Archiv der Kategorie: ETF

New gender research illustration by Mohamed Hassan from Pixabay

New gender research: Researchpost 176

New gender research illustration by Mohamed Hassan from Pixabay

New gender research: 16x new research on child labor, child bonus, climate models, green bonds, social returns, supply chain ESG, greenwashing, ESG bonifications, gender index, gender inheritance gap, inflation, investment risks and investment AI (# shows SSRN full paper downloads as of May 16th, 2024)

Social and ecological research in: New gender research

US child labor: (Hidden) In Plain Sight: Migrant Child Labor and the New Economy of Exploitation by Shefali Milczarek-Desai as of April 18th, 2024 (#164): “Migrant child labor pervades supply chains for America’s most beloved household goods including Cheerios, Cheetos, Lucky Charms, J. Crew, and Fruit of the Loom. Migrant children, some as young as twelve and thirteen, de-bone chicken sold at Whole Foods, bake rolls found at Walmart and Target, and process milk used in Ben & Jerry’s ice-cream. Most work grueling shifts, including overnight and over twelve-hour days, and some, working in extremely hazardous jobs such as roofing and meat processing, have died or suffered serious, permanent injuries. … many … are unaccompanied minors and have no choice but to work. … this paper charts a multifaceted course that might realistically address the predicament of migrant child workers who are precariously perched at the intersection of migration and labor“ (abstract).

New gender research: Is There Really a Child Penalty in the Long Run? New Evidence from IVF Treatments by Petter Lundborg, Erik Plug, and Astrid Würtz Rasmussen as of May 2nd, 2024 (#32): “The child penalty has been singled out as one of the primary drivers behind the gender gap in earnings. In this paper, we challenge this notion by estimating the child penalty in the very long run. For this purpose, we rely on … fertility variation among childless couples in Denmark to identify child penalties for up to 25 years after the birth of the first child. … we find that the first child impacts the earnings of women, not men. While the child penalties are sizable shortly after birth, the same penalty fades out, disappears completely after 10 years, and turns into a child premium after 15 years. … we even find that the birth of the first child leads to a small rise in the lifetime earnings of women” (p. 15/16).

New gender research: What Works in Supporting Women-Led Businesses? by Diego Ubfal as of April 30th, 2024 (#125): “This paper reviews evidence on interventions that can address the constraints faced by growth-oriented, women-led micro, small, and medium-sized enterprises (WMSMEs). … First, evidence of modest average treatment effects and treatment effect heterogeneity across various interventions suggests the need for better targeting and segmentation. Second, women-led firms face multiple constraints, and addressing them requires a package of multiple interventions“ (p. 20).

Climate model risks: The Emperor’s New Climate Scenarios – Limitations and assumptions of commonly used climate-change scenarios in financial services by Sandy Trust, Sanjay Joshi, Tim Lenton, and Jack Oliver as of July 4th, 2023: “Many climate-scenario models in financial services are significantly underestimating climate risk. … Real-world impacts of climate change, such as the impact of tipping points (both positive and negative, transition and physical-risk related), sea-level rise and involuntary mass migration, are largely excluded from the damage functions of public reference climate-change economic models. Some models implausibly show the hot-house world to be economically positive, whereas others estimate a 65% GDP loss or a 50–60% downside to existing financial assets if climate change is not mitigated, stating these are likely to be conservative estimates. … Carbon budgets may be smaller than anticipated and risks may develop more quickly. … We may have underestimated how quickly the Earth will warm for a given level of emissions, meaning we need to update our expectations as to how quickly risks will emerge. A faster warming planet will drive more severe, acute physical risks, bring forward chronic physical risks, and increase the likelihood of triggering multiple climate tipping points, which collectively act to further accelerate the rate of climate change and the physical risks faced. … Firms naturally begin with regulatory scenarios, but this may lead to herd mentality and ‘hiding behind’ Network for Greening the Financial System (NGFS) thinking, rather than developing an appropriate understanding of climate change. Key model limitations, judgements and choice of assumptions are not widely understood, as evidenced by current disclosures from financial institutions” (p. 6).

ESG investment research

Managed greenium: Determinants of the Greenium by Christoph Sperling, Roland Maximilian Happach, Holger Perlwitz, and Dominik Möst as of May 9th, 2024 (#23): “Environmental, social and governance (ESG) bonds can benefit from yield discounts compared to their conventional twins, a phenomenon known as the ‚greenium‘. … we examine five observable characteristics of corporate ESG bonds and their conventional twins for statistical differences in primary market yields and derive two overarching determinants from this” (abstract). “… two overarching determinants affecting the occurrence and magnitude of a greenium become apparent: transparent information disclosure and sustainable corporate management. Companies can actively enhance their greenium in the primary market and reduce debt financing costs by communicating clearly about the intended use of proceeds and aligning with ambitious sustainability goals” (p. 28).

Social return effects: Social Premiums by Hoa Briscoe-Tran, Reem Elabd, Iwan Meier, and Valeri Sokolovski as of April 30th, 2024 (#123): “Our analysis illuminates the impact of the S dimension of ESG on future stock returns. We find that the aggregate S score does not affect stock returns. However, the two main components of the S score exert significant, yet opposite, effects on returns. Specifically, higher human capital scores are associated with higher returns, aligning with previous research and suggesting that markets may not fully price in firms’ human capital. Conversely, higher product safety scores are associated with lower average returns, consistent with the risk-based explanation that firms with safer products exhibit safer cash flows, reduced risk, and therefore, lower expected returns” (p. 26). My comment: If social investments have similar returns as other investments, everything speaks for social investments.

ESG purchasing benefits: A Procurement Advantage in Disruptive Times: New Perspectives on ESG Strategy and Firm Performance by Wenting Li and Yimin Wang as of May 5th, 2024 (#29): “Drawing on the COVID-19 pandemic as a natural experiment, we define a firm’s resilience as its relatively superior financial performance during the pandemic. … The results reveal that increased ESG practices strengthen a firm’s resilience during disruptions: a 1% increase in ESG practice scores leads to a 0.215% increase in firms’ return on assets. We analyze the mechanisms driving this resilience effect and show that improved ESG practices are associated with reduced purchasing costs and higher profitability amid disruptions. … we provide robust evidence that ESG enhances operational congruency with suppliers, which becomes critical in securing a procurement advantage during severe external constraints. Contrary to popular belief, there is little evidence that the ESG improves price premiums during the disruption“ (abstract). My comment: My detailed recommendations for supplier evaluations and supplier engagement see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog (prof-soehnholz.com)

NGOs and Greenwashing: Scrutinizing Corporate Sustainability Claims. Evidence from NGOs’ Greenwashing Allegations and Firms’ Responses by Janja Brendel, Cai Chen, and Thomas Keusch as of April 9th, 2024 (#107): “We find that advocacy NGOs (Sö: Non-Governmental Organizations) increasingly campaign against greenwashing, targeting predominantly large, publicly visible firms in the consumer-facing and oil and gas industries. These campaigns mostly accuse firms of making misleading or false statements in communication outlets such as product labels, advertisements, and public relations campaigns about companies’ impacts on climate change and consumer health. Shareholders and the media react to NGO campaigns, especially when they allege greenwashing of material environmental or social performance dimensions. Finally, firms facing environment-related greenwashing allegations disclose less environmental information in the future, while companies criticized for climate-related greenwashing reduce future greenhouse gas emissions“ (abstract). My comment see Neues Greenwashing-Research | CAPinside

New gender research: Who Cares about Investing Responsibly? Attitudes and Financial Decisions by Alberto Montagnoli and Karl Taylor as of April 30th, 2024 (#25): “Using the UK Financial Lives Survey data … our analysis reveals that, firstly, individual characteristics have little explanatory power in terms of explaining responsible investments, except for: education; gender; age; and financial literacy. Secondly, those individuals who are interested in future responsible investments are approximately 7 percentage points more likely to hold shares/ equity, and have around 77% more money invested in financial assets (i.e. just under twice the amount)“ (abstract).

New gender research: Index Inclusion and Corporate Social Performance: Evidence from the MSCI Empowering Women Index by Vikas Mehrotra, Lukas Roth, Yusuke Tsujimoto, and Yupana Wiwattanakantang as of May 14th, 2024 (#48): “… we focus on the years surrounding the introduction of the MSCI Empowering Women Index (WIN), in which membership is based on a firm’s gender diversity performance in the workforce. … firms ranked close to the index inclusion threshold enhance their proportion of women in the workforce following the WIN inception compared to control firms that are distant from the inclusion threshold. Notably, these improvements are not accompanied by a reduction in male employees, … we observe that the enhancement of women’s representation in the workforce predominantly occurs in management positions, rather than at the rank-and-file positions, which remain largely unchanged. Additionally, there is evidence of a cultural shift within these firms, as indicated by a reduction in overtime and a higher incidence of male employees taking parental leaves in the post-WIN period. Moreover, WIN firms experience an increase in institutional ownership without any discernible decline in firm performance or shareholder value …” (p. 26).

Impact investment research

ESG bonus leeway: ESG & Executive Remuneration in Europe by Marco Dell’Erba and Guido Ferrarini as of May 6th, 2024 (#160): “… a qualitative and empirical analysis of the ways in which the major 300 largest corporations by market capitalization in Europe (from the FTSEurofirst 300 Index) implement ESG factors in their remuneration policies. … Few metrics are clearly measurable, and there is a general lack of appropriate metrics and targets” (p. 36/37). My comment see Wrong ESG bonus math? Content-Post #188 – Responsible Investment Research Blog (prof-soehnholz.com)

Bank net zero failure: Business as Usual: Bank Net Zero Commitments, Lending, and Engagement by Parinitha (Pari) Sastry, Emil Verner, and David Marques-Ibanez as of April 23rd, 2024 (#876): “This paper is the first attempt to quantify whether banks with a net zero pledge have made meaningful changes to their lending behavior. … we find that net zero lenders have not divested from emissions-intensive firms, in mining or in the sectors for which they have set targets. This holds both for borrowing firms in the eurozone, as well as across the globe. We also find limited evidence that banks reallocate financing towards low-carbon renewables projects within the power generation sector, casting doubt on within-sector portfolio reallocation. Further, we do not find evidence for engagement. Firms connected to a net zero bank are no more likely to set decarbonization targets, nor do they reduce their carbon emissions“ (p. 35).

Other investment research: in New gender research

New gender research: Wealth creators or inheritors? Unpacking the gender wealth gap from bottom to top and young to old by Charlotte Bartels, Eva Sierminska, and Carsten Schroeder as of Apri 28th, 2024 (#157): Using unique individual level data that oversamples wealthy individuals in Germany in 2019, we find that women and men accumulate wealth differently. Transfer amounts and their timing are an important driver of these differences: men tend to inherit larger sums than women during their working life, which allows them to create more wealth. Women often outlive their male partners and receive larger inheritances in old age. Yet, these transfers come too late in order for them to be used for further accumulation and to start a business. Against this backdrop, the average gender wealth gap underestimates the inequality of opportunity that men and women have during the active, wealth-creating phase of the life course” (p. 7).

Inflation ignorants: Don’t Ignore Inflation Ignorance: An Experimental Analysis of the Degree of Money Illusion in Individual Decision Making by Nicole Branger´, Henning Cordes, and Thomas Langer as of Dec. 30th, 2024 (#18): “Money illusion refers to the tendency to evaluate economic transactions in nominal rather than real terms. One manifestation of this phenomenon is the tendency to neglect future inflation in intertemporal investment decisions. Empirical evidence for this “inflation ignorance” is hard to establish due to the host of factors that simultaneously change with the inflation rate. … We find money illusion to be substantial – even in experimental settings where the bias cannot be driven by a lack of diligence, arithmetic problems, or misunderstandings of inflation. Our findings contribute to understanding various anomalies on the individual and market level, such as insufficient savings efforts or equity mispricing“ (abstract).

Active risk: Sharpe’s Arithmetic and the Risk Matters Hypothesis by James White, Vladimir Ragulin, and Victor Haghani from Elm Wealth as of Dec. 20th, 2023 (#140): “… the authors present … the „Risk Matters Hypothesis“ (RMH), which asserts that the average risk-adjusted excess return across all active portfolios will be greater than the risk-adjusted excess return of the market portfolio, before accounting for fees and trading costs” (abstract).

AI for the big guys only? A Walk Through Generative AI & LLMs: Prospects and Challenges by Carlos Salas Najera as of Dec. 20th, 2023 (#68): “Generative AI has firmly established its presence, and is poised to revolutionise various sectors such as finance. Large Language Models (LLMs) are proving pivotal in this transformation according to their recent impressive performances. However, their widespread integration into industries might only lead to gradual progress. The investment sector faces challenges of inadequate expertise and notably, the substantial costs associated with inhouse model training. Consequently, investment enterprises will confront the choice of leveraging foundational models, customisable variants, or insights from NLP vendors who remain well-versed in the latest advancements of LLMs” (p. 9). My comment: See How can sustainable investors benefit from artificial intelligence? – GITEX Impact

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Werbehinweis

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Small-Cap-Anlagefonds (SFDR Art. 9) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die Ziele für nachhaltige Entwicklung (SDG) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement bei derzeit 26 von 30 Unternehmen: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T und My fund – Responsible Investment Research Blog (prof-soehnholz.com)

Q1 Performance Illustration von Gerd Altmann von Pixabay

Q1 Renditen der Soehnholz ESG Portfolios

Q1 Renditen: Passive Multi-Asset Portfolios OK

Q1 Renditen: Das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio hat mit +5,4% im Vergleich zu Multi-Asset ETFs (+5,1%) und aktiven Mischfonds (+4,8%) gut abgeschnitten. Das ebenfalls breit diversifizierte ESG ETF-Portfolio hat mit +4,2% dagegen unterdurchschnittlich rentiert.

Nachhaltige ETF-Portfolios: Anleihen gut, Aktien OK, SDG schwierig

Das ESG ETF-Portfolio ex Bonds lag mit +6,1% erheblich hinter traditionellen Aktien-ETFs (+10,6%) zurück. Die Rendite ist aber ähnlich wie die 7,2% traditioneller aktiv gemanagter globaler Aktienfonds.

Mit -0,3% rentierte das sicherheitsorientierte ESG ETF-Portfolio Bonds (EUR) ähnlich wie aktive Fonds (-0,7%). Das renditeorientierte ESG ETF-Portfolio Bonds hat mit +1,6% ebenfalls etwas besser abgeschnitten als vergleichbare aktiv gemanagte Fonds (+1.3%).

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit -0,2% stark hinter traditionellen Aktienanlagen zurück. Besonders thematische Investments mit ökologischem Fokus liefen auch im ersten Quartal 2024 nicht gut.  

Q1 Renditen: Direkte ESG SDG Portfolios OK

Das auf Small- und Midcaps fokussierte Global Equities ESG SDG hat mit 1,4% im Vergleich zu Small- und Midcap-Aktienfonds schlecht abgeschnitten. Das ist vor allem auf den hohen Anteil an erneuerbaren Energien zurückzuführen. Das Global Equities ESG SDG Social Portfolio hat mit 3,7% dagegen vergleichbar wie Small- und Midcap-Portfolios abgeschnitten.

Mein FutureVest Equity Sustainable Development Goals R Fonds (Start 2021) hat nach einem guten Quartal 4/2023 im ersten Quartal 2024 eine Rendite von +2,6% erreicht. Das ist durch den Fokus auf Smallcaps und den relativ hohen Anteil an erneuerbaren Energien erklärbar (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T und My fund – Responsible Investment Research Blog (prof-soehnholz.com).

Für die zu Jahresende 2023 voll investierten Trendfolgeportfolios gab es im ersten Quartal keine Signale, so dass sie wie die Portfolios ohne Trendfolge abgeschnitten haben.

Weiterführende Infos:

Regeländerungen: Nachhaltig aktiv oder passiv? – Responsible Investment Research Blog (prof-soehnholz.com)

2023: Passive Allokation und ESG gut, SDG nicht gut – Responsible Investment Research Blog (prof-soehnholz.com)

Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)

Anmerkungen: Die Performancedetails siehe www.soehnholzesg.com und zu allen Regeln und Portfolios siehe Das Soehnholz ESG und SDG Portfoliobuch. Benchmarkdaten: Eigene Berechnungen u.a. auf Basis von www.morningstar.de

ESG rumor illustration from yaobim from Pixaby

ESG rumors: Researchpost #169

ESG rumors: 8x new research on carbon offsets, green innovation, sustainable fund outperformance, ESG rumors and their effects on equities and bonds, ESG factors, safe bonds and private equity (# shows SSRN full paper downloads as of March 27th, 2024)

Ecological and social research

Problematic Offsets: Carbon Offsets: Decarbonization or Transition-Washing? by Sehoon Kim, Tao Li, and Yanbin Wu as of March 23rd, 2024 (#104): “Carbon offsets allow firms to claim reductions in carbon emissions by purchasing and retiring carbon credits sold by projects or entities that achieve those reductions. … While large firms with net-zero commitments are more likely to use offsets, we find evidence that offsets are often used strategically by firms that are already positioned close to achieving these targets or in industries where it is easier to boost their ESG rankings relative to their peers. When faced by an exogenous shock to their incentives to boost rankings, firms with low emissions in industries with narrow cross-peer emission gaps become more likely to use offsets whereas heavy-emission firms in large-gap industries do not. Moreover, firms that strategically increase the use of offsets do so by retiring credits from low-quality offset projects, which command lower prices and therefore provide a cost-effective way of transition-washing. Overall, our evidence does not support the purported idea that carbon offsets can be effective at facilitating net-zero transitions by heavy-emission firms. … we do not find evidence that these firms would use such “good” offsets in large-enough quantities to meaningfully reduce their net emissions“ (p. 29/30). My comment: I do not consider/use offsets for my investments.

ESG investment research (ESG rumors)

Green innovation variations: Doing Good by Being Smart: Green Innovation and Firms’ Financial and Environmental Performance by Qiang Cheng, An-Ping Lin, and Mengjie Yang as of March 22nd, 2024 (#25): “We find that firms with more valuable pollution prevention patents have better future financial and environmental performance, whereas the value of firms’ pollution control patents is not associated with their future financial or environmental performance. We further document that pollution prevention innovation improves financial performance through its positive effects on sales growth and cost efficiency …“ (p. 29/30).

2023 ESG outperformance: Sustainable Reality – Sustainable Funds Show Continued Outperformance and Positive Flows in 2023 Despite a Slower Second Half by Morgan Stanley Institute for Sustainable Investing as of Feb. 29th, 2024: “Sustainable funds outperformed their traditional peers in 2023 with a median return of 12.6% compared to traditional funds’ 8.6%, according to Morningstar data. … Sustainable fund assets under management (AUM) globally grew to $3.4 trillion, up 15% from 2022 and reaching 7.2% of total AUM. Inflows to sustainable funds remained positive overall at $136 billion, 4.7% of the prior year-end AUM. … Equity funds with a global, Europe or APAC investment focus skew primarily to Industrials and Health Care, while funds investing in the Americas are more overweight Technology. Greater exposure to Technology stocks helped sustainable equity funds investing in the Americas in 2023, but this was not the only factor influencing sustainable funds’ outperformance” (p. 1). … “If a hypothetical fund achieved the median return for each of the past five years, a sustainable fund would be up +35% compared with a traditional fund’s +25%” (p. 6). … “Europe-domiciled Sustainable Funds Outperformed Traditional Funds, With Article 8 and Article 9 Funds in a Similar Range” (p. 18). My comment: I have a similar experience, see 2023: Passive Allokation und ESG gut, SDG nicht gut – Responsible Investment Research Blog (prof-soehnholz.com)

ESG rumors (1): Attention-Grabbing ESG: Do Investors Extract Value-relevant ESG Information from Social Media? by Yoshitaka Tanaka and Shunsuke Managi as of March 23rd, 2024 (#9): “Initially, we find that unconditional excess stock returns exhibit a positive correlation with positive and attention-grabbing ESG events and a negative correlation with negative ESG events. Our findings also indicate that events with low financial materiality, despite their high social prominence, do not have a lasting effect on stock returns. … we find that the greater is the information asymmetry regarding ESG information, the greater is the stock return response. On the other hand, when we control for firm attributes, we find no correlation between materiality and stock returns. The regression results suggest that the response of stock returns to ESG events may be attributed to market inefficiencies arising from information asymmetries rather than fundamental factors“ (p. 20). My comment: I ,like that my ESG ratings provider incorporates ESG controversies in its frequently updated ESG ratings

ESG rumors (2): From News to Numbers: Quantifying the Impact of ESG Controversies on Corporate Bond Spreads by Doina C. Chichernea, J. Christopher Hughen, and Alex Petkevich as of March 23rd, 2024 (#7): “… we document that bondholders demand a higher credit spread for bonds issued by firms with higher ESG controversies. The adverse effect of ESG controversies on bond pricing is long-lived and is primarily observed in bond issues with higher credit risk and more pronounced information asymmetry. We also document that current ESG controversies significantly predict an increase in the firm’s future asymmetric information and default risk …” (abstract).

No ESG factor? Are ESG Factors Truly Unique? by Svetoslav Covachev, Jocelyn Martel, and Sofia Brito-Ramos as of March 21st, 2024 (#71): “This paper studies the relationships between carbon and ESG risk factors and commonly accepted equity risk factors. … the carbon and ESG risk factors can be replicated as linear combinations of risk factors that are based on stock characteristics that are not directly related to environmental and ESG policies. We note that the main inputs for building the carbon and ESG factors are ESG ratings, which have a documented link with firm size. Bigger firms tend to have greater resources for gathering and disclosing ESG information. We also examine the risk exposures of popular ESG indexes, which provide a convenient means to invest in ESG-focused companies. Our findings indicate that the indexes examined are all exposed to the market and size factors, but they are also well-explained by the long leg of the ESG factor” (p. 15). My comment: Sustainable investments should not be expected to have higher returns but rather lower (ESG and thus overall) risks than comparable other investments.

Other investment research (ESG rumors)

Flights to bonds: Global or Regional Safe Assets: Evidence from Bond Substitution Patterns by Tsvetelina Nenova as of March 25th, 2024 (#5): “This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors’ demand for bonds. … Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different. Funds substitute US Treasuries with global bonds, including risky corporate and emerging market bonds, whereas German Bunds are primarily substitutable within a narrow set of euro area safe government bonds. Substitutability deteriorates in times of stress, impairing the transmission of monetary policy“ (abstract).

Private equity dissected: The economics of private equity: A critical review by Alexander Ljungqvist as of Feb. 15th, 2024: “… I have aimed to critically synthesize the main insights of more than 90 academic studies of private equity … to draw the following conclusions. Private equity funds have, on average, historically outperformed public-market indices after fees, but maybe not when adjusted for risk, leverage, and illiquidity. … Private equity funds generate returns for their investors through a combination of the value they add to their portfolio companies and their ability to target companies whose performance is about to take off anyway.  Whether private equity creates social value for the economy at large is an open question. … Private equity is a demanding asset class in which more sophisticated investors can expect to earn better returns than less sophisticated investors. There is scope for ample misalignment of interests between fund managers and investors. Private equity is an innovative asset class, creating new practices and solutions at a fast pace. Recent examples include subscription lines, GP-led secondaries, and NAV financing“ (p. 42/43).

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SDG Performance Illustration with SDG Wheel

SDG performance: Researchpost #168

SDG Performance: 14x new research on CEO pay, greenwashing, greenium, ESG risk, regulation, audits, ungreen ETFs, SDG scores and performance, voting, circular risk, non-normality and mutual funds (# shows SSRN full paper downloads as of March 21st, 2024)

ESG research

Being CEO pays: The State Of Corporate Sustainability Disclosure 2023 by Magali Delmas, Kelly Clark,  Jiaxin Li, and Tyson Timmer as of March 14th, 2024 (#28): “… we analyze the most commonly disclosed corporate sustainability metrics among S&P 500 firms, based on data from the Open for Good initiative. Our focus is on greenhouse gas emissions (GHG), climate strategy, gender and ethnic diversity, and the ratio of CEO-to-median-employee compensation … Across all (Sö: ESG) metrics, the average disclosure rate is fairly low at 55% … reporting for Scope 1 and 2 GHG emissions is notably high, with average rates exceeding 80%. Conversely, the disclosure rate for Scope 3 emissions drops to 56% … the lack of detailed information on the assumptions and methodologies that these disclosures employ constrain this data’s usefulness … . On average, women comprise only 39% of employees in S&P 500 firms, with Financials and Health Care the sectoral exceptions, reporting averages of 50% and 51% women, respectively. At the board of directors’ level, the representation of women is lower, averaging 32%, with minimal sectoral variation … that average CEO compensation is 305 times greater than that of the median employee … However, this can vary significantly from year to year within each company …” (p. 4). My comment: With my shareholder engagement activities I encourage companies to report the CEO pay ratio so that all stakeholders can comment on them, see e.g. Wrong ESG bonus math? Content-Post #188 (prof-soehnholz.com)

Scope 3 reporting effects: Real Effects of the Proposed SEC Climate Disclosure Rule by Mary Ellen Carter, Lian Fen Lee, and Enshuai Yu as of March 15th, 2024 (#117): “We examine changes in firm supply chain decisions following the SEC’s proposed climate disclosure rule, which requires Scope 3 emissions disclosure. … we compare the import activity of treated firms (non-SRCs: Sö. Small reporting companies) to unaffected firms (SRCs) before and after the threat of Scope 3 disclosure in the proposed SEC rule was revealed. We find a decrease in import activity for non-SRCs relative to SRCs, implying that the proposed disclosure rule creates costs that make foreign outsourcing less favorable. … we provide evidence that non-SRCs also increase their in-house production, and exhibit greater improvements in environmental efforts, compared to SRCs“ (p. 30/31).

Greenwashing risks: A Greenwashing Index by Elise Gourier Hélène Mathurin as of Feb. 18th, 2024 (#314): “We construct a news-implied index of greenwashing. Our index reveals that greenwashing has become particularly prominent in the past five years. Its increase was driven by skepticism towards the financial sector, specifically ESG funds, ESG ratings and green bonds. … Unexpected increases in the greenwashing index are followed by decreases of flows into funds advertised as sustainable, both for retail and institutional investors. … When accounting for greenwashing, the climate risk premium becomes small and statistically insignificant” (abstract). My comment: With my shareholder engagement activities I encourage companies to report broadly defined GHG Scope 3 emissions so that all stakeholders can focus on them

ETF-Greenwashing? Unmasking Greenwashing: A call to clean up passive funds by Lara Cuvelier at al. from Reclaim Finance as of March 20th, 2024: “… the five big asset managers we selected for this report based on the size of their passive portfolios – BlackRock, Amundi, UBS AM, DWS and Legal & General Investment Management (LGIM) – still held at least US$227 billion in fossil fuel developers in 2023, with more than half of this amount coming from passive portfolios. … 70% of the 430 ‘sustainable’ passive funds we analyzed were exposed to fossil fuel expansion. Focusing our analysis on the most significant of these – 25 high-profile ‘sustainable’ passive funds – we found the majority were investing in some of the world’s biggest fossil fuel developers, such as ExxonMobil and Shell. The analysis also shows that especially when these funds are invested in bonds, they provide direct financing for fossil fuel developers“ (p. 4). My comment: This result is not surprising. The reason is that these products are supposed to have very little deviation (tracking error/difference/active share) from standard indices. Therefore, they use best-in-class approaches instead of the far more sustainable best-in-universe sustainability selection approach.

Grey definitions? Greenness confusion and the greenium by Luca De Angelis and  Irene Monasterolo as of Feb. 19th, 2024 (#241):  “We use different classifications of green assets and carbon stranded assets and develop six portfolios characterized by shades of green and brown technologies, from the VeryGreen to the VeryDarkBrown, and green-minus-brown factors. Then we analyse the market pricing of the factors in augmented CAPM and Fama-French models, focusing on the firms listed in the STOXX Europe 600 index. … we find that the presence of the greenium, i.e. significant abnormal returns, depends on the classification of green and non-green used. Our results show the presence of greenium for ESG-based portfolios, in particular for the LowESG and LowE portfolios. However, the greenium disappears when we test for the science-based classifications i.e. the CPRS (for carbon stranded assets) and the EU Taxonomy (for green assets) …“ (p. 24).

Risk reducing ESG:  Investing During Calm and Crisis: Implied Expected Returns by Henk Berkman and Mihir Tirodkar as of March 15th, 2024 (#59): “… we use a novel and forward-looking measure of expected returns derived from contemporaneous stock option prices. Our main finding is that stocks with higher ESG scores have lower expected returns, however this is only observed during the Global Financial Crisis and the COVID-19 pandemic. We also find that the ESG risk premium term structure is positively related to ESG scores during crises, indicating that investors expect a reversion to normality within a year. .. we provide partial support for the theoretical prediction that ESG investing lowers expected returns. … our paper suggests that ESG investing may not be a source of systematically superior returns, but rather a way of expressing ethical preferences and temporarily reducing risk during unexpected crises …“ (p. 36).

Wenig Umweltwissen? Kooperation zwischen Aufsichtsrat, Wirtschaftsprüfer und Interner Revision – Empirische Befunde zum Einfluss von CSRD und CSDDD von Patrick Velte und Christoph Wehrhahn vom 15.3.2024: „Der Zusammenarbeit zwischen Aufsichtsrat, Wirtschaftsprüfer und Interner Revision kommt insbesondere vor dem Hintergrund aktueller EU-Nachhaltigkeitsregulierungen (CSRD und CSDDD) eine besondere Bedeutung zu. Eine intensivere Zusammenarbeit könnte u.a. in der Koordinierung von Revisions- bzw. Prüfungsschwerpunkten bei der (gemeinsamen) Überwachung der Nachhaltigkeitsberichterstattung nach der CSRD und der CSDDD bestehen. Hierfür ist eine signifikante Verbesserung der umwelt- und sozialbezogenen Kompetenzen und Ressourcen notwendig“ (p. 36).

Supplier audits: Selection, Payment, and Information Assessment in Social Audits: A Behavioral Experiment by Gabriel Pensamiento and León Valdés as of March 20th, 2024 (#9): “Companies often rely on third-party social audits to assess suppliers’ social responsibility (SR) practices. … We find that auditors who are paid and chosen by the supplier are more lenient, and the effect is more pronounced when the information observed suggests poor SR practices. … auditors who are merely paid by the supplier do not make more lenient decisions …. Our results … show that removing a supplier’s ability to choose its own auditor is critical to increase the detection of poor SR practices, particularly when the risk of bad practices is high” (abstract). My comment: With my shareholder engagement activities, I encourage companies to broadly evaluate all supplier according to ESG criteria, see Supplier engagement – Opinion post #211 (prof-soehnholz.com)

Impact investing research (in: SDG performance)

Benchmark-hugging: Optimizing Sustainable Performance: A Strategic Approach to Value Creation and Impactful Investing by Heiko Bailer as of Feb. 29th, 2024 (#51): “Backtests against the historic MSCI World benchmark from September 2019 to November 2023 … showed that stringent universe exclusions negatively impacted performance, increased portfolio size without lowering active risk though also reduced emissions and improved the overall Sustainable Development Goals (SDG) scores“ (abstract). “The amplification of regulatory constraints, coupled with an expanding array of universe exclusions, forms an unfavorable concoction restraining the potential for significant „Value Creation“ in sustainable investing. This circumstance results in a low sustainability threshold, shifting sustainable portfolio construction toward a predominantly “Value Alignment” strategy, albeit at substantial cost of traditional performance. …” (p. 21). My comment: For a detailed analysis see Nachhaltigkeit oder Performance? | CAPinside

Diverging SDG performance: The Costs of Being Sustainable by Emanuele Chini, Roman Kraussl, and Denitsa Stefanova as of Feb. 18th, 2024 (#24): “We define a new bottom-up measure of fund sustainability that links this concept to the alignment of the fund with the SDGs. Importantly, we disaggregate this measure in four components representative of different dimensions of sustainability: economy & infrastructure, environment, basic needs, and social progress. … funds with a positive impact on the economy & infrastructure and social progress SDGs are associated with higher returns whereas funds with a positive impact on environment and basic needs have lower returns. Second, institutional investors seem to infer this sustainability—returns relationship and show a preference for sustainability dimensions that are positively correlated with abnormal returns” (p. 24/25). My comment: As expected, different investment foci result in different performances. I doubt that good financial return prognostics (for different SDG-goals) are feasible. That speaks for SDG-goal diversification (which I sue in my mutual fund, see https://futurevest.fund/).

Homely shareholder voting: Home bias in shareholder voting by Xuan Li as of Nov. 10thm 2023 (#71): “Using a global data set from 2012 to 2022, I provide robust evidence that there is a significant home bias in shareholder voting. … An systematic review of investors’ voting polices suggests that investors actively seek out more information about domestic firms during the voting process in order to gain an information advantage in their home countries“ (p. 17).

Circular risk reduction: One, no one and one hundred thousand: how many firm risks are affected by the circular economy by Evita Allodi and Maria Gaia Soana as of March 20th, 2024 (#4): “We use a sample of 1,069 listed European non-financial companies over the period 2010-2022. We find that circular economy practices, implemented together, significantly decrease downside, idiosyncratic, and default risks. However, considering the three dimensions individually, only reduction and reusing mitigate these risks, while recycling does not“ (abstract).

Other investment research (in: SDG performance)

Normal non-normality: Diverging from the Norm: An Examination of Non-Normality and its Measurement in Asset Returns by Grant Holtes as of Feb. 17th, 2024 (#18): “This paper examines the normality of US equities and fixed income asset-class returns over 104 years” (abstract). “Returns are measurably non-normal … Returns are more normal at longer holding periods … The impacts section demonstrates that a normal assumption does not have a large impact on central estimates, but can have a large impact on estimates of low-probability events such as CVAR calculations …” (p. 10).

Crisis-delegation: Household portfolios and financial literacy: The flight to delegation by Sarah Brown, Alexandros Kontonikas, Alberto Montagnoli, Harry Pickard, and Karl Taylor as of Feb. 21st, 2024 (13x): “We analyse data on European household financial portfolios over the period 2004-2017, to explore how households change their asset allocations following the recent twin financial crises. … Our estimates show that the post-crisis period is associated with changes in European household asset allocation behaviour. Specifically, there are elevated holdings of safe assets and lower holdings of stocks and bonds, in line with the argument for cautiousness. At the same time, though, our findings reveal higher holdings of mutual funds in the post-crisis period. … This is consistent in line with a “flight to delegation”, that is, the utilisation of the perceived expertise of mutual funds managers. … the most literate households tend to hold significantly more mutual funds. … The findings for females implies a gender gap in financial literacy when investing in mutual funds which worsens following economic turmoil” (p. 14/15).

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Biodiversity Diversgence illustration with seed toto by Claudenil Moraes from Pixaby

Biodiversity diversion: Researchpost #165

Biodiversity diversion: 14x new research on donations, brown indices, ESG ETFs, ESG investing fees, greenwashing, labeled bonds, climate engagement, framing, female finance, and risk measurement (“’#” shows full paper SSRN downloads as of Feb. 29th, 2024).

Social and ecological research

Facebook donations: Does Online Fundraising Increase Charitable Giving? A Nationwide Field Experiment on Facebook by Maja Adena and Anselm Hager as of Feb. 27th, 2024 (#4): “Using the Facebook advertising tool, we implemented a natural field experiment across Germany, randomly assigning almost 8,000 postal codes to Save the Children fundraising videos or to a pure control. … We found that (i) video fundraising increased donation revenue and frequency to Save the Children during the campaign and in the subsequent five weeks; (ii) the campaign was profitable for the fundraiser; and (iii) the effects were similar independent of video content and impression assignment strategy. However, we also found some crowding out of donations to other similar charities or projects.” (abstract).

Biodiversity diversion (1)? The 30 by 30 biodiversity commitment and financial disclosure: Metrics matter by Daniele Silvestro, Stefano Goria, Ben Groom, Thomas Sterner, and Alexandre Antonelli as of Nov. 23rd, 2023 (#93): “The recent adoption of the Kunming-Montreal Global Biodiversity Framework commits nearly 200 nations to protect 30% of their land by 2030 – a substantial increase from the current global average of c. 17%. … the easiest approach to reach compliance would be to protect the cheapest areas. … Here we explore biological and financial consequences of area protection … We find substantial differences in performance, with the cheapest solution always being the worst for biodiversity. Corporate disclosure provides a powerful mechanism for supporting conservation but is often dependent on simplistic and underperforming metrics. We show that conservation solutions optimized through artificial intelligence are likely to outperform commonly used biodiversity metrics“ (abstract).

ESG investment research (in: „Biodiversity diversion“)

Biodiversity diversion (2): A Bibliometric and Systemic Literature Review of Biodiversity Finance by Mark C. Hutchinson and Brian Lucey as of Feb. 19th, 2024 (#140): “This study presents a short bibliometric analysis of biodiversity finance …. Six focal areas emerge, with Conservation, Conservation Finance, and Ecosystem Finance prominent. Thematic emphasis revolves around biodiversity challenges and the inefficiency of financial mechanisms in addressing them. Our analysis reveals an exploitable gap in the lack of finance-led solutions” (abstract).

Brown stock indices: International trade in brown shares and economic development by Harald Benink, Harry Huizinga, Louis Raes, and Lishu Zhang as of Feb. 22nd, 2024 (#9): “Using global stock ownership data, we find a robust negative relation between the tendency by investors to hold brown assets and economic development as measured by log GDP per capita. … First, at the country level, economic development is likely to lead to a greening of the national stock portfolio. Second, cross-sectionally, richer countries will tend to hold greener portfolios. … Finally, we find that investors in richer countries have a lower propensity to divest from browner firms that are included in the MSCI World index, which does not consider firms’ carbon intensities” (p. 31/32). My comment: Most (institutional) investors use benchmarks. Green benchmarks should be used more often to foster transition (regarding benchmark selection compare Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds? (prof-soehnholz.com).

ESG ETF dispersion: From ESG Confusion to Return Dispersion: Fund Selection Risk is a Material Issue for ESG Investors by Giovanni Bruno and Felix Goltz from Scientific Beta as of Feb. 22nd, 2024: “… we construct a dataset of Sustainable ETFs – passive ETFs that have explicit ESG objectives. … Overall, our results indicate that ESG investors face a large fund selection risk. Over the full sample dispersion is 6.5% (4.9%) in terms of annualised CAPM Alpha (Industry Adjusted Returns), and it can reach 22.5% (25.3%) over single calendar years. We also show that past performance and tracking error do not contain useful information on future performance. … dispersion in performance allows ETF providers to always present investors some strategy that has recently outperformed“ (p. 31). My comment: It would be nice to have more details in the research article regarding conceptual differences e.g. between ESG Leader, Transition and SRI indics/ETFs, see e.g. Verantwortungsvolle Investments im Vergleich: SRI ETFs sind besser als ESG ETFs (prof-soehnholz.com) from 2018

Good ESG ETFs: Unraveling the Potential: A Comprehensive Analysis of ESG ETFs in Diversified Portfolios across European and U.S. Markets by Andrea Martínez-Salgueiro as of Feb. 15th, 2024 (#10): “… results indicate substantial benefits of ESG ETFs in Europe and notable hedge, diversification, and safe-haven potential in the U.S. Simulated data further demonstrate ESG portfolios‘ outperformance, especially in Europe, highlighting the risk-return tradeoff” (abstract).

Responsible fees: Responsible Investment Funds Build Consistent Market Presence by Jordan Doyle as of Feb. 21st, 2024: “… during the study period from 31 December 2012 to 31 December 2022. Total net assets for “responsible investments” as defined by Lipper increased by a factor of 2.7×, from $2,215.6 billion in 2012 to $5,974.6 billion in 2022. The market share of responsible investment funds remained relatively constant during the same period, increasing from 14.2% in 2012 to 15.4% in 2022. … Retail ownership dominates institutional ownership of responsible investment funds globally. In the United States, however, institutional assets surpassed retail assets in 2018, indicating a relative shift in demand preferences. … they both invest more assets into negative screening funds than any other type of responsible investment strategy …fund fees of responsible investing funds are largely in line with those of non-responsible investment fund fees in the United States. In Europe, however, responsible investment fund fees tend to be lower than non-responsible investment fund fees“ ( p. 3).

Unsustainable institutions? Sustainable Finance Disclosure Regulation: voluntary signaling or mandatory disclosure? by Lara Spaans, Jeroen Derwall, Joop Huij, and Kees Koedijk as of Feb. 19th, 2024 (#38): “… we point out that (i) the SFDR similarly to voluntary disclosure enables funds to signal their sustainability commitments to the market, while (ii) like mandatory disclosure, requires these funds to be transparent about the sustainability outcomes of their underlying portfolio … we show that investors indeed respond to the Article signals, but that this effect is driven by retail investors. … we see that mutual funds that take on an Article 8(/9) label after the SFDR announcement improve their sustainability outcomes compared to Article 6 funds. Specifically, we note that retail funds behave in accordance with their signal, while for institutional funds we do not find that Article 8(/9) funds behave differently from Article 6 funds. We disregard the hypothesis that these institutional funds partake in ‘window-dressing’, instead we find evidence that mandatory disclosure induces European institutional funds to significantly improve their sustainability outcomes compared to untreated, US-domiciled institutional funds“ (p. 32). My comment: For my Article 9 (global smallcap fund) see www.futurevest.fund and My fund (prof-soehnholz.com).

Less greenwashing: Do US Active Mutual Funds Make Good of Their ESG Promises? Evidence from Portfolio Holdings by Massimo Guidolin and Monia Magnani as of Feb. 23rd, 2024 (#22): “… our findings indicate a distinct shift towards greater sustainability within the mutual equity fund industry. Notably, this trend is not exclusive to self-labelled ESG funds; all types of funds have enhanced their ESG ratings and reduced their investments in sin stocks. The number of self-labelled ESG funds has continued to rise in recent years, and importantly, most of these ESG funds, on average, appear to genuinely adhere to their claims of prioritizing sustainable investing. Consequently, they demonstrate significantly higher actual ESG scores in their portfolio holdings. Moreover, we are witnessing a noticeable reduction in sin stocks within their portfolios“ (p. 34).

SDG- aligned and impact investment research

Sustainable returns: Labeled Bonds: Quarterly Market Overview Q4 2023 by Jakub Malich and Anett Husi from MSCI Research as of Feb. 21st, 2024:  Green, social, sustainability and sustainability-linked “Labeled-bond issuance reached a similar level in 2023 as in 2022, which was notably below the peak issuance of 2021. … The market continued to grow both in size and diversity, as hundreds of new and recurring corporate and government-related issuers brought labeled bonds to the market. … Most newly issued and outstanding labeled bonds were investment-grade and issued by ESG leaders … the performance of labeled bonds, despite their distinctions from conventional bonds, was primarily driven by key fixed-income risk and return drivers, such as interest-rate sensitivity, currency fluctuations and credit risk“ (p. 18). … “Corporate issuers led issuance in the fourth quarter, with USD 75 billion worth of labeled bonds (63% of the total), while supranational, sovereign and agency (SSA) entities issued USD 44 billion (37%). This continues a shift in the labeled-bond market, with corporate issuers taking a more central role” (p. 4).

Index impact: The Impact of Climate Engagement: A Field Experiment by Florian Heeb and  Julian F. Kölbel as of Feb. 6th, 2024 (#361): “A randomly chosen group of 300 out of 1227 international companies received a letter from an index provider, encouraging the company to commit to setting a science-based climate target to remain included in its climate transition benchmark indices. After one year, we observed a significant effect: 21.0% of treated companies have committed, vs. 15.7% in the control group. This suggests that engagement by financial institutions can affect corporate policies when a feasible request is combined with a credible threat of exit” (abstract). My comment: It would be interesting to know the assets of the funds threatening to divest (index funds are often large). Hopefully, this type of shareholder engagement also works for active (and small) asset managers. Further shareholder engagement research see e.g. Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

ESG nudging: Optimistic framing increases responsible investment of investment professionals by Dan Daugaard, Danielle Kent, Maroš Servátka, and Lyla Zhang as of Jan. 1zh, 2024 (#33): “… we report insights from an incentivized online experiment with investment professionals … The analyzed sample consists of individuals who stated their intention to increase their investment in ESG within the next 10 years … We demonstrate that framing divestment decisions in a more optimistic orientation, with an emphasis on the transitory nature of costs and the permanency of future benefits, significantly increases responsible investment by 3.6%. With total professionally managed assets valued at USD $98.4 trillion globally, a comparable effect size would represent a USD $3.6 trillion shift in asset allocations” (p. 12).

Other investment research (in: „Biodiversity diversion“)

Gender differences: The Gender Investment Gap: Reasons and Consequences by Alexandra Niessen-Ruenzi and Leah Zimmerer as of Jan. 27th, 2024 (#31): „ Women, compared to men, report larger financial constraints, higher risk aversion, perceived stress in financial matters, and lower trust in financial institutions. As a result, women save and invest less consistently than men. Conditional on investing, women use fewer financial products, particularly in equity investments. We find a significant gender gap in stock market participation, with 17.6% of women and 32.3% of men investing. The motives and barriers influencing stock market participation also diverge, with men leaning towards short-term gains and the thrill of investing, while women commonly cite unfamiliarity with stocks and fear of potential losses as primary reasons for non-participation” (abstract).

New performance indicator: Maximum Cumulative Underperformance: A New Metric for Active Performance Management by Kevin Khang and Marvin Ertl from The Vanguard Group as of Jan. 18th, 2024 (#29): “… we define maximum cumulative underperformance (MaxCU)—the maximum underperformance of an active fund relative to the benchmark … The greater the benchmark return environment and the longer the investment horizon, the greater MaxCU investors should expect … Ex-ante, our framework can be used to articulate the investor’s tolerance for underperformance relative to the benchmark and inform the final active allocation decision at the outset. Ex-post, our framework can be used to set the base rate for terminating a manager who has suffered a sizeable underperformance“ (p. 19/20). My comment: Useful concept, but benchmark selection is very important for this approach. For the latter problem see e.g. Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds? (prof-soehnholz.com)

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Sponsor my research by investing in and/or recommending my global small cap mutual fund (SFDR Art. 9). The fund focuses on the Sustainable Development Goals and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or My fund (prof-soehnholz.com).

Shareholder engagement strategies illustration shows 4 such strategies

Shareholder engagement options: Researchpost #161

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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2023: Bild von Gerd Altmann von Pixabay

2023: Passive Allokation und ESG gut, SDG nicht gut

2023: Vereinfacht zusammengefasst haben meine Portfolioregeln in 2023 diese Wirkung gehabt: Passive Allokation und ESG gut, SDG schlecht und Trendfolge sehr schlecht…. Im Jahr 2022 hatten dagegen besonders meine Trendfolge und SDG-Portfolios gut rentiert (vgl. SDG und Trendfolge: Relativ gut in 2022).

Passives Allokations-Weltmarktportfolio 2023 mit guter Rendite

Das nicht-nachhaltige Alternatives ETF-Portfolio hat in 2023 mit 7,2% rentiert, also deutlich schlechter als Aktien insgesamt mit ca. 17%. Das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio hat mit +9,9% trotz seines hohen Anteils an Alternatives dagegen relativ gut abgeschnitten, denn die Performance ist sogar etwas besser als die flexibler aktiver Mischfonds (+8,2%).

Das  Alternatives-ETF Portfolio (Start 2016) wird künftig nicht mehr aktiv angeboten (vgl. Alternatives: Thematic replace alternative investments (prof-soehnholz.com)). Damit ist künftig das Weltmarkt ETF-Portfolio (Start 2016) das einzige verbleibende traditionelle Portfolio im Angebot.

ESG ETF-Portfolios OK

Eine vergleichbare Performance gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +9%. Das ESG ETF-Portfolio ex Bonds lag dagegen mit +12,8% aufgrund des hohen Alternatives- und geringen Tech-Anteils erheblich hinter traditionellen Aktien-ETFs. Die Rendite ist aber ganz ähnlich wie die +12,1% traditioneller aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnete ein geringeres Plus von +9,1%. Das ist etwas schlechter als die +9,8% traditioneller Dividendenfonds.

Mit +0,8% schnitt das ESG ETF-Portfolio Bonds (EUR) ähnlich wie die +1,5% für vergleichbare traditionelle Anleihe-ETFs ab. Aktive Fonds haben jedoch +4,6% erreicht. Anders als in 2022, hat meine Trendfolge mit -1,8% für das ESG ETF-Portfolio ex Bonds Trend aber nicht gut funktioniert.

SDG ETF-Portfolio: 2023 naja

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit +2,6% stark hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -10% eine sehr schlechte Performance. Für thematische Investments mit ökologischem Fokus lief es allerdings in 2023 generell nicht so gut.

Um das Portfolioangebot zu straffen, werden künftig nur noch 4 ESG ETF-Portfolios aktiv angeboten: Multi-Asset (Start 2016), Aktien, renditeorientierte Anleihen und sicherheitsorientierte Anleihen (alle Start 2019). Hinzu kommen, wie gehabt, die beiden SDG ETF-Portfolios (Start 2019 und 2020).

Direkte pure ESG-Aktienportfolios OK

Das aus 30 Aktien bestehende Global Equities ESG Portfolio hat +14,6% gemacht und liegt damit besser als traditionelle aktive Fonds (+12,1%) aber hinter traditionellen Aktien-ETFs, was vor allem an den im Portfolio nicht vorhandenen Mega-Techs lag. Das nur aus 5 Titeln bestehende Global Equities ESG Portfolio S war mit +8,9% etwas schlechter, liegt aber seit dem Start in 2017 immer noch vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat -5,1% verloren und liegt damit erheblich hinter den +0,8% traditioneller Infrastrukturfonds und den +9,2% eines traditionellen Infrastruktur-ETFs. Das Real Estate ESG Portfolio hat +7,2% gewonnen, während traditionelle globale Immobilienaktien-ETFs +6,9% und aktiv gemanagte Fonds +7,9% gewonnen haben. Das Deutsche Aktien ESG Portfolio hat +6,7% zugelegt. Das wiederum liegt erheblich hinter aktiv gemanagten traditionellen Fonds mit +15,1% und nennenswert hinter vergleichbaren ETFs mit +16,2%.

Direkte ESG plus SDG-Aktienportfolios: Nicht so gut

Das auf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -0,7% im Vergleich zu allgemeinen Aktienfonds sehr schlecht abgeschnitten. Das ist vor allem auf den hohen Gesundheitsanteil zurückzuführen. Das Global Equities ESG SDG Trend Portfolio hat mit -8,4% – wie die anderen Trendfolgeportfolios – besonders schlecht abgeschnitten. Das Global Equities ESG SDG Social Portfolio hat dagegen mit +10,4% im Vergleich zum Beispiel zu Gesundheits-ETFs bzw. aktiven Fonds (-0,6 bzw. -1,0%) dagegen ziemlich gut abgeschnitten.

Aufgrund mangelnder Nachfrage werden die direkten ESG-Aktienportfolios für globale Aktien, deutsche Aktien, Infrastrukturaktien und Immobilienaktien (alle Start 2016 und 2017) künftig nicht mehr aktiv angeboten, sondern nur noch die ESG + SDG-Aktienportfolios (Start 2017 und 2022).

Fondsperformance: Nicht so gut

Mein FutureVest Equity Sustainable Development Goals R Fonds (Start 2021) zeigt nach einem im Vergleich zu anderen Portfolios sehr guten Jahr 2022 (-8,1%) in 2023 mit +0,5% eine starke Underperformance gegenüber traditionellen Aktienmärkten. Das liegt vor allem an der Branchenzusammensetzung des Portfolios mit Fokus auf Gesundheit und an den relativ hohen nachhaltigen Infrastruktur- und Immobilienanteilen (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T). Hinzu kommt, dass die sogenannten Glorreichen 7 bewusst in keinem meiner direkten Portfolios enthalten sind (vgl. Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)). Dafür sind das letzte Quartal 2023 mit +9,4% und vor allem der Dezember mit +9,0% besonders gut gelaufen.

Anmerkungen: Die Performancedetails siehe www.soehnholzesg.com und zu allen Regeln und Portfolios siehe Das Soehnholz ESG und SDG Portfoliobuch. Benchmarkdaten: Eigene Berechnungen u.a. auf Basis von www.morningstar.de

Sustainable investment: Picture by Peggy and Marco-Lachmann-Anke from Pixabay

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. 30th, 2023. Initial version translated by Deepl.com

Sustainable investment: Picture by Peggy and Marco-Lachmann-Anke from Pixabay

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

Biodiversity risk illustration with Marine Life picture fom Pixabay

Biodiversity risk: Researchpost #153

Biodiversity risk: 10x new (critical) research on ESG ETF and net-zero, sustainability-linked bonds, lifecycle and thematic investments, altruism and stablecoins

Biodiversity risk research

Broad biodiversity risk: Living in a world of disappearing nature: physical risk and the implications for financial stability by Simone Boldrini, Andrej Ceglar, Chiara Lelli, Laura Parisi, and Irene Heemskerk from the European Central Bank as of Nov. 14th, 2023 (#23): “Of the 4.2 million euro area NFCs (Sö: Non-financial corporations) that were included in our research, around 3 million are highly dependent on at least one ecosystem service. … approximately 75% of euro area banks’ corporate loans to NFCs (nearly €3.24 trillion) are highly dependent on at least one ecosystem service. … we have enough data and knowledge available to enable timely and nature-friendly decision-making” (p. 38).

Biodiversity risk reduction? How could the financial sector contribute to limiting biodiversity loss? A systematic review by Lisa Junge, Yu-Shan Lin Feuer, and Remmer Sassen as of Feb. 7th, 2023 (#109) “the currently available scientific discourse is also not unanimous about the status of biodiversity in finance. Therefore, this paper aims to synthesise existing publications to gain transparency about the topic, conducting a systematic review. Three main concepts emerge about how the private finance sector can aid in halting biodiversity loss, namely: (1) by increasing awareness of biodiversity, (2) by seizing biodiversity-related business opportunities, and (3) by enlarging biodiversity visibility through reporting. Overall, we assume that the private finance sector upholds a great leverage power in becoming a co-agent of positive biodiversity change”(abstract).

Responsible investment research (Biodiversity risk)

Blackrock-problem? Fossil-washing? The fossil fuel investment of ESG funds by Alain Naef from Banque de France as of Nov. 16th, 2023 (#19): “… I analysed all the large equity Exchange Traded Funds (ETFs) labelled as ESG available at the two largest investors in the world: Blackrock and Vanguard. For Blackrock, out of 82 funds analysed, only 9% did not invest in fossil fuel companies. Blackrock ESG funds include investments in Saudi Aramco, Gazprom or Shell. But they exclude ExxonMobil or BP. This suggests a best-in-class approach by the fund manager, picking only certain fossil fuel companies that they see as generating less harm. But it is unclear what the criteria used are. For Vanguard, funds listed as ESG did not contain fossil fuel investment. Yet this needs to be nuanced as information provided by Vanguard on investments is less transparent and Vanguard offers fewer ESG funds” (abstract). My comment: For my ESG and SDG ETF-selection I use demanding responsibility criteria and more so for my direct equity portfolios, see the newly updated Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com)

Listed equity climate deficits: The MSCI Net-Zero Tracker November 2023 – A guide to progress by listed companies toward global climate goals from the MSCI Sustainability Institute as of November 2023: “Listed companies are likely to put 12.4 gigatons (Gt) of GHG emissions into the atmosphere this year, up 11% from 2022. … global emissions are on track reach 60.6 Gt this year, up 0.3% from 2022. … Domestic emissions in eight emerging-market G20 countries examined rose by an average of 1.2% per year over the period, while emissions of listed companies in those markets climbed 3.2% annually. … Just over (22%) of listed companies align with a 1.5°C pathway, as of Aug. 31, 2023 … Listed companies are on a path to warm the planet 2.5°C above preindustrial levels this century … More than one-third (34%) of listed companies have set a climate target that aspires to reach net-zero, up from 23% two years earlier. Nearly one-fifth (19%) of listed companies have published a science-based net-zero target that covers all financially relevant Scope 3 emissions, up from 6% over the same period” (page 6/7).

ESG or cash flow? Does Sustainable Investing Make Stocks Less Sensitive to Information about Cash Flows? by Steffen Hitzemann, An Qin, Stanislav Sokolinski, and Andrea Tamoni as of Oct. 30th, 2023 (#56): “Traditional finance theory asserts that stock prices depend on expected future cash flows. … Using the setting of earnings announcements, we find that sustainable investing diminishes stock price sensitivity to earnings news by 45%-58%. This decline in announcement-day returns is mirrored by a comparable drop in trading volume. This effect persists beyond the immediate announcement period, implying a lasting alteration in price formation rather than a short-lived mispricing“ (abstract).

Similar calls: SLBs: no cal(l)amity by Kamesh Korangi and Ulf Erlandsson as of Nov. 16th, 2023 (#13): A common criticism of sustainability-linked bonds (SLBs) has been around callability, where it is sometimes suggested that bond issuers are pushing this feature into bond structures to wriggle out of sustainability commitments. … Our analysis finds scant quantitative evidence to support this critique. Overall, when comparing SLBs with similar non-SLB issuances, we observe little ‘excess’ callability in SLBs. The key to this result is to control for sectors, ratings and issue age when comparing SLBs with the much larger market of traditional bonds” (p. 1).

Other investment research

100% Equity! Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice by Aizhan Anarkulova, Scott Cederburg and Michael S. O’Doherty as of Nov.1st, 2023 (#950): “We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests. These findings are based on a lifecycle model that features dynamic processes for labor earnings, Social Security benefits, and mortality and captures the salient time-series and cross-sectional properties of long-horizon asset class returns” (abstract).

Lemming investors? The Big Shortfall? Thematic investors lose lion’s share of returns due to poor timing by Kenneth Lamont and Matias Möttölä from Morningstar as of Nov. 15th, 2023 : “While thematic funds‘ average total return was 7.3% annualized over the five-year period through June 30, 2023, investors earned only a 2.4% return when the impact of cash inflows and outflows is considered. … Investors lost more value in focused funds such as those tracking Technology or Physical World broad themes compared with more diversified Broad Thematic peers. Return gaps were far wider in exchange-traded funds than in thematic mutual funds. ETFs tend to offer more concentrated bets and lend themselves to tactical usage. The largest return shortfalls occur across highly targeted funds, which posted eye-catching performance, attracting large net inflows before suffering a change of fortune“ (p. 1). My comment: My approach to thematic investments see e.g. Alternatives: Thematic replace alternative investments (prof-soehnholz.com)

Risk-loving altruists? Can Altruism Lead to a Willingness to Take Risks? by Oded Shark as of Mov. 7th, 2023 (#7): “I show that an altruistic person who is an active donor (benefactor) is less risk averse than a comparable person who is not altruistic: altruism is a cause of greater willingness to take risks” (abstract). … “The lower risk aversion of an altruistic person … might encourage him to pursue risky ventures which could contribute to economic growth and social welfare” (p. 7).

Unstable coins? Runs and Flights to Safety: Are Stablecoins the New Money Market Funds? by Kenechukwu Anadu et al. from the Federal Reserve Bank of Boston as of Oct. 9th, 2023 (#743): “… flight-to-safety dynamics in money market funds have been extensively documented in the literature—with money flowing from the riskier prime segment of the industry to the safer government segment … flight-to-safety dynamics in stablecoins resemble those in the MMF industry. During periods of stress in crypto markets, safer stablecoins experience net inflows, while riskier ones suffer net outflows. … we estimate that when a stablecoin’s price hits a threshold of 99 cents (that is, a price drop of 100 basis points relative to its $1 peg), investor redemptions accelerate significantly, in a way that is reminiscent of MMFs’ “breaking the buck … Should stablecoins continue to grow and become more interconnected with key financial markets, such as short-term funding markets, they could become a source of financial instability for the broader financial system” (p. 33).

Liquid impact advert for German investors

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 23 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)