Shareholder engagement options: 14x new research on real estate, waste, nature, biodiversity, corporate governance, loans, climate postures, decarbonization, greenwashing, shareholder proposals and engagement, sustainable investor groups, CEO pay and BNPL by Thomas Cauthorn, Samuel Drempetic, Julia Eckert, Andreas G.F. Hoepner, Sven Huber, Christian Klein, Bernhard Zwergel and many others (# shows # of SSRN full paper downloads as of Feb. 1st, 2024):
Social and ecological research
Invisible housing space: Der unsichtbare Wohnraum by Daniel Fuhrhop as of June 30th, 2023: “This dissertation analyzes »invisible living space« and its potential for the housing market … »invisible living space«: unused rooms in homes, which were (often) formerly used as children’s rooms but are no longer needed in now elderly, single-family households. Using the »invisible living space« could help avoid economic and ecological costs of new housing developments … this thesis investigates realistic methods for the activation of invisible living space … In addition to homeshare, this dissertation … shows the potential of existing, invisible living space for up to 100.000 apartments“ (p. 13/14). My comment: I suggest a similar approach with Wohnteilen: Viel Wohnraum-Impact mit wenig Aufwand which could especially attractive for Corporates to attract and maintain employees and improve the CSR-position
Repair or not repair? Consumerist Waste: Looking Beyond Repair by Roy Shapira as of Jan. 27th, 2024 (#58): “The average American uses her smartphone for only two years before purchasing a new one and wears a new clothing item five times before dumping it. … Consumerist waste is a multifaceted problem. It emanates not just from functional product obsolescence, which repair can help solve, but also from psychological (or “perceived”) product obsolescence, which repair cannot solve. … A key question is therefore not whether consumers have a right to repair but rather whether consumers want to repair. … Existing proposals focus on requiring disclosure at the purchasing point and assuring repair at the post-purchase point. These tools may be necessary, but they are hardly sufficient. … It may be more effective to focus on sellers’ reputational concerns instead” (abstract).
ESG investment research (Shareholder engagement options)
Nature-ratings: Accountability for Nature: Comparison of Nature-Related Assessment and Disclosure Frameworks and Standards by Yi Kui Felix Tin, Hamza Butt, Emma Calhoun, Alena Cierna, Sharon Brooks as of January 2024: “… provides an overview of the key methodological and conceptual trends among the private sector assessment and disclosure approaches on nature-related issues. … The report presents findings from a comparative research on seven leading standards, frameworks and systems for assessment and disclosure on nature-related issues … CDP disclosure system, European Sustainability Reporting Standards (ESRS), Global Reporting Initiative (GRI) Standards, International Sustainability Standards Board (ISSB) Standards, Natural Capital Protocol, Science Based Targets Network (SBTN) target setting guidance, Taskforce on Nature-related Financial Disclosures (TNFD) framework … Overall, the study revealed that the reviewed approaches are demonstrating an increasing level of alignment in key concepts and methodological approaches” (p. Vii/Viii).
Biodiversity premium: Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector by Annette Becker, Francesca Erica Di Girolamo, Caterina Rho from the European Commission as of December 2023: “Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the level of exposure of borrowing firms and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower“ (abstract).
Passive investment risks: Corporate Governance Regulation: A Primer by Brian R. Cheffins as of Jan. 26th, 2024 (#47): “… we find that equity capital flows into the “Big Three” investment managers (Sö: Vanguard, BlackRock, and State Street Global Advisors) have slowed in recent years, with substantial differences between each institution. We also present a framework to understand how fund characteristics and corporate actions such as stock buybacks and equity issuances combine to shape the evolution of institutional ownership …. Our evidence reveals why certain institutions win and lose in the contest for flows and implicates important legal conversations including the impact of stock buybacks, mergers between investment managers, and the governance risks presented by the rise of index investing” (abstract).
Huge transition risks: Risks from misalignment of banks’ financing with the EU climate objectives by the European Central Bank as of January 2024: “The risks stemming from the transition towards a decarbonised economy can have a significant effect on the credit portfolio of a financial institution … The euro area banking sector shows substantial misalignment and may therefore be subject to increased transition risks, and around 70% of banks are also subject to elevated reputational and litigation risk” (p. 2/3).
Cost reduction or transition? Climate Postures by Thomas Cauthorn, Samuel Drempetic, Andreas G.F. Hoepner, Christian Klein and Adair Morse as of Jan. 27th, 2024 (#26): “… we define climate postures as the focus of firm climate efforts, where those in the status quo economy focus on costs, and those undertaking opportunities focus on transition. … We find priced evidence for both optimal status quo and transition opportunity firms in both energy and industrials/basic materials sectors. The sorting following the signal of a climate posture towards transition opportunities yields a 2.9% excess two-week return for European energy companies and a 1.6% return for industrials in North America. Our design also identifies across-sector market penalties in signals of climate costs“ (abstract).
Impact investment research (Shareholder engagement options)
Obvious greenwashing? Decarbonizing Institutional Investor Portfolios: Helping to Green the Planet or Just Greening Your Portfolio? by Vaska Atta-Darkua, Simon Glossner, Philipp Krueger, and Pedro Matos as of Sept. 29th, 2023 (#1208): “We … analyze climate-conscious institutional investors that are members of the most prominent investor-led initiatives: the CDP (that seeks corporate disclosure on climate risk related matters) and the subsequent Climate Action 100+ (that extends the mission of CDP and calls for investor action on climate change with top emitting firms). … We conclude that CDP investors located in a country with a carbon pricing scheme decarbonize their portfolios mostly via portfolio re-weighting (tilting their holdings towards low-emitting firms) rather than via corporate changes (engaging with high-emitting firms to curb their emissions). We continue to find mostly portfolio re-weighting even among CA100+ investors after the 2015 Paris Agreement and do not uncover much evidence of engagement. … we fail to find evidence that climate-conscious investors seek companies developing green technologies or encourage their portfolio firms to generate significant green revenues“ (p. 25/26).
No greenwashing impact? The financial impact of greenwashing controversies by European Securities and Markets Authority as of Dec. 19th, 2023: “… the number of greenwashing controversies involving large European firms increased between 2020 and 2021 and tended to be concentrated within a few firms belonging to three main sectors, including the financial sector. We also investigate the impact of greenwashing controversies on firms’ stock returns and valuation and find no systematic evidence of a relationship between the two. The results suggest that greenwashing allegations did not have a clear financial impact on firms and highlight the absence of an effective market-based mechanism to help prevent potential greenwashing behaviour. This underscores the importance of clear policy guidance by regulators and efforts by supervisors to ensure the credibility of sustainability-related claims“ (p. 3). My comment: Investor should do much more against greenwashing (to avoid additional regulation)
Shareholder engagement framework: Introducing a standardised framework for escalating engagement with companies by Niall Considine, Susanna Hudson, and Danielle Vrublevskis from Share Action as of Dec. 6th, 2023: “ShareAction is introducing the concept of a standard escalation framework to facilitate the application of escalation tools with companies through corporate debt and listed equity. The escalation framework comprises: The escalation toolkit, which groups different escalation tools into five categories of increasing strength; The escalation pathway, which sets out how the asset manager will apply and progress through the escalation toolkit in a timely manner. We also include expectations on resourcing and reporting on the escalation framework” (p. 7). My comment: You may also want to read DVFA-Fachausschuss Impact veröffentlicht Leitfaden Impact Investing – DVFA e. V. – Der Berufsverband der Investment Professionals which soon will also be available in English (and to which I was allowed to contribute). You find the picture of the article and explanations there or here Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)
Shareholder voting effects: Shareholder Proposals: Do they Drive Financial and ESG Performance? by Victoria Levasseur and Paolo Mazza as of Jan. 23rd, 2024 (#24): “Our findings reveal that shareholder proposals are associated with increased nonfinancial performance, as evidenced by improved ESG scores. However, these proposals are associated with a negative impact on financial performance, and the extent of this correlation varies across different financial ratios. Furthermore, the study underscores notable differences in the effects of shareholder activism based on the geographical location of the company’s headquarters, specifically between the United States and Europe” (abstract).
Unsustainable Divestors? New evidence on the investor group heterogeneity in the field of sustainable investing by Julia Eckert, Sven Huber, Christian Klein and Bernhard Zwergel as of Jan. 18th, 2024 (#74): “We provide new insights about the investor group heterogeneity in the field of sustainable investing. Using survey data from 3,667 German financial decision makers, we … find a new investor group which we call: Divesting Investors. Second, we analyze the differences with regard to the perceived investment obstacles between the investor groups that do not want to (further) invest sustainably or want to withdraw capital from sustainable investments” (abstract). My comment: Divestment is a powerful instrument for sustainable investors to become even more so, see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (prof-soehnholz.com). For me, the option to divest is so important that I do not invest in illiquid investments anymore.
Other investment research (Shareholder engagement options)
CEO overpay everywhere? CEO Pay Differences between U.S. and non-U.S. firms: A New Longitudinal Investigation by Ruiyuan (Ryan) Chen, Sadok El Ghoul, Omrane Guedhami, and Feiyu Liu as of Dec. 11th, 2023 (#29): “We use time series CEO compensation data across 34 nations from 2001-2018, and find about a 23% pay premium for U.S. CEOs. This premium diminishes in comparison to G7 countries …. We also find that top U.S. CEOs earn substantially more, but excluding them reduces the overall pay premium” (p. 1). My comment: Investor should focus more on reducing the CEO to median employee pay ratio and not to introduce (additional) ESG bonifications, compare Wrong ESG bonus math? Content-Post #188 – Responsible Investment Research Blog (prof-soehnholz.com)
Unsustainable BNPL: “Buy Now, Pay Later” and Impulse Shopping by Jan Keil and Valentin Burg as of Nov. 29th, 2023 (#190): “We analyze if “Buy Now, Pay Later” (BNPL) generates impulsive shopping behavior. Making BNPL randomly available increases the likelihood that an impulsive customer completes a purchase by 13%. … Shopping behavior of all customers changes in ways resembling impulsiveness – by looking more hasty, premature, unoptimized, and likely to be regretted retrospectively“ (abstract). My comment: Not all fintech is sustainable
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Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companies: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)