier sind meine Ideen:

………. ….. Hinweise: Ich nutze Daten von Clarity.ai und ESGBook und berate Allindex, die auch Search4Stocks anbieten. Der Text basiert auf einem Beitrag für GitexIMpact (siehe How can sustainable investors benefit from artificial intelligence? – GITEX Impact – Leading ESG Event 2023), der mit Hilfe von Deepl übersetzt wurde und auf LinkedIn als Artikel veröffentlicht wurde. Das Foto des zugehörigen Blogbeitrags stammt von Pixabay. …………………………………..……

KI ist nicht klar definiert. In diesem Artikel unterscheide ich nicht zwischen maschinellem Lernen, Deep Learning und KI. Vereinfachend unterscheide ich auch nicht zwischen Umwelt-, Sozial- und Governance-Investitionen (ESG) sowie Impact Investing oder anderen nachhaltigen Investitionsansätzen.

Gleiche Renditen mit geringeren Risiken durch AI?

Die wichtigste Frage aus AnlegerInnensicht ist meistens, ob KI dazu beitragen kann, die Renditen zu verbessern. In der Vergangenheit wurden enorme Mengen an Gehirn- und Computerleistung und Geld investiert, um höhere Renditen als die Märkte zu erzielen. Viele quantitative traditionelle Investoren mit teilweise tiefen Taschen haben meistens vergeblich versucht, passive Benchmarks zu übertreffen (vgl. Kapitalanlage – Kann man den Markt schlagen? Teil 5 (roboadvisor-portal.com)). Ich erwarte nicht, dass die KI daran etwas ändern wird.

Aber KI kann dazu beitragen, Geldanlagerisiken zu verringern, insbesondere Nachhaltigkeitsrisiken. Diese Risiken können zum Beispiel mit Umwelt-, Sozial- und Governance-Ratings gemessen werden. ESG-Ratings beruhen oft auf einer Vielzahl von Daten und unstrukturierten Informationen aus allen möglichen Formaten, wie z. B. Videokonferenzen von Unternehmen mit Aktienanalysten. Mit KI ist es einfacher, mehr Emittenten von Anlageprodukten und mehr ratingrelevante Daten pro Emittent zu erfassen sowie die Ratings häufiger zu aktualisieren. ESG Book und Clarity.ai sind frühe Anbieter solcher KI-basierten ESG-Ratings.

Wenn KI dazu beiträgt, Anlagerisiken zu verringern, können die risikobereinigten Anlegerrenditen besser werden. Ich bezweifle jedoch, dass das (Overlay-)Risikomanagement von Portfolios durch KI wesentlich verbessert werden kann. In der Vergangenheit haben häufigere oder komplexere Risikosignale zur Änderung von Portfolios in der Regel nicht zu einer höheren Portfolioperformance geführt (vgl. Abschnitt Risiko-Overlay in Asset Allocation, Risiko-Overlay und Manager-Selektion: Das Diversifikationsbuch | SpringerLink).

AI ermöglicht andere Portfolios und zielgerichteteres Marketing

Durch die Nutzung der KI-basierten ESG-Daten von Clarity kann ich mein Portfolio aus etwa zwanzigtausend Aktien mit umfassenden ESG-Daten zusammenstellen (vgl. Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)). So kann ich Portfolios aus Aktien mit geringen Kapitalisierungen (Small Caps) zusammenstellen, für die traditionelle ESG-Rater typischerweise keine Daten liefern. Durch die KI-basierte häufige Aktualisierung der ESG-Daten kann ich zudem schneller reagieren als es bei traditionellen ESG-Ratings mit jährlichen Aktualisierungen der Fall ist. KI kann natürlich auch mit nicht-Nachhaltigkeitsinformationen helfen.

Mehr Auswahlmöglichkeiten bedeutet auch mehr Individualisierungsmöglichkeiten. Es ist bekannt, dass Kunden länger in maßgeschneiderte Anlagen investiert bleiben als in Standard-Anlagen. Insgesamt kann deshalb eine auf KI basierende individuelle Portfolioanpassung für Anleger und Anbieter gleichermaßen attraktiv.

Es liegt auf der Hand, dass KI dazu beitragen kann, Marketingaktivitäten besser auf individuelle Bedürfnisse, auch die von nachhaltigen Investoren, abzustimmen. Maßgeschneidertes Marketing könnte durch KI so billiger und inhaltlich besser und damit überzeugender werden.

KI kann wahrscheinlich auch dazu beitragen, die Finanzbildung und Anlageberatung zu verbessern. Mit Hilfe von KI sollte es für AnlegerInnen einfacher werden, die vielen verschiedenen Facetten nachhaltiger Anlagen besser zu verstehen. Dies könnte zum Beispiel durch KI-basierte Antworten auf Anlegerfragen erreicht werden. Large Language Modelle (LLM) wie Bing, ChatGPT oder Google Bard sollten für solche Themen gut geeignet sein. Einfachen Fragen wie „Kann man mit ESG-Investments Outperformance erreichen“ können mit Standard-Antworten auf häufig geäußerte Fragen (FAQ) beantwortet werden. AI kann aber helfen, wenn es darum geht, zum Beispiel SRI- mit ESG- oder SDG-Fonds zu vergleichen.

Außerdem kann KI dazu beitragen, häufigere und detailliertere Berichte über nachhaltige Anlagen für Kunden zu erstellen. Auch das könnte dazu beitragen, den Umsatz zu steigern und Kunden zu binden. Aber mehr und häufigere Informationen können auch ein Verkaufsrisiko darstellen. In der Regel gibt es zu jeder Anlage auch negative Informationen. Wenn Anleger zusätzliche (KI-basierte) Negativinformationen über mehrere Portfoliobestandteile erhalten, werden sie möglicherweise ganz auf den Versuch verzichten, nachhaltig zu investieren. Meine Empfehlung für solche Fälle ist: Versuchen Sie, so nachhaltig zu investieren, wie Sie können. Auch wenn dies nicht perfekt ist, so ist es doch nachhaltiger als traditionelles Investieren.

Direkte AI-basierte ESG-Indexierung und Portfolio-Selbstanpassung

Meiner Meinung nach gibt es ein noch attraktiveres Angebot als die anbieterbasierte Portfolioindividualisierung, nämlich Portfolioanpassungen durch Anleger selbst. Ich plädiere für die Selbstanpassung besonders für nachhaltige Geldanlagen (vgl. „Custom ESG Indexing Can Challenge Popularity Of ETFs”).

Portfolios auf der grünen Wiese zu erstellen, dürfte für die meisten Anleger schwierig sein. Doch auch dafür gibt es schon KI-Angebote. Search4Stocks von Allindex.com ist ein Beispiel für ein entsprechendes kostenloses KI-basiertes Tool. Alternativ können Standard-Portfolios als Ausgangsbasis für Individualisierungen genutzt werden.

Direkte bzw. benutzerdefinierte ESG-Indizierung ermöglicht es Anlegern, ein regelbasiertes nachhaltiges Startportfolio („Index“) individuell anzupassen. Man könnte zwar auch mit nicht-regelbasierten Portfolios starten, aber die sind für Anleger meistens schwieriger nachvollziehbar. Auch eine starke Vorselektion der Ausgangsportfolios ist sinnvoll, damit Anleger ihre Anpassungen auf Basis von wenigen Dutzend und nicht einigen hundert Investments starten.

Für die Selbstanpassung können Nachhaltigkeitsinformationen genutzt werden. Portfolioanbieter können (KI-basierte) aktuelle Informationen zu ESG-Ratings oder Kontroversen in Bezug auf Portfoliobestandteile zur Verfügung stellen. Basierend auf solchen Informationen sollte es auch ohne detaillierte Finanzbildung einfach sein, Aktien aus den Startportfolio auszuschließen. KI kann auch eingesetzt werden, um Stimmrechtsausübungen und individuelle Engagements von Anlegern oder Aktionären bei Zielunternehmen zu unterstützen.

Selbst-angepasste nachhaltige Portfolios können wahrscheinlich sogar noch „klebriger“ sein als maßgeschneiderte Angebote von Anbietern und deshalb trotz des zusätzlichen Aufwands auch für Anbieter attraktiv sein.

Künstliche Intelligenz mit Nachteilen, aber positive Aspekte überwiegen

Da es nicht genügend gut ausgebildete ExpertInnen für nachhaltiges Investieren gibt, kann KI helfen, Lücken zu füllen und so zu mehr nachhaltigen Investments führen. Arbeitsplätze bei traditionellen Finanzunternehmen könnten durch KI jedoch gefährdet sein. Negativ sind auch Daten- und Knowhow-Sicherheitsprobleme und dass KI-Anwendungen viel Energie verbrauchen können, insbesondere wenn sie Bilder und Videos erstellen. Aber insgesamt könnte KI für nachhaltige Investitionen mehr Vorteile als Nachteile bringen.

Direct Indexing (ESG) and more: Researchpost #130

Direct Indexing (ESG): 10x new research on brownshifting, denials, greenwashing, lack of ESG products, missing research, sin premium, female private equity, fintech and AI-accountants by Lubos Pastor, Robert Stambaugh, George Serafeim, Andreas Hoepner, Marc Eulerich and many more (# shows SSRN downloads on June 8th)

Social and ecological research

Brownshifting? Are Firms Voluntarily Disclosing Emissions Greener? by Yilin Shi, Christopher S. Tang, and Jing Wu as of May 22^nd, 2023 (#132): “… we use different regression models to show that disclosing firms tend to have lower internal emissions (Scope 1) and yet they have higher Scope 3 external emissions generated by their upstream suppliers. This finding reveals that disclosing firms are not necessarily greener. Instead, they may have shifted their emissions to their upstream suppliers knowingly or unknowingly” (p. 27).

Denial based violations: Climate Change Denial and Corporate Environmental Responsibility by Mansoor Afzali, Gonul Colak, and Sami Vähämaa as of April 25^th, 2023 (#85): “… firms located in counties with higher levels of climate change denial have weaker environmental performance ratings … Furthermore, … firms headquartered in high climate change denial counties are more likely to commit federal environmental compliance violations. … strong corporate governance mechanisms and corporate culture moderate the negative relationship between climate change denial and corporate environmental responsibility” (p. 31).

Responsible investment research: Direct Indexing (ESG)

Clear Greenwashing? Green Tilts by Lubos Pastor, Robert F. Stambaugh, and Lucian A. Taylor as of May 31^st, 2023 (#80): “The total amount of ESG investing is substantial but much smaller than the aggregate AUM of institutions that proclaim to invest in line with ESG-related principles. Our estimates indicate that the total amount of ESG-related tilts in institutional equity portfolios is about 6% of the institutions’ total equity AUM. This fraction has been fairly steady throughout our sample from 2012 to 2021. … our approach allows the three dimensions of ESG to enter separately, recognizing, for example, that investors may assess Tesla’s environmental virtues separately from Tesla’s treatment of its employees. We find that using only a composite ESG score misses over 40% of the tilts associated with the E, S, and G characteristics. We also find that each of those three dimensions contributes about equally to ESG-related tilts. … institutions divest from brown stocks mostly by reducing positions rather than eliminating them. … the … steady rise in the investment industry’s aggregate net green tilt is fully driven by the largest third of institutions … whereas smaller institutions are increasingly brown … the least green institution type is banks“ (p. 23/24). My comment: This analysis clearly shows that there is still a huge potential for additional green investments (or that we currently can observe is a lot of greenwashing)

Few ESG products? ESG: From Process to Product by George Serafeim as of June 7^th, 2023 (#2250): “ESG is the process of measuring relevant resources and outcomes, analyzing the resource allocation process that could derive optimal outcomes for an organization, managing those resources to improve outcomes, and communicating the management of those resources and outcomes to stakeholders of the organization. Therefore, as a process, it can be implemented by any organization as they see fit with their purpose and strategy. … A conceptual framework for ESG investment products defines their objectives, identifies their fundamental characteristics, and highlights enhancing characteristics that could create ‘shades of ESG,’ in a continuum range rather than as a binary outcome. Central to the conceptual framework is the need for verifiability of intentions, through documentation of organizational beliefs, processes, and capabilities, and the measurement of outcomes from those intentions. Given lack of those attributes across many investment funds, the market size of eligible ESG investment products is likely to be much smaller than otherwise thought” (p. 15/16). My comment: My approach is documented in detail see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com)

Direct Indexing (ESG): Portfolio Choice with ESG Disagreement: Customizing Sustainability Through Direct Indexing by Paul Ehling, Stig Roar Haukø Lundeby, and Lars Qvigstad Sørensen as of Jan. 18^th, 2023 (#150): “Previous research has demonstrated that, despite similar aims, there is considerable diversity across the ESG ratings. This paper has detailed that this divergence persists when maximizing ESG scores subject to a tracking error constraint. … from a risk point of view, the optimized ESG portfolios differ more across each other than they differ relative to the benchmark. Further, we showed that on average the optimization tilts toward good ESG scores for large stocks with low specific risk. The implication is that an ESG-motivated portfolio differs substantially based on the agency chosen for the ESG ratings. If clients choose a single ESG rating provider, this must be a deliberate decision after ascertaining that the vendor provides ratings in accordance with the client’s values and beliefs. … The techniques detailed in this paper to manage ESG uncertainty could be made available to direct indexing clients, enabling them to choose portfolios aligned with their ESG preferences as there is mounting evidence that ESG is in the eye of the beholder“ (p. 12/13). My comments: First: There are millions of indices available. Tracking error to any one index should not be an investor priority. Second: Aggregating different ESG-ratings creates intransparency: Why which rating I good or bad cannot be identified easily anymore. Third: It is better to start direct indexing (ESG) with a universe with very sustainable investments according to convincing ESG-ratings and then deselect investments based on personal values, see Custom ESG Indexing Can Challenge Popularity Of ETFs (asiafinancial.com) or Direct ESG Indexing: Die beste ESG Investmentmöglichkeit auch für Privatkunden? – Responsible Investment Research Blog (prof-soehnholz.com)

Missing research: Sustainability in Private Capital Investing: A Systematic Literature Review by Majid Mirza, Truzaar Dordi, Pedro Alguindigue, Ryan Johnson, and Olaf Weber as of April 23^rd, 2023 : “… It was found that less than 1% of the literature, written in English, between 1960−2020 on private equity and venture capital addresses topics related to sustainability. … The objective of this paper is to provide evidence of the dearth of academic literature on the topic of private capital markets and sustainable investment, while identifying current themes in the existing literature so that future work may address gaps in research” (abstract).

General investment research: Direct Indexing (ESG)

Sin Premium? Measuring Business Social Irresponsibility: The Case of Sin Stocks by Hamid Boustanifar and Patrick Schwarz as of March 30^th, 2023 (#222): “We propose a novel method based on the textual analysis of corporate annual reports to identify sin stocks and to measure their sinfulness. Our method performs much better than the procedure used in the prior literature, which relies on using industry classification codes. … Contrary to the findings of several recent studies, we find strong evidence consistent with the existence of a sin premium. A sin-weighted (but not necessarily an equal- or value-weighted) portfolio of sin stocks generates a FF6 alpha (Söhnholz: Fama French Six Factor Ouperformance) of 4% per year from 1997 to 2021. This suggests that investors require higher expected returns to hold more sinful stocks“ (p. 27/28). My comment: I doubt that there will be enough buyers willing to pay sin premia in the future, see 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (prof-soehnholz.com)

Female PE impact: Does Gender Influence the Investment Strategy of Private Equity Firms? Evidence from Impact Investing by Theodor Cojoianu, Pia Helbing, Andreas G. F. Hoepner, Xi Hu and Beiyun Xiao as of April 25^th, 2023 (#68): “Using a comprehensive dataset on all PE deals from 2010-2021, we uncover new evidence that … female ownership significantly increases the probability of impact investment strategy. We find pronounced differences of this relationship between Common (positive) and Civil (negative) Law countries. … It appears that there is a gender difference on impact investing strategy that can be identified at the PE, syndicate or deal level …” (p. 13).

Mind the Gap: Fintech, investor sophistication and financial portfolio choices by Leonardo Gambacorta, Romina Gambacorta, and Roxana Mihet as of May 31^st, 2023 (#13):“… we present a simple micro-founded model that derives testable predictions on the links between financial technologies, investors’ degree of sophistication, and their portfolio choices and financial returns. Using microdata from the Survey on Household Income and Wealth conducted by Banca d’Italia over the period 2004-20, we … find that the gaps in financial returns and share of risky assets between sophisticated and unsophisticated investors increase with progress in financial technology. This means that inequality is reduced only if financial technology is accessible to everyone, and if all investors have the same capacity to use it“(p. 35/36).

AI-Accountants: Can Artificial Intelligence Pass Accounting Certification Exams? ChatGPT: CPA, CMA, CIA, and EA? by Marc Eulerich, Aida Sanatizadeh, Hamid Vakilzadeh and David A. Wood as of June 3^rd, 2023 (#1228): “We … examine if newly released ChatGPT models and capabilities can pass major accounting certification exams including the CPA, CMA, CIA, and EA (enrolled agent) certification exams. We find that the early released ChatGPT 3.5 model is unable to pass any exam … However, with additional efforts … ChatGPT averaged a score of 85.1 percent across all sections of exams and passed them all. This high performance suggests ChatGPT has sufficient performance that it likely will prove disruptive to the accounting and auditing industries” (abstract).

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Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. The fund focuses on social SDGs and small and midcaps, uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement (currently 24 of 30 companies engaged). The fund typically scores very well in sustainability rankings, e.g. see this free tool, and the risk-adjusted performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Green research deficits: Researchblogposting #106

Green research: 15x new research on net-zero, healthcare, banking, m&a, ESG, voting, retail investors, private equity etc. by Sandra Nolte, Harald Lohre, Martin Oehmke, Marcus Opp et al.

Social and green research

Climate demographics: The Slow Demographic Transition in Regions Vulnerable to Climate Change by Thang Dao, Matthias Kalkuhl, and Chrysovalantis Vasilakis as of October 21^st, 2022 (#7): “We consider how the demographic transition has been shaped in regions that are the least developed and the most vulnerable to climate change. Environmental conditions affect intra-household labor allocation because of the impacts on local resources under the poor infrastructural system. Climate change causes damage to local resources, offsetting the role of technological progress in saving time that women spend on their housework. Hence, the gender inequality in education/income is upheld, delaying declines in fertility and creating population momentum. The bigger population, in turn, degrades local resources through expanded production. The interplay between local resources, gender inequality, and population, under the persistent effect of climate change, may thus generate a slow demographic transition and stagnation. We provide empirical confirmation for our theoretical predictions from 44 Sub-Saharan African countries” (abstract).

Net zero challenges: Neutralizing the Atmosphere by Shelley Welton as of May 5^th, 2022 (#151): “Net zero” has rapidly become the new organizing paradigm of climate change law. … To date, critiques have centered on what this Article terms “accounting” risks: that is, risks that pledges in action will fail to live up to pledges on paper. The Article argues that there are two broader normative risks with net zero that are underdiagnosed but may prove more intractable. First, the net zero framework presumes collective disinterest regarding the best way to neutralize atmospheric emissions, with every participating entity left to determine its own preferred strategy. In reality, decisions around how to reach net zero emissions are contested, impactful, and often politically explosive. … The second risk this Article identifies is the “collective achievement challenge”: if the world continues to pursue an atomized approach to net zero, it is likely that entities will over-rely on certain cost-effective strategies—like tree planting—at scales that cannot be collectively achieved, at least not without substantial collateral social consequences. Disjunctive efforts toward net zero thus threaten to undermine the legal, political, and physical foundations of the global project” (abstract).

Advert for German investors: “Sponsor” my research by recommending my Article 9 fund. The minimum investment is approx. EUR 50 and so far return and risks are relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T: I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings.

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Proven Impact Investing? (Researchblog #97)

Proven impact investing: >10x new research on work, midlifes, climate impact, ESG reporting, impact investments, engagement, indexing, client advisors, risk measurement, real estate, fractional shares, stablecoins

Ecological and social research

More homework: Working from home around the world by Cevat Giray Aksoy, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls, and Pablo Zarate as of September 19, 2022 (#13): “… we survey full-time workers who finished primary school in 27 countries as of mid 2021 and early 2022. … first, that WFH averages 1.5 days per week in our sample, ranging widely across countries. Second, employers plan an average of 0.7 WFH days per week after the pandemic, but workers want 1.7 days. Third, employees value the option to WFH 2-3 days per week at 5 percent of pay … employer plans for WFH levels after the pandemic rise strongly with WFH productivity surprises during the pandemic” (abstract).

Advert: “Sponsor” my free research by buying my Article 9 fund. The minimum investment is around EUR 50. FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings (see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com))

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Passive positive (Researchblog #96)

Passive positive: >10x new research on youngsters, scope 3, ESG leaders, welfare, ratings, index investing, fractional trading, NFT and more

Social and ecological topics

Slow climate awareness: The Interactions of Social Norms About Climate Change: Science, Institutions and Economics by Antonio Cabrales, Manu García, David Ramos Muñoz, Angel Sánchez as of September 8^th, 2022 (#4): “We study the evolution of interest about climate change between different actors of the population … We find large swings over time of said interest for the general public … and little interest among economists …. The general interest science journals and policymakers have a more steady interest, although policymakers get interested much later“ (abstract).

Youngsters push companies: Wireless investors by Sergio Alberto Gramitto Ricci and Christina M. Sautter as of September 6^th, 2022 (#135): “Millennials and GenZ’ers are increasingly powerful. … In their various stakeholder roles, they are pressuring corporations to also act … Along with this continued increase in direct investing, we are likely to see Millennials and GenZ’ers desires to directly engage with corporations (p. 12).

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings, see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com)

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