Archiv der Kategorie: Immobilien

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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Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

Diversification myths: Picture shows reduction of sustainability for more diversified portfolios

Diversification myths: Researchpost #159

Diversification myths: 14x new research on ESG and consumption, ESG data, ESG washing, ESG returns, climate risks, voting, divestments, diversification myths, anomalies, trend following, real estate and private equity (# shows number of full paper downloads as of Jan. 18th, 2024)

Social and ecological research

Low ESG-consumption effect: How Do Consumers Use Firm Disclosure? Evidence from a Randomized Field Experiment by Sinja Leonelli, Maximilian Muhn, Thomas Rauter, and Gurpal Sran as of Jan. 11th, 2024 (#79): “In a sample of more than 24,000 U.S. households, we first establish several stylized facts: (i) the average consumer has a moderate preference to purchase from ESG-responsible firms; (ii) consumers typically have no preference for more or less profitable firms; (iii) consumers rarely consult ESG reports and virtually never use financial reports to inform their purchase decisions. … Consumers increase their purchase intent when exogenously presented with firm-disclosed positive signals about environmental, social, and—to a lesser extent—governance activities. Full ESG reports only have an impact on consumers who choose to view them, whereas financial reports and earnings information do not have an effect. After the experiment, consumers increase their actual product purchases, but these effects are small, short-lived, and only materialize for viewed ESG reports and positive social signals. … we provide explanations for why consumers (do not) change their shopping behavior after our information experiment“ (abstract).

ESG investment research (Diversification myths)

ESG data criticism: ESG Data Primer: Current Usage & Future Applications by Tifanny Hendratama, David C. Broadstock, and Johan Sulaeman as of Jan. 12th, 2024 (#66): “ESG data is important, and will become even more so as time progresses. … There remains a prevalent use of combined ESG scores instead of E, S and G specific pillar scores; The use of combined ESG, and pillar specific scores may themselves detract focus away from crucial underlying raw data; Empirical research depends heavily on a small number of ESG data providers; That some data providers focus more on the E than the S – creating a need for data users to make sure the scoring ethos of each provider aligns with their expectations and requirements; There is a potentially material quantity of ESG data inconsistencies which could result in unintended investment allocation” (p. iv). My comment: I use segregated E, S and G ratings since many years and best-in-universe instead of best-in-class ratings

Costly washing: ESG washing: when cheap talk is not cheap! by Najah Attig and Abdlmutaleb Boshanna as of Dec. 26th, 2023 (#63): “… we introduce an easily replicable ESG washing measure. We then document a robust negative impact of ESG washing on corporate financial performance … we show that the COVID-19 pandemic incentivized firms to engage in increased overselling of their ESG performance. Taken together, our new evidence suggests that ‚cheap talk is not cheap‘ and the misalignment between ‘ESG talk’ and ‘ESG walk’ not only fails to serve shareholders‘ best interests but may also undermine a firm’s social license to operate” (abstract).

Disclosure or performance? The relation between environmental performance and environmental disclosure: A critical review of the performance measures used by Thomas Thijssens as of Jan. 9th, 2024 (#8): “More extensive disclosures may even be a signal for inferior rather than superior performance in terms of actual environmental impact. This suggestion is fueled by the observations that more polluting industries have on average more extensive ED (Sö: Environmental disclosure) and higher environmental commitment is associated with higher GHG emissions“ (p. 18). My comment: Most other studies known to me show – in general – positive effects of more disclosure

Performance-neutral ESG: Drawing Up the Bill: Is ESG Related to Stock Returns Around the World? by Rómulo Alves, Philipp Krüger, and Mathijs van Dijk as of Jan. 13th, 2024 (#47): “… our analysis of a comprehensive global database (including 16,000+ stocks in 48 countries and seven different ESG rating providers over 2001-2020) uncovers very little evidence that ESG ratings are related to stock returns around the world. … thus it has been possible to “do good without doing poorly.” Our findings also suggest that the prices of strong ESG stocks have not consistently been driven up, and that, going forward, ESG investors could potentially still benefit from any demand effects resulting in the pricing of ESG preferences. On the flip side, our analysis implies that ESG investing has so far not been effective in reducing (increasing) the cost of equity capital of strong (poor) ESG firms, which could lead firms to internalize climate and social externalities (Fama 2021, Pástor et al. 2021)“ (p. 14). My comment: I could not agree more for the small and midcap companies on which I focus

Huge climate risks: How climate stress test may underestimate financial losses from physical climate risks by a factor of 2-3x by Jakob Thomä from 1 in 1000 and Theia Finance Labs as of Dec. 1st, 2023: “A high baseline climate risk (i.e. using a climate stress-test model with meaningful baseline GDP losses over the next 30 years) stress-test scenario can create a 10% shock to global equity markets. A combination of climate tipping points, ecosystem decline, and social risks can increase that number as a cumulative risk to 27%, almost 3x the baseline losses. A low baseline scenario of a 4% shock in turn turns into a 14% shock when considering these other factors. These losses are dramatic as they are secular and not cyclical. It is worth flagging that this event would be unprecedented in modern financial market history“ (p. 4). My comment: Thanks to Bernd Spendig for informing me about this study.

Climate risk aversion: Institutionelle Investor:innen und physische Klimarisiken vom Lehrstuhl für Sustainable Finance, Universität Kassel as of September Dec. 17th, 2023: “Approximately 40 percent of the surveyed institutions do not take physical climate risks into account when valuing corporate bonds. In addition, a majority of respondents who already take physical climate risks into account are unsure whether these risks are adequately taken into account. In this regard, Part II reveals that 80% of the surveyed institutional investors believe that physical climate risks are not adequately reflected in the risk premiums of corporate bonds” (abstract).

Impact investing research

Voting deficits: Voting matters 2023 by Abhijay Sood at al from Share Action as of Jan. 11th, 2024: “In 2023, only 3% of assessed resolutions passed, just eight out of 257 resolutions. This is down from 21% of assessed resolutions in 2021 … In 2023, the ‘big four’ (BlackRock, Vanguard, Fidelity Investments, and State Street Global Advisors) only supported – on average – one eighth of those put forward, a marked drop since 2021 … Eight asset managers with public net zero targets supported fewer than half of all climate resolutions … Three quarters of all shareholder proposals covered in our study asked only for greater corporate disclosure, including those which some asset managers have deemed overly “prescriptive”. The other quarter of resolutions ask for movement in line with globally agreed climate goals or international human rights standards. … Resolutions at financial services companies on fossil fuel financing received the lowest support by asset managers of any climate-related topic” (p. 8-10). My comment: I focus more on direct dialogue (engagement) than voting, see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Divestment myths: Beyond Divestment by David Whyte as of Jan. 16th, 2024 (#11): “The top 20 shareholders in both BP and Shell have increased their total number of shares by three quarters of a billion in BP, and half a billion in Shell since the Paris Agreement was signed in 2015. Indeed, although 47% of BP shareholders and 54% of Shell shareholders have reduced their stake, net share ownership overall has risen significantly in both companies. … more than a quarter of the 20 investors who made the most significant reductions in shareholdings in either BP or Shell increased their overall fossil fuel investment. … only 60 institutional investors have sold all of their shares in the two oil firms. This represents 3% of BP and 4% of Shell shareholders“ (abstract).

Other investment research (Diversification myths)

Diversification myths: Diversification Is Not A Free Lunch by Dirk G. Baur as of Jan. 3rd, 2024 (#56): “We … demonstrate that diversification generally comes at a cost through lower returns and is thus not a free lunch. While the risk of diversified portfolios is clearly lower than that of less diversified or undiversified portfolios, the return is generally also lower. There is only one exception. If the investor is ignorant and picks stocks randomly, diversification is a free lunch. … if diversification is a free lunch, it would violate the fundamental positive risk – return relationship in finance. Specifically, if risk can be reduced without a cost, risk and return are not positively aligned” (p.15). My comment: Even for randomly picked stocks the marginal gains of diversification are very low (see p. 11) whereas the reductions in sustainability – which are not covered in this paper – can be high, see 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (prof-soehnholz.com)

Normal anomalies: Anomalies Never Disappeared: The Case of Stubborn Retail Investors by Xi Dong and Cathy Yang as of Dec. 29th, 2023 (#56): “Our examination of 260 anomalies challenges the prevailing notion that market efficiency erodes anomaly-based profits, these anomalies continue to thrive, especially over longer timeframes. We demonstrate that retail investors play a pivotal role in the persistence of these anomalies. Their stubborn trading patterns, especially against anomalies, not only contribute to initial mispricing but also lead to delayed price corrections“ (p. 37).

Trend following theory: Speculating on Higher Order Beliefs by Paul Schmidt-Engelbertz and Kaushik Vasudevan as of Aug.3rd, 2023 (#187): “We study investors’ higher order beliefs, using survey data from the Robert Shiller Investor Confidence surveys. While previous work has documented instances of non-fundamental speculation – investors taking positions in a risky asset in a direction that conflicts with their fundamental views – we find that such speculation is the norm for the U.S. stock market. The majority of investors in the Shiller surveys, who represent an important class of investors, report that other investors have mistaken beliefs, but nevertheless report positive return expectations from speculating in the direction of these mistaken beliefs. In addition, investors report that they believe that stock markets overreact and exhibit momentum and reversal in response to news. … We find that higher order beliefs may substantially amplify stock market fluctuations. When investors exhibit the same fundamental belief biases that they attribute to other investors, patterns such as overreaction, momentum, and reversal can persist in equilibrium, even though everybody knows about them“ (p. 37/38). My comment: I use simple trend following strategies to reduce drawdown-risks for investors who do not like bond investments but not to try to enhance returns

US Real Estate: A First Look at the Historical Performance of the New NAV REITs by Spencer J. Couts and Andrei S. Goncalves as of Jan.12th, 2024 (#31): “…we study the historical investment performance of NAV REITs relative to public bonds, public equities, and public REITs from 2016 to 2023. … First, the smoothness of NAV REIT returns due to lagged price reactions creates an important challenge to the measurement of the alphas of NAV REIT investments relative to public market indices. Moreover, return unsmoothing methods significantly mitigate (but do not fully solve) this issue. Second, traditional performance analysis indicates that NAV REIT investments generated substantial alpha (above 5% per year) relative to public indices over our sample period“ (p. 26).

PE calculation-uncertainties: Unpacking Private Equity Performance by Gregory Brown and William Volckmann as of Dec. 20th., 2023 (#31): “… complicating the analysis are the increasingly common practices of funds using subscription lines of credit (fund-level debt) and recycling capital. Even the variation in the timing of capital deployment across funds has important implications for common performance measures used to evaluate funds such as internal rate of return (IRR) and multiple on invested capital (MOIC). …. values likely observed during fundraising periods for subsequent funds – are strongly affected by subscription lines and deployment pacing. Intermediate MOICs are only weakly affected by subscription lines, but strongly affected by capital deployment pacing. Both IRRs and MOICs are strongly affected by recycle deal accounting methodology“ (abstract). “When a fund utilizes subscription lines, net IRR is very sensitive over the life cycle of the fund and can massively exaggerate performance during the investment/fundraising period. Net MOIC can also be exaggerated early in the investment period …” (p. 17).

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Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 25 of 29 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

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

Skilled fund managers: illustrated with woman by Gerd Altman from Pixabay

Skilled fund managers – Researchpost #155

Skilled fund managers: 22x new research on skyscrapers, cryptos, ESG-HR, regulation, ratings, fund names, AI ESG Tools, carbon credits and accounting, impact funds, voting, Chat GPT, listed real estate, and fintechs (# shows the SSRN full paper downloads as of Dec. 7th, 2023):

Social and ecological research

Skyscaper impact: The Skyscraper Revolution: Global Economic Development and Land Savings by Gabriel M. Ahlfeldt, Nathaniel Baum-Snow, and Remi Jedwab as of Nov. 30th, 2023 (#20): “Our comprehensive examination of 12,877 cities worldwide from 1975 to 2015 reveals that the construction of tall buildings driven by reductions in the costs of height has allowed cities to accommodate greater populations on less land. … one-third of the aggregate population in cities of over 2 million people in the developing world, and 20% for all cities, is now accommodated because of the tall buildings constructed in these cities since 1975. Moreover, the largest cities would cover almost 30% more land without these buildings, and almost 20% across all cities. …. Given the gap between actual and potential building heights we calculate for each city in our data, only about one-quarter of the potential welfare gains and land value losses from heights have been realized, with per-capita welfare gains of 5.9% and 3.1% available by eliminating height regulations in developed and developing economies, respectively. As the cost of building tall structures decreases with technical progress, such potential for welfare gains will only increase into the future. … in most cities it is in landowners’ interest to maintain regulatory regimes that limit tall building construction, … benefits may be greatest for those who would move into the city with the new construction to take advantage of the higher real wages and lower commuting costs“ (p. 47).

Hot cryptos: Cryptocarbon: How Much Is the Corrective Tax? by Shafik Hebous and Nate Vernon from the International Monetary Fund as of Nov. 28th, 2023 (#14): “We estimate that the global demand for electricity by crypto miners reached that of Australia or Spain, resulting in 0.33% of global CO2 emissions in 2022. Projections suggest sustained future electricity demand and indicate further increases in CO2 emissions if crypto prices significantly increase and the energy efficiency of mining hardware is low. To address global warming, we estimate the corrective excise on the electricity used by crypto miners to be USD 0.045 per kWh, on average. Considering also air pollution costs raises the tax to USD 0.087 per kWh“ (abstract).  

ESG attracts employees: Polarizing Corporations: Does Talent Flow to “Good’’ Firms? by Emanuele Colonnelli, Timothy McQuade, Gabriel Ramos, Thomas Rauter, and Olivia Xiong as of Nov. 30th, 2023 (#48): “Using Brazil as our setting, we make two primary contributions. First, in partnership with Brazil’s premier job platform, we design a nondeceptive incentivized field experiment to estimate job-seekers’ preferences to work for socially responsible firms. We find that, on average, job-seekers place a value on ESG signals equivalent to about 10% of the average wage. … Quantitatively, skilled workers value firm ESG activities substantially more than unskilled workers. … results indicate that ESG increases worker utility relative to the baseline economy without ESG. The reallocation of labor in the economy with ESG improves assortative matching and yields an increase in total output. Moreover, skilled workers benefit the most from the introduction of ESG, ultimately increasing wage differentials between skilled and unskilled workers“ (p. 32). My comment: see HR-ESG shareholder engagement: Opinion-Post #210 – Responsible Investment Research Blog (prof-soehnholz.com)

Always greenwashing: Can Investors Curb Greenwashing? Fanny Cartellier, Peter Tankov, and Olivier David Zerbib as of Dec. 1st, 2023 (#40): “… we show that companies greenwash all the time as long as the environmental score is not too high relative to the company’s fundamental environmental value. The tolerable deviation increases with investors’ pro-environmental preferences and decreases with their penalization. Moreover, the greenwashing effort is all the more pronounced the higher the pro-environmental preferences, the lower the disclosure intensity, and the lower the marginal unit cost of greenwashing. In particular, we show that beyond a certain horizon, on average, companies always greenwash“ (p. 31).

Insufficient ESG regulation? ESG Demand-Side Regulation – Governing the Shareholders by Thilo Kuntz as of Nov. 30th, 2023 (#45): “Instead of addressing the corporate board and its international equivalents as a supplier of ESG-friendly management, demand-side regulation targets investors and shareholders. It comes in two basic flavors, indirect and direct demand-side regulation. Whereas the first attempts to let only those retail investors become stockholders or fund members who already espouse the correct beliefs and attitudes, the latter pushes professional market participants towards ESG through a double commitment, that is, to the public at large via disclosure and to individual investors through pre-contractual information. .. Judging from extant empirical studies, indirect demand-side regulation in its current form will change the equation only slightly. … for most retail investors, including adherents to ESG, .. beliefs and attitudes seem to lie more on the side of monetary gains“ (p. 49/50).

Big bank climate deficits: An examination of net-zero commitments by the world’s largest banks by Carlo Di Maio, Maria Dimitropoulou, Zoe Lola Farkas, Sem Houben, Georgia Lialiouti, Katharina Plavec, Raphaël Poignet, Eline Elisabeth, and Maria Verhoeff from the European Central Bank as of Nov. 29th, 2023 (#25): “We examined the net-zero commitments made by Global Systemically Important Banks (G-SIBs). In recent years, large banks have significantly increased their ambition and now disclose more details regarding their net-zero targets. … The paper … identifies and discusses a number of observations, such as the significant differences in sectoral targets used despite many banks sharing the same goal, the widespread use of caveats, the missing clarity regarding exposures to carbon-intensive sectors, the lack of clarity of “green financing” goals, and the reliance on carbon offsets by some institutions. The identified issues may impact banks’ reputation and litigation risk and risk management” (abstract).

ESG investment research (Skilled fund managers)

Good fund classification: Identifying Funds’ Sustainability Goals with AI: Financial, Categorical Morality, and Impact by Keer Yang and Ayako Yasuda as of Nov. 30ths, 2023 (#23): “… developing a supervised machine-learning model-based method that classifies investment managers’ stated goals on sustainability into three distinct objectives: financial value, categorical morality, and impact. This is achieved by evaluating two dimensions of investor preferences: (i) whether investors have nonpecuniary preferences or not (value vs. values) and (ii) whether investors have ex ante, categorical moral preferences or ex post, consequentialist impact preferences. … Among the funds identified as sustainable by Morningstar, 54% state they incorporate ESG to enhance financial performance, while 39% practice categorical morality via exclusion and only 33% state they seek to generate impact. Stated goals meaningfully correlate with how the funds are managed. Financially motivated funds systematically hold stocks with high MSCI ESG ratings relative to industry peers, which is consistent with ESG risk management. Morally motivated funds categorically tilt away from companies in controversial industries (e.g., mining), but are otherwise insensitive to relative ESG ratings. Impact funds hold stocks with lower ESG performance than the others, which is consistent with them engaging with laggard firms to generate positive impact. Impact funds are also more likely to support social and environmental shareholder proposals. Hybrid funds are common. Funds combining financial and moral goals are the largest category and are growing the fastest” (p. 37/38). My comment: My fund may be unique: It holds stocks with high ESG ratings, is morally motivated and tries to achieve impact by engaging with the most sustainable companies.

ESG ratings explanations: Bridging the Gap in ESG Measurement: Using NLP to Quantify Environmental, Social, and Governance Communication by Tobias Schimanski, Andrin Reding, Nico Reding, Julia Bingler, Mathias Kraus, and Markus Leippold as of Nov. 30th, 2023 (#345): “… we propose and validate a new set of NLP models to assess textual disclosures toward all three subdomains … First, we use our corpus of over 13.8 million text samples from corporate reports and news to pre-train new specific E, S, and G models. Second, we create three 2k datasets to create classifiers that detect E, S, and G texts in corporate disclosures. Third, we validate our model by showcasing that the communication patterns detected by the models can effectively explain variations in ESG ratings” (abstract). My comments: I selected my ESG ratings agency (also) because of its AI capabilities

AI ESG Tools: Artificial Intelligence and Environmental Social Governance: An Exploratory Landscape of AI Toolkit by Nicola Cucari, Giulia Nevi, Francesco Laviola, and Luca Barbagli as of Nov. 29th, 2023 (#35): “This paper presents an initial mapping of AI tools supporting ESG pillars. Through the case study method, 32 companies and tools supporting environmental social governance (ESG) management were investigated, highlighting which of the different AI systems they use and enabling the design of the new AI-ESG ecosystem” (abstract).

Cheaper green loans: Does mandatory sustainability reporting decrease loan costs? by Katrin Hummel and Dominik Jobst as of Dec. 1st, 2023 (#31): “We focus on the passage of the NFRD, the first EU-wide sustainability reporting mandate. Using a sample of global loan deals from 2010 to 2019, we begin our analysis by documenting a negative relationship between borrowers’ levels of sustainability performance and loan costs. … In our main analysis, we find that loan costs significantly decrease among borrowers within the scope of the reporting mandate. This decrease is concentrated in firms with better sustainability performance. In a further analysis, we show that this effect is stronger if the majority of lead lenders are also operating in the EU and are thus potentially also subject to the reporting mandate themselves “ (p. 26/27).

Widepread ESG downgrade costs: Do debt investors care about ESG ratings? by Kornelia Fabisik, Michael Ryf, Larissa Schäfer, and Sascha Steffen from the European Central Bank as of Nov. 27th, 2023 (#53): “We use a major ESG rating agency‘s methodology change to firms’ ESG ratings to study its effect on the spreads of syndicated U.S. corporate loans traded in the secondary market. We find that loan spreads temporarily increase by 10% relative to the average spread of 4%. … we find some evidence that the effect is stronger for smaller and financially constrained firms, but not for younger firms. We also find that investors penalize firms for which ESG-related aspects seem to play a more prominent role. Lastly, when we explore potential spillover effects on private firms that are in the same industry as the downgraded firms, we find evidence supporting this channel. We find that private firms in highly affected industries face higher loan spreads after ESG downgrades of public firms in the same industry, suggesting that investors of private (unrated) firms also price in ESG downgrades of public firms“ (p. 28).

High ESG risks: Measuring ESG risk premia with contingent claims by Ioannis Michopoulos, Alexandros Bougias, Athanasios Episcopos and Efstratios Livanis as of Nov. 9th, 2023 (#109): “We find a statistically significant relationship between the ESG score and the volatility and drift terms of the asset process, suggesting that ESG factors have a structural effect on the firm value. We establish a mapping between ESG scores and the cost of equity and debt as implied by firm’s contingent claims, and derive estimates of the ESG risk premium across different ESG and leverage profiles. In addition, we break down the ESG risk premia by industry, and demonstrate how practitioners can adjust the weighed average cost of capital of ESG laggard firms for valuation and decision making purposes“ (abstract). … “We find that ESG risk has a large effect on the concluded cost of capital. Assuming zero ESG risk premia during the valuation process could severely underestimate the risky discount rate of ESG laggard firms, leading to distorted investment and capital budget decisions, as well as an incorrect fair value measurement of firm’s equity and related corporate securities” (p. 20).

ESG fund benefits: Renaming with purpose: Investor response and fund manager behaviour after fund ESG-renaming by Kayshani Gibbon, Jeroen Derwall, Dirk Gerritsen, and Kees Koedijk as of Nov. 27th, 2023 (#42): “Using a unique sample of 740 ESG-related name changes …. Our most conservative estimates … suggest that mutual funds domiciled in Europe may enjoy greater average flows by renaming … we provide consistent evidence that mutual funds improve the ESG performance and reduce the ESG risks of their portfolios after signalling ESG repurposing through fund name changes. Finally, we find that renaming has no material impact on funds’ turnover rates or on the fees charged to investors“ (p. 15/16). My comment: Maybe I should have integrated ESG in my FutureVest Equity Sustainable Develeopment Goals fund name (ESG and more see in the just updated 31pager 231120_Nachhaltigkeitsinvestmentpolitik_der_Soehnholz_Asset_Management_GmbH).

Green for the rich? Rich and Responsible: Is ESG a Luxury Good? Steffen Andersen, Dmitry Chebotarev, Fatima Zahra Filali Adib, and Kasper Meisner Nielsen as of Nov. 27th, 2023 (#91): “… we examine the rise of responsible investing among retail investors in Denmark. … from 2019 to 2021. The fraction of retail investors that hold socially responsible mutual funds in their portfolios has increased from less than 0.5% to 6.8%, equivalent to an increase in the portfolio weight on socially responsible mutual funds for all investors from 0.1% to 1.6%. At the same time, the fraction of investors holding green stock has increased from 8.7% to 15.9%, equivalent to an increase in portfolio weight on green stocks from 2.4% to 3.3%. Collectively, the rise of sustainable investments implies that more than 4.9% of the risky assets are allocated to sustainable investments by 2021. The rise in responsible investments is concentrated among wealthy investors. Almost 13% of investors in the top decile of financial wealth holds socially responsible mutual funds and one out of four holds green stocks. Collectively, the portfolio weight on socially responsible assets among wealth investors is 4.8% in 2021. … Using investors’ charitable donations prior to inheritance, we document that the warm glow effect partially explains the documented results“ (p. 20/21).

Emissions control: Carbon Accounting Quality: Measurement and the Role of Assurance by Brandon Gipper, Fiona Sequeira, and Shawn X. Shi as of Nov. 29th, 2023 (#135): “We document a positive association between (Sö: third party) assurance and carbon accounting quality for both U.S. and non-U.S. countries. This relation is stronger when assurance is more thorough. We also document how assurance improves carbon accounting quality: first, assurors identify issues in the carbon accounting system and communicate them to the firm; subsequently, firms take remedial actions, resulting in updated disclosures, faster release of emissions information, and more positive perceptions of emissions figures by reporting firms. …. our findings suggest that even limited assurance can shape carbon accounting quality“ (p. 34).

Impact investment research (Skilled fund managers)

Carbon credit differences: Paying for Quality State of the Voluntary Carbon Markets 2023 by Stephen Donofrio Managing Director Alex Procton from Ecosystem Marketplace as of Oct. 10th, 2023: “Average voluntary carbon markets (VCM) … volume of VCM credits traded dropped by 51 percent, the average price per credit skyrocketed, rising by 82 percent from $4.04 per ton in 2021 to $7.37 per ton in 2022. This price hike allowed the overall value of the VCM to hold relatively steady in 2022, at just under $2 billion. To date in 2023, the average credit price is down slightly from 2022, to $6.97 per ton. … Nature-based projects, including Forestry and Land Use and Agriculture projects, made up almost half of the market share at 46 percent. … Credits that certified additional robust environmental and social co-benefits “beyond carbon” had a significant price premium. Credits from projects with at least one co-benefit certification had a 78 percent price premium in 2022, compared to projects without any co-benefit certification. … Projects working towards the UN Sustainable Development Goals (SDGs) also demonstrated a substantial price premium at 86 percent higher prices than projects not associated with SDGs … Newer credits are attracting higher prices” (p. 6).

Unsuccessful voting: Minerva Briefing 2023 Proxy Season Review as of November 2023: “Most resolutions are proposed by management (96.90% overall) … In 2023, there were 621 proposals from shareholders, mostly in the US (530), and mostly Social- and Governance-related (259 and 184 respectively). However, an increasing number of proposals are also being put forward on Environmental issues. The higher number of shareholder proposals in the US may reflect more supportive regulations on the filing of proposals and the absence of an independent national corporate governance code, as there is in the UK. Although well-crafted shareholder proposals can receive majority support, the overall proportion doing so has decreased (5.80% in 2023 vs. 11.56% in 2022), partly dragged down by ‘anti-ESG’ proposals” (p. 3/4). My comment: 621*6%=37 majority supported shareholder proposals including non ESG-topics seems to a very low number compared to the overall marketing noise asset managers produce regarding their good impact on listed companies. Direct shareholder engagement with companies seems to have more potential for change. My respective policy see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Good impact returns: Impact investment funds and the equity market: correlation, performance, risk and diversification effects – A global overview by Lucky Pane as of July 2021: “Impact investing funds from the twelve economies reported an average return of 10.7% over the period 2004-2019, higher than the average return of the MSCI World Equity Index (8.7%). … Negative/low correlations were observed between impact investment funds and traditional assets of the following countries: Germany, Australia, UK, Brazil, China, Poland, South Korea and Turkey” (p. 35/36). My comment: Unfortunately, there are very few (liquid) impact investing studies. A study including 2022 and 2023 would come to less favorable return conclusions, though.

Other investment research

Skilled fund managers (1): Sharpening the Sharpe Style Analysis with Machine-Learning ― Evidence from Manager Style-Shifting Skill of Mutual Funds by George J. Jiang, Bing Liang, and Huacheng Zhang as of Dec. 3rd, 2023 (#38): “Nine out of 32 indexes are selected as the proxy of style set in the mutual fund industry. We … find that most active equity funds are multi-style funds and more than 85% of them allocate capitals among three to six styles. Single-style funds count less than 3% of the total number of funds. We further find that around 3% of funds shift their investment styles in each quarter and each shifting fund switches styles three times over the whole period … We find that shifting funds perform better in the post-shifting quarter than in the pre-shifting quarter in terms of both total returns and style-adjusted returns, but we do not find performance improvement by non-shifting funds. We further find that style-shifting decision is positively related to future fund returns. … We find that style-shifting in the mutual fund industry is mostly driven by fund managers’ expertise in the new style“ (p. 42).

Skilled fund managers (2): Do mutual fund perform worse when they get larger? Anticipated flow vs unanticipated flow by Yiming Zhang as of Nov. 14th, 2023 (#17): “… I provide empirical evidence from a novel setting that supports the decreasing returns to scale in active mutual funds. My identification strategy relies on the nature of Morningstar Rating, which has a large impact on fund flow. … I find that for each 1% of inflow (outflow), the return will decrease (increase) by around 0.6% on average in the next month, and the return will decrease (increase) by around 0.2% on average in the next month. … I find that for experienced manager, they make more new investment after the flow shock and their performance does not decrease. For inexperienced manager, it is quite the opposite. These results indicate that if fund managers can anticipate the 36th month flow shock, they will try to generate more investment ideas, and execute them when the flow arrives“ (p. 22/23).

Skilled fund managers (3)? Can ChatGPT assist in picking stocks? Matthias Pelster and Joel Val as of Nov. 29th, 2023 (#199): “… we find that ratings of stocks by ChatGPT positively correlate to future (out-of-sample) stock returns. … ChatGPT seems to be able to successfully identify stocks that yield superior performance over the next month. ChatGPT-4 seems to have some ability to evaluate news information and summarize its evaluation into a simple score. We find clear evidence that ChatGPT is able to distinguish between positive and negative news events, and adjusts its recommendation following negative news” (p. 11). My comment: Interesting, because most active fund managers underperform their benchmarks most of the time, but I am skeptical regarding AI investment benefits see How can sustainable investors benefit from artificial intelligence? – GITEX Impact – Leading ESG Event 2023

Listed real estate: Drivers of listed and unlisted real estate returns by Michael Chin and Pavol Povala as of Nov. 2nd, 2023 (#25): “The differences between listed and unlisted real estate appear to reduce over the longer term, where the return correlations between the two segments increases with horizon. In addition, the correlations with the broader equity market are lower at longer horizons for both real estate segments. … We find that both segments of real estate hedge inflation risk more than the aggregate equity market, and that listed real estate has a high exposure to transitory risk premium shocks“ (abstract). My comment: I started “my” first listed real estate fund more than 10 years ago and still like the market segment despite all of its problems

Fintech success factors: Fintech Startups in Germany: Firm Failure, Funding Success, and Innovation Capacity by Lars Hornuf and Matthias Mattusch as of Nov. 29th, 2023 (#75): “ … using a hand-collected dataset of 892 German fintechs founded between 2000 and 2021 … We find that founders with a business degree and entrepreneurial experience have a better chance of obtaining funding, while founder teams with science, technology, engineering, or mathematics backgrounds file more patents. Early third-party endorsements and foreign partnerships substantially increases firm survival. … Fintechs focusing on business-to-business models and which position themselves as technical providers have proven more effective. Fintechs competing in segments traditionally attributed to banks are generally less successful and less innovative.” (abstract).

Skilled fund managers (?) 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 26 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

ESG inlfationn illustration with green globe by Geerd Atmann from Pixabay

ESG inflation – Researchpost #147

ESG inflation: 18x interesting new research on real estate, pharma, monetary policy, fires, innovation, banks, corporate culture, ESG and climate funds, carbon premium, greenium, purpose, shareholder engagement, ETFs, structured products, art and crypto investing (# shows the number of full paper downloads at SSRN as of Oct. 13th, 2023)

Social research: ESG inflation

Positive big real estate: The Impact of Institutional Investors on Homeownership and Neighborhood Access by Joshua Coven as of Sept. 19th, 2023 (#89): “(Sö: Institutional buy to rent) … investors made it harder for households to purchase homes, but easier for the financially constrained to live in neighborhoods that previously had few rental options. B2R investors, by raising prices, benefited homeowners who held housing in B2R regions because they experienced capital gains. … I find that for every home B2R bought, they decreased the housing available for owner occupancy by 0.3 homes. It was not a 1:1 decrease because the demand shock triggered a supply response, and B2R investors crowded out other landlords. … I find that B2R increased the supply of rentals and lowered rents. … I also show with individual location data that B2R increased access to the neighborhoods for the financially constrained by providing rentals in areas with few rentals” (p.28/29). My comment: I consider residential listed real estate companies (REITs) to be typically aligned with SDG-goals. This research supports my hypothesis.

Pharma ESG: Aligning Environmental, Social, and Governance to Clinical Development: Moving 2 Towards More Sustainable Clinical Trials by Sandeep N. Athalye, Shylashree Baraskar, Shivani Mittra, and Elena Wolff-Holz as of Oct. 5th, 2023 (#13): “Innovation in clinical trials that delivers affordable access to life-saving therapeutics for patients worldwide is fast becoming the core of the ESG strategy. The way clinical trials are conducted has a significant impact on the environment and planetary health. Drug development is among the highest producers of greenhouse gas (GHG) emissions, with about 4.4-4.6% of the worldwide GHG emissions coming from the Pharma sector. … This article discusses/reviews how clinical researchers can align with the ESG goals for efficient conduct of clinical trials of biologics as well as their biosimilars“ (abstract).

Ecological research: ESG inflation

Carbon money policy: Does Monetary Policy Shape the Path to Carbon Neutrality? by Robin Döttling and Adrian Lam as of Oct. 4th, 2023 (#76): “… this paper documents that — in the US — stock prices of firms with relatively higher carbon emissions are more sensitive to monetary policy shocks. Consistent with the valuation results, we find that high-emission firms reduce their emissions relative to low-emission firms, but slow down emission-reduction efforts when monetary policy is tight“ (p. 28).

Northern problem: Explosive Temperatures by Marc Gronwald as of Oct. 9th, 2023 (#18):“The paper finds, first, that global temperatures are explosive. Second, the paper also finds clear evidence of temporary explosiveness in Northern hemispheric data while in the Southern hemisphere respective evidence is much weaker. … The empirical pattern described here is attributable to so-called Arctic amplification, a phenomenon widely discussed in the climate science literature …” (p. 14/15).

Fire locations: Forest Fires: Why the Large Year-to-Year Variation in Forests Burned? By Jay Apt, Dennis Epple, and Fallaw Sowell as of Oct. 9th, 2023 (#10): “California has 4% of the land area of the United States, but over the 36-year period of our sample (1987-2022) California averaged 13% of the total US forest area burned. … We find that 75 percent of the variability in forest area burned can be accounted for by variation in six variables: the mean of maximum annual temperatures, prior year precipitation, new housing construction, net electricity imports, and variation in AMO and ENSO (Sö: Atlantic Multi-decadal Oscillation (AMO) and El Niño–Southern Oscillation (ENSO)“ (p. 17).

Climate cooperation: Induced Innovation and International Environmental Agreements: Evidence from the Ozone Regime by Eugenie Dugoua as of Oct. 6th, 2023 (#11): “This paper revisits one of the rare success stories in global environmental cooperation: the Montreal Protocol and the phase-out of ozone-depleting substances. I show that the protocol increased science and innovation on alternatives to ozone-depleting substances, and argue that agreements can indeed be useful to solving global public goods problems. This contrasts with game-theoretical predictions that agreements occur only when costs to the players are low, and with the often-heard narrative that substitutes were readily available“ (abstract)

Unclear GHG bank data: Assessing the data challenges of climate-related disclosures in European banks. A text mining study by Angel Ivan Moreno and Teresa Caminero of Banco de Espana as of Oct. 5th, 2023 (#25): “The Climate Data Steering Committee (CDSC) is working on an initiative to create a global central digital repository of climate disclosures, which aims to address the current data challenges. … Using a text-mining approach, coupled with the application of commercial Large Language Models (LLM) for context verification, we calculate a Greenhouse Gas Disclosure Index (GHGDI), by analysing 23 highly granular disclosures in the ESG reports between 2019 and 2021 of most of the significant banks under the ECB’s direct supervision. This index is then compared with the CDP score. The results indicate a moderate correlation between institutions not reporting to CDP upon request and a low GHGDI. Institutions with a high CDP score do not necessarily correlate with a high GHGDI“ (abstract).

Cleaner culture: Environmental Externalities of Corporate Culture: Evidence from Firm Pollution by Wenquan Li, Suman Neupane, and Kelvin Jui Keng Tan as of Oct. 9th, 2023 (#48): “We find that firms with a strong culture tend to have lower toxic emission levels and pollution intensity compared to those with a weak culture. … Further evidence shows that cultural values related to teamwork, innovation, respect, and integrity mainly drive the negative relationship between corporate culture and firm pollution. … Moreover, we find that enhanced diversity and increased investment in R&D activities serve as two potential channels through which a strong corporate culture affects firms’ pollution reduction efforts. Moreover, our results suggest that the decrease in firm pollution does not come at the expense of production. … when facing a less regulatory burden, firms with a strong culture proactively address environmental concerns, whereas firms with a weak culture increase toxic releases” (p. 36/37).

Responsible investment research: ESG Inflation

ESG inflation? ESG names and claims in the EU fund industry by European Securities and Markets Authority (ESMA) as of October 2nd, 2023: “Focussing on EU investment funds … Using a novel dataset with historical information on 36,000 funds managing EUR 16 trillion of assets, we find that funds increasingly use ESG-related language in their names, and that investors consistently prefer funds with ESG words in their name“ (p. 3). My comment: My fund has no ESG in it’s name although it applies very strict Best-in-Universe ESG criteria and many 100% exclusions, see e.g. Active or impact investing? – (prof-soehnholz.com)

Climate fund deficits: Investing in Times of Climate Change 2023 by Hortense Bioy, Boya Wang, Alyssa Stankiewicz and Biddappa A R from Morningstar as of September 2023: “We identified more than 1,400 open-end and exchange-traded funds with a climate-related mandate as of June 2023, compared with fewer than 200 in 2018. Assets in these funds have surged 30% in the past 18 months to USD 534 billion, boosted by inflows and product development. Fueled by higher investor interest and regulation, Europe remains the largest and most diverse climate fund market, accounting for 84% of global assets. … Against a backdrop of high oil and gas prices, falling valuations in renewable energy stocks, and despite the Inflation Reduction Act, assets in U.S. climate funds have grown by only 4% in the past 18 months to USD 31.7 billion. … Funds offering exposure to climate solutions also exhibit high carbon intensity. These funds tend to invest in transitioning companies that operate in high-emitting sectors, such as utilities, energy, and industrials, and that are developing solutions to help reduce their own emissions and those of others. None of the most common companies in climate funds are aligned to 1.5° Celsius. The most popular stocks in broad market climate portfolios are more misaligned than those in portfolios that target climate solutions, with average Implied Temperature Rises of 3.3°C versus 2.4°C. This can be explained by the high and difficult-to-manage carbon emissions coming from the supply chain and/or customers (Scope 3 upstream and downstream) of top companies in broad market portfolios“ (p. 1). My comment: My SDG-aligned fund avoids fossil fuels but is only partly focused on climate solutions, clean energy and cleantech. Current data shows a 1.9°C Temperature Alignment for Scope 1+2 and 2.9°C including Scope 3, see www.futurevest.fund

Emissions pay: Does the Carbon Premium Reflect Risk or Mispricing? by Yigit Atilgan, K. Ozgur Demirtas, and Alex Edmans as of Sept. 25th, 2023 (#12782): “… the level of and change in all three scopes of carbon emissions is significantly associated with both higher earnings surprises and higher earnings announcement returns, but carbon intensities are not. The four earnings announcements each year account for 30- 50% of the carbon premium in both levels and changes. … emitting firms are able to enjoy superior earnings surprises, earnings announcement returns, and realized returns because they do not fully bear the consequences (nor are they expected to fully bear the consequences) of their polluting activity“ (p. 11).

Green hedge: Greenium Fluctuations and Climate Awareness in the Corporate Bond Market Massimo Dragottoa , Alfonso Dufoura , and Simone Varotto as of Sept. 19th, 2023 (#55): “… green bonds generally trade at a premium in comparison to their non-green counterparts. Further, we have identified dynamic fluctuations in the greenium over time, which correspond to major climate change-related events and policy decisions. … Bonds that have been externally reviewed exhibit an (up to five time) larger greenium than non-certified bonds. …. certified green bonds can also garner a ‘green premium’ during these (Sö: natural disaster) events, with the scale of this premium directly being influenced by the extent of disaster damages. … increased demand for environmentally responsible investments translates into lower spreads for green and conventional bonds issued by companies that are actively working to address climate change issues, such as the green issuers in our sample. The effect is even stronger for certified green bonds“ (p. 17/18).

ESG compensation? What Purpose Do Corporations Purport? Evidence from Letters to Shareholders by Raghuram Rajan, Pietro Ramella, and Luigi Zingales as of March 18th, 2023 (#877): “In spite of the proliferation of corporate goals, we find that executive compensation remains overwhelmingly focused on shareholder value, as measured by stock prices and financial performance. While we do observe an increase in the use of environmental and social metrics in compensation, especially by firms that announce such goals, the magnitude of this relationship is still small. We also find corporate statements of ESG goals are associated with policies and programs that favor those goals, but there is little evidence that it improves the firm’s measurable ESG outcomes“ (p. 37).

No engagement monopoly? Big Three (Dis)Engagements by Dhruv Aggarwal, Lubomir Litov, and Shivaram Rajgopal as of Oct. 5th, 2023 (#117): “This paper uses newly available data to empirically analyze how the three largest asset managers (BlackRock, Vanguard, and State Street) engage with portfolio companies” (abstract). … “The revelation that a portfolio firm is targeted for engagement leads it to exhibit negative abnormal returns. However, the magnitude of value destruction is tiny, ranging from 10 to 50 basis points, and transient, concentrated in the days immediately around the public revelation of the engagement effort. … engagement is significantly correlated with the extent of the asset managers’ ownership stake in the firm and the CEO’s total compensation. Both these variables are easily available heuristics that can be used by the Big Three’s understaffed stewardship teams to select engagement targets. … BlackRock and Vanguard become less likely to vote against management the year after they select a portfolio company for engagement. … Companies do not reduce CEO compensation, increase female board representation, or become less likely to have dual class structures after being targeted for engagement by the largest asset managers“ (p. 26/27). My comment: If Blackrock has only 15 engagement professionals, then my fund has relatively more shareholder engagement resources. My approach see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Other investment research

Active index funds? Discretionary Investing by ‘Passive’ S&P 500 Funds by Peter Molk and Adriana Robertson as of Aug.28th, 2023 (#169): “… we examine funds that track the most prominent index, the S&P 500. S&P 500 index funds do not typically commit, in a legally enforceable sense, to holding even a representative sample of the underlying index, nor do they commit to replicating the returns of that index. Managers therefore have the legal flexibility to depart substantially from the underlying index’s holdings. We also show that these departures are commonplace: S&P 500 index funds routinely depart from the underlying index by meaningful amounts, in both percentage and dollar terms. While these departures are largest among smaller funds, they are also present among mega-funds: even among the largest S&P 500 funds, holdings differ from the index by a total of between 1.7% and 7.5% in the fourth quarter of 2022” (abstract).

Structured product markets: Essays on Structured Products 2022 by Jacob H Schmidt and Esha Pilinja as of Sept. 26th, 2023 (#78): “Over the past 30 years structured products (SP) have become popular with all investors – institutional, family offices, high-net-worth individuals and retail investors. But what are structured products? Put simply, SP are investment products linked to equities, fixed income (bonds or interest rates), commodities or any other market or underlying asset, with or without derivatives overlay, with or without leverage, with or without capital guarantee. Crypto-linked products are the latest variant. …. we present ten essays on structured products in wealth management … The focus is on the role, risk-return profile and applications of structured products in wealth management, in different countries and for different investors“ (abstract). My comment: Several essays seem to be too optimistic but I find the ones from Karl David Bok on risks and from Fereydoun Valizadeh on Switzerland and Anna Sandberg on Germany interesting.

Art investment research: A Bilbliometric Analysis of Art in Financial Markets by  Diana Barro, Antonella Basso, Stefania Funari, Guglielmo Alessandro Visentin as of Oct. 6th, 2023 (#25): “Over 250 scholars contributed to writing 181 articles on art in financial markets, published in almost 100 journals. … a relatively small fraction of authors is responsible for a large percentage of the contributions. We have identified the most relevant papers, journals, and authors in the field …“ (p. 23).

Crypto infections: New Evidence on Spillovers Between Crypto Assets and Financial Markets by Roshan Iyer and Adina Popescu from the International Monetary Fund as of October 5th, 2023 (#52): „The paper finds that crypto asset markets exhibit a high level of integration, potentially surpassing other asset classes, with significant spillovers in terms of both returns and volatilities. Over time, this connectedness has shown an upward trend, especially following 2017, reaching its peak during the early phase of the COVID-19 pandemic. … Although Ethereum stands out in terms of the number of spillovers to other coins in the more recent period, various other coins also play significant roles in transmitting spillovers … we find that crypto assets exhibit a significant level of connectedness with global equities, while the spillovers with bond indices and the USD are relatively modest. Volatility spillovers between crypto assets and the VIX and commodity prices are also pronounced, with gold in particular receiving substantial spillovers from crypto assets” (p. 31/32).

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

Alternatives (green) and SDG (blue) ETF Portfolios

Alternatives: Thematic replace alternative investments

Alternatives: Thematic investments can take up (part) of the allocation which alternative investments should have had in the past. The main reason is a stricter focus on responsible investments. Here I explain, why I support this development:

Extensive alternative and responsible investment experience

I started my financial services career trying to select the best private equity funds worldwide. Soon, I also covered hedge funds, real estate funds and infrastructure funds. In my current multi-asset portfolios, alternatives have a share between a quarter and a third of the portfolios.

In 2015, I developed three innovative ETF-Portfolios. One passively diversified multi-asset portfolio, one pure alternative investment portfolio and one ESG portfolio. The multi-asset ETF-portfolio and the ESG ETF-portfolio will be continued whereas I decided to stop the active offer of my alternatives ETF-Portfolio and will focus on my (multi-theme) SDG ETF-portfolio, instead. I follow a similar approach by replacing my direct listed alternatives ESG-portfolios with SDG-aligend investments.

My traditional multi-asset allocations will not change

My rather large allocation to alternatives is based on scientific studies of aggregated asset allocations of investors worldwide. I use ETFs not only for traditional equity and bond allocations but also for alternative investments. I have documented this most-passive asset allocation approach in detail in my Soehnholz ESG and SDG portfolio book. This approach is and will be applied to my traditional (non-ESG) Weltmarkt ETF-Portfolio and to my multi asset ESG ETF-Portfolio also in the years to come.

Stand-alone alternatives portfolios scrapped from my offering

There are two reasons for my decision to stop offering stand-alone alternatives portfolios: First, I want to focus on even stricter responsible investing and second, I could not find many investors for my “alternatives” portfolios.

The alternatives portfolios were offered to diversify traditional and ESG investment portfolios and I still think that this makes a lot of sense. Unfortunately, the returns of most alternatives market segments lagged the ones of traditional large-cap equities more or less since the start of my portfolios in 2016/2017. And low returns have not been good for sales.

It may well be that the timing of my decision is bad and that market segments such as listed (ESG) infrastructure and (ESG) real estate will perform especially well in the (near) future. But SDG-aligned investments did not perform well, either (see ESG gemischt, SDG schlecht: 9-Monatsperformance 2023 – Responsible Investment Research Blog (prof-soehnholz.com). I expect that they may recover soon. Performance, therefore, did not play a role in my decision.

The reason is, that I want to focus even more than in the past on responsible investments. Therefore, stopping the active offer of my „non-ESG“ alternatives ETF-portfolio should be obvious. But I will also stop to actively offer my direct listed real estate ESG and my listed infrastructure ESG portfolio.

I started similar portfolios at my previous employer in 2013 when there were no such products available in Germany. In 2016, with my own company, I began to offer such portfolios with much stricter ESG-criteria. I could find enough REITs and listed real estate stocks. For listed infrastructure, even though I extended my ideal definition from core infrastructure to also include social infrastructure and infrastructure related companies, I struggled to find 30 companies worldwide which fulfilled my responsibility requirements.

Thematic SDG-aligned portfolios can fill the “alternatives” allocation

But I will not give up on allocations to alternative investments. In the future, most of my actively offered portfolios will be SDG-aligned. I also use ESG-selection criteria in addition to SDG-alignment for all of these portfolios. And my SDG-aligned portfolios have significant exposures to “alternative” investment segments including green and social real estate and infrastructure.

My SDG ETF-Portfolio, for example, currently includes 10 Article 9 ETFs (see Drittes SDG ETF-Portfolio: Konform mit Art. 9 SFDR – Responsible Investment Research Blog (prof-soehnholz.com)). Several of these ETFs invest in  infrastructure (e.g. the Clean Water, Clean Energy and Smart City Infrastructure ETF). Two others are purely real estate focused. In addition, my SDG-ETFs are selected as portfolio-diversifiers and typically include a significant number of small cap investments which often have “private equity like” characteristics. Also, SDG-aligned ETF are only admitted for my portfolios if they have a low country- and company-overlap with traditional indices.

And my direct Global Equities ESG SDG portfolios and my mutual fund include about 20% “responsible” infrastructure and 7% social (healthcare and senior housing) real estate stocks in September 2023. In addition, almost half of the stocks in the portfolio are small cap investments (compare Active or impact investing? – (prof-soehnholz.com)).

Both ETF- and direct SDG-aligned portfolios thus can diversify most traditional (large-cap) portfolios. In addition, I will offer investors the ability to easily create bespoke SDG-aligned ESG-portfolios which may well focus on “alternatives”.  

Even the performance of my Alternatives ETF- (green in the chart above) and the SDG-ETF portfolio (blue) have been similar for quite some time.

ESG gemischt: Illustriert durch Bild Brain von Roadlight von Pixabay

ESG gemischt, SDG schlecht: 9-Monatsperformance 2023

ESG gemischt: Vereinfacht zusammengefasst haben meine nachhaltigen ESG-Portfolios in den ersten 9 Monaten 2023 ähnlich rentiert wie vergleichbare traditionelle aktiv gemanagte Fonds bzw. traditionelle ETFs. Allerdings liefen die SDG-fokussierte (Multi-Themen) und die Trendfolgeportfolios schlecht. Im Jahr 2022 hatten dagegen besonders meine Trendfolge und SDG-Portfolios gut rentiert (vgl. SDG und Trendfolge: Relativ gut in 2022 – Responsible Investment Research Blog (prof-soehnholz.com)).

Traditionelles passive Allokations-ETF-Portfolios gut

Das nicht-nachhaltige Alternatives ETF-Portfolio hat in 2023 bis September 2023 0,2% gewonnen. Dafür hat das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio mit +3,7% trotz seines hohen Anteils an Alternatives relativ gut abgeschnitten, denn die Performance ist sogar etwas besser als die aktiver Mischfonds (+3,2%).

ESG gemischt: Nachhaltige ETF-Portfolios

Vergleichbares gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +3,5%. Das ESG ETF-Portfolio ex Bonds lag mit +5,4% aufgrund des hohen Alternatives- und geringeren Tech-Anteils  erheblich hinter den +10,6% traditioneller Aktien-ETFs. Das ist aber ganz ähnlich wie die +5,3% aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnete ein etwas geringeres Plus von +4,3%. Das ist etwas schlechter als die +4,8% traditioneller Dividendenfonds.

Mit -1,1% schnitt das ESG ETF-Portfolio Bonds (EUR) im Vergleich zu -2,2% für vergleichbare traditionelle Anleihe-ETFs relativ gut ab. Anders als in 2022 hat meine Trendfolge mit -4,9% für das ESG ETF-Portfolio ex Bonds Trend nicht gut funktioniert.

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit -5,4% stark hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -13.8% eine sehr schlechte Performance.

Direkte pure ESG und SDG-Aktienportfolios

Das aus 30 Aktien bestehende Global Equities ESG Portfolio hat +7,1% gemacht und liegt damit etwa besser als traditionelle aktive Fonds (+5,3%) 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 war mit +6,6% etwas schlechter, liegt aber seit dem Start in 2017 immer noch vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat -8,7% gemacht und liegt damit erheblich hinter den -5,3% traditioneller Infrastrukturfonds und den -3,8% eines traditionellen Infrastruktur-ETFs. Das Real Estate ESG Portfolio hat dagegen nur -1,5% verloren, während traditionelle globale Immobilienaktien-ETFs -3,6% und aktiv gemanagte Fonds -3,9% verloren haben. Das Deutsche Aktien ESG Portfolio hat bis September +2,5% zugelegt. Das wiederum liegt erheblich hinter aktiv gemanagten traditionellen Fonds mit +6,9% und nennenswert hinter vergleichbaren ETFs mit +4,9%.

Das auf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -8,6% im Vergleich zu allgemeinen Aktienfonds sehr schlecht abgeschnitten. Das Global Equities ESG SDG Trend Portfolio hat mit -14,2% – wie die anderen Trendfolgeportfolios –besonders schlecht abgeschnitten. Das noch stärker auf Gesundheitswerte fokussierte Global Equities ESG SDG Social Portfolio hat dagegen mit +3,8% im Vergleich zum Beispiel zu Gesundheitsfonds (-3,2%) ziemlich gut abgeschnitten.

Investmentfondsperformance

Mein FutureVest Equity Sustainable Development Goals R Fonds, der am 16. August 2021 gestartet ist, zeigt nach einem sehr guten Jahr 2022 mit -8,1% eine starke Underperformance gegenüber traditionellen Aktienmärkten. Das liegt vor allem an der Branchenzusammensetzung des Portfolios (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T). Mehrere der Portfoliobestandteile sind nach klassischen Kennzahlen teilweise stark unterbewertet.

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

Supplier ESG illustrated with delivery man by 28819275 from Pixabay

Supplier ESG – Researchpost #144

Supplier ESG: 17x new research on SDG, green behavior, subsidies, SMEs, ESG ratings, real estate, risk management, sin stocks, trading, suppliers, acting in concert, AI and VC by Alexander Bassen, Andreas G.F. Hoepner, and many more (#: SSRN downloads on Sept. 21st, 2023)

Too late? Earth beyond six of nine planetary boundaries by Katherine Richardson and many more as of Sept. 13th, 2023: “This planetary boundaries framework update finds that six of the nine boundaries are transgressed, suggesting that Earth is now well outside of the safe operating space for humanity. Ocean acidification is close to being breached, while aerosol loading regionally exceeds the boundary. Stratospheric ozone levels have slightly recovered. The transgression level has increased for all boundaries earlier identified as overstepped. As primary production drives Earth system biosphere functions, human appropriation of net primary production is proposed as a control variable for functional biosphere integrity. This boundary is also transgressed. Earth system modeling of different levels of the transgression of the climate and land system change boundaries illustrates that these anthropogenic impacts on Earth system must be considered in a systemic context“ (abstract).

Ecological research (corporate perspective)

Social measures: How useful are convenient measures of pro-environmental behavior? Evidence from a field study on green self-reports and observed green behavior by Ann-Kathrin Blankenberg, Martin Binder, and Israel Waichmann as of Aug. 20th, 2023 (#12): “We conduct a field study with n = 599 participants recruited in the town hall of a German medium-sized town to compare self-reports of pro-environmental behavior of our participants with observed behavior (green product choice and donation to real charities). Our results indicate that self-reports are only weakly correlated to incentivized behavior in our sample of an adult population (r = .09∗ ), partly because pro-environmental behavior measures can conflate prosocial and pro-environmental preferences. … Our results … cast some doubt on the validity of commonly used convenient measures of pro-environmental behavior“ (abstract).

Expensive subsidies: Converting the Converted: Subsidies and Solar Adoption by Linde Kattenberg, Erdal Aydin, Dirk Brounen, and Nils Kok as of July 25th, 2023 (#18): „… there is limited empirical evidence on the effectiveness of subsidies that are used to promote the adoption of such (Sö: renewable energy) technologies. This paper exploits a natural experimental setting, in which a solar PV subsidy is assigned randomly within a group of households applying for the subsidy. Combining data gathered from 100,000 aerial images with detailed information on 15,000 households … The results show that, within the group of households that applied for the subsidy, the provision of subsidy leads to a 14.4 percent increase in the probability of adopting solar PV, a 9.6 percent larger installation, and a 1-year faster adoption. However, examining the subsequent electricity consumption of the applicants, we report that the subsidy provision leads to a decrease in household electricity consumption of just 8.1 percent, as compared to the rejected applicant group, implying a cost of carbon of more than €2,202 per ton of CO2”.

Regulatory SME effects: The EU Sustainability Taxonomy: Will it Affect Small and Medium-sized Enterprises? by Ibrahim E. Sancak as of Sept. 6th, 2023 (#52): “The EU Sustainability Taxonomy (EUST) is a new challenge for companies, particularly SMEs and financial market participants; however, it potentially conveys its economic value; hence, reliable taxonomy reporting and strong sustainability indicators can yield enormously. … We conclude that the EU’s sustainable finance reforms have potential domino effects. Backed by the European Green Deal, sustainable finance reforms, and in particular, the EUST, will not be limited to large companies or EU companies; they will affect all economic actors having business and finance connections in the EU“ (p. 14).

ESG rating credits: Determinants of corporate credit ratings: Does ESG matter? by Lachlan Michalski and Rand Kwong Yew Low as of Aug. 19th, 2023 (#25): “We show that environmental and social responsibility variables are important determinants for the credit ratings, specifically measures of environmental innovation, resource use, emissions, corporate social responsibility, and workforce determinants. The influence of ESG variables become more pronounced following the financial crisis of 2007-2009, and are important across both investment-grade and speculative-grade classes” (abstract).

Climate risk management: Climate and Environmental risks and opportunities in the banking industry: the role of risk management by Doriana Cucinelli, Laura Nieri, and Stefano Piserà as of Aug. 18th, 2023 (#22): “We base our analysis on a sample of 112 European listed banks observed from 2005 to 2021. Our results … provide evidence that banks with a stronger and more sophisticated risk management are more likely to implement a better climate change risk strategy. … Our findings underline that bank providing their employees and managers with specific training programs on environmental topics, or availing of the presence of a CSR committee, or adopting environmental-linked remuneration scheme, stand out for a greater engagement towards C&E risks and opportunities and a sounder C&E strategy” (p. 16).

Generic ESG Research (investor perspective)

ESG dissected: It’s All in the Detail: Individual ESG Factors and Firm Value by Ramya Rajajagadeesan Aroul, Riette Carstens and Julia Freybote as of Aug. 25th, 2023 (#29): “We disaggregate ESG into its individual factors (E, S and G) and investigate their impact on firm value using publicly listed equity real estate investment trusts (REITs) as a laboratory over the period of 2009 to 2021. … We find that the environmental factor (E) and governance factor (G) positively predict firm value while the social factor (S) negatively predicts it. … Further analysis into antecedents of firm value suggests that our results are driven by 1) E reducing cost of debt and increasing financial flexibility, operating efficiency, and performance, 2) S leading to a higher cost of debt as well as lower financial flexibility and operating performance, and 3) G increasing operating efficiency. … We also find evidence for time-variations in the relationships of E, S and G with firm value and its determinants” (abstract). My comment: This is not really new as one can see in my publication from 2014: 140227 ESG_Paper_V3 1 (naaim.org)

Greenbrown valuations: The US equity valuation premium, globalization, and climate change risks by Craig Doidge, G. Andrew Karolyi, and René M. Stulz as of Sept. 15th, 2023 (#439): “It is well-known that before the GFC (Sö: Global Financial Crisis of 2008), on average, US firms were valued more highly than non-US firms. We call this valuation difference the US premium. We show that, for firms from DMs (Sö: Developed Markets), the US premium is larger after the crisis than before. By contrast, the US premium for firms from EMs (Sö: Emerging Markets) falls. In percentage terms, the US premium for DMs increases by 27% while the US premium for EMs falls by 24%. … the differing evolution of the US premium for DM firms and for EM firms is concentrated among old economy firms – older firms in industries that have a high ratio of tangible assets to total assets. … We find that the valuations of firms in brown industries in non-US DMs fell significantly relative to comparable firm valuations in the US and this decline among brown industries in EMs did not take place. Though this mechanism does not explain the increase in the US premium for firms in DMs fully, it explains much of that increase. It follows from this that differences across countries in the importance given to sustainability and ESG considerations can decrease the extent to which financial markets across the world are integrated“ (p. 28).

Sin ESG: Does ESG impact stock returns for controversial companies? by Sonal and William Stearns as of Sept. 2nd, 2023 (#35): “We find that the market perception of ESG investments of controversial firms have changed over time. For the 2010-2015 period, ESG investments made by sinful firms are rewarded positively by increasing stock prices. However, for the sample period post 2015, increases in ESG no longer result in positive stock returns. We further find the maximum change for the oil and gas industry“ (p. 11/12). My comment see ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com)

Portfolio ESG effects: Quantifying the Impacts of Climate Shocks in Commercial Real Estate Market by Rogier Holtermans, Dongxiao Niu, and Siqi Zheng as of Sept. 7th, 2023 (#251): “We focus on Hurricanes Harvey and Sandy to quantify the price impacts of climate shocks on commercial buildings in the U.S. We find clear evidence of a decline in transaction prices in hurricane-damaged areas after the hurricane made landfall, compared to unaffected areas. We also observe that …. Assets in locations outside the FEMA floodplain (with less prior perception about climate risk) have experienced larger price discounts after the hurricanes. … Moreover, the price discount is larger when the particular buyer has more climate awareness and has a more geographically diverse portfolio, so it is easier for her to factor in this risk in the portfolio construction” (abstract).

ESG investors or traders? Do ESG Preferences Survive in the Trading Room? An Experimental Study by Alexander Bassen, Rajna Gibson Brandon, Andreas G.F. Hoepner, Johannes Klausmann, and Ioannis Oikonomou as of Sept. 19th, 2023 (#12): “This study experimentally tests in a competitive trading room whether Socially Responsible Investors (SRIs) and students are consistent with their stated ESG preferences. … The results suggest that all participants who view ESG issues as important (ESG perception) trade more aggressively irrespective of whether the news are related to ESG matters or not. … More importantly, SRIs trade on average much less aggressively than students irrespective of their ESG perceptions and behaviors” (abstract). … “Investors mostly consider macroeconomic and id[1]iosyncratic financial news in their investment decisions. Updates on the ESG performance of a firm are perceived as less likely to move prices by the participants. In addition to that, we observe a stronger reaction to positive news compared to negative news” (p. 26). My comment: I prefer most-passive rules based to active investments, compare Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com) or Active or impact investing? – (prof-soehnholz.com)

Supplier ESG research (also see Supplier engagement – Opinion post #211)

Supplier ESG shocks: ESG Shocks in Global Supply Chains by Emilio Bisetti, Guoman She, and Alminas Zaldokas as of Sept. 6th, 2023 (#38): “We show that U.S. firms cut imports by 29.9% and are 4.3% more likely to terminate a trade relationship when their international suppliers experience environmental and social (E&S) incidents. These trade cuts are larger for publicly listed U.S. importers facing high E&S investor pressure and lead to cross-country supplier reallocation …. Larger trade cuts around the scandal result in higher supplier E&S scores in subsequent years, and in the eventual resumption of trade” (abstract).

Sustainable supplier reduction: A Supply Chain Sourcing Model at the Interface of Operations and Sustainability by Gang Li and Yu A. Xia as of Aug. 25th, 2023 (#204): “This research investigates … how to integrate sustainability with sourcing planning decisions and how to address the challenges associated with the integration, such as the balance between operational factors and sustainability factors and the quantitative evaluation of sustainability performance. … Our model suggests that while increasing the number of suppliers may cause additional sustainability risk in supply chain management, decreasing the supply base will decrease the production capacity and increase the risk of delivery delay. Therefore, a firm should carefully set up its global sourcing network with only a limited number of selected suppliers. This finding is particularly true when the focus of sourcing planning gradually moves away from decisions based solely on cost to those seeking excellence in both supply chain sustainability and cost performance“ (p. 32).

Empowering stakeholders: Stakeholder Governance as Governance by Stakeholders by Brett McDonnell as of August 31st, 2023 (#64): “… American stakeholder engagement is limited to soliciting (and on occasion responding to) the opinions of employees, customers, suppliers, and others. True stakeholder governance would involve these groups in actively making corporate decisions. I have suggested various ways we could do this. The focus should be on employees, who could be empowered via board representation, works councils, and unions. Other stakeholders could be less fully empowered through councils, advisory at first but potentially given power to nominate or even elect directors” (p. 19).

Impact investment research (supplier ESG)

Anti-climate concert: Rethinking Acting in Concert: Activist ESG Stewardship is Shareholder Democracy by Dan W. Puchniak and Umakanth Varottil as of Sept. 13th, 2023 (#187): “… the legal barriers posed by acting in concert rules in virtually all jurisdictions prevent institutional investors from engaging in collective shareholder activism with the aim or threat of replacing the board (i.e., “activist stewardship”). Perversely, the current acting in concert rules effectively prevent institutional investors from replacing boards that resist (or even deny) climate change solutions – even if (or, ironically, precisely because) they collectively have enough shareholder voting rights to democratically replace the boards of recalcitrant brown companies. This heretofore hidden problem in corporate and securities law effectively prevents trillions of dollars of shareholder voting rights that institutional investors legally control from being democratically exercised to change companies who refuse to properly acknowledge the threat of climate change” … (abstract).

Other investment research

AI investment risks: Artificial Intelligence (AI) and Future Retail Investment by Imtiaz Sifat as of Sept. 12th, 2023 (#20): “I have analyzed AI’s integration in retail investment. … The benefits spring from access to sophisticated strategies once exclusive to institutional investors. The downside is that the opaque models which facilitate such strategies may aggravate risks and information asymmetry for retail investors. To stop this gap from widening, proper governance is essential. Similarly, the ability to ingest copious alternative data and instantaneous portfolio optimization incurs a tradeoff—too much dependence on historical data invokes modelling biases and data quality cum privacy concerns. It is also likely that AI-dominated markets of the future will be more volatile, and new forms of speculation would emerge as trading platforms incentivize speculation and gamification. The combined forces of these concurrent challenges put a heavy stress on orthodox finance theories …“ (p. 16/17). Maybe interesting: AI: Wie können nachhaltige AnlegerInnen profitieren? – Responsible Investment Research Blog (prof-soehnholz.com)

Venture careers: Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs via a Non-Wage Measure by Natee Amornsiripanitch, Paul A. Gompers, George Hu, Will Levinson, and Vladimir Mukharlyamov as of Aug. 30th, 2023 (#131): “Would-be founders experience accelerated career trajectories prior to founding, significantly outperforming graduates from same-tier colleges with similar first jobs. After exiting their start-ups, they obtain jobs about three years more senior than their peers who hold (i) same-tier college degrees, (ii) similar first jobs, and (iii) similar jobs immediately prior to founding their company. Even failed founders find jobs with higher seniority than those attained by their non-founder peers“ (abstract).

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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 30 of 30 engaged companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T; also see Active or impact investing? – (prof-soehnholz.com)

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Many greens: Picture from Alexa from Pixabay with 3 frogs

Many greens: Researchpost #133

Many greens: 12x new research on crypto spillovers, toxic risks, greenwashing, green lending, greening ECB, climate communications, climate policy costs, green bonds, impact investing, inclusive fintech, political engagement and digital angst (# SSRN downloads on June 30ths)

Social and ecological research: Many greens

Crypto spillovers: The Effects of Cryptocurrency Wealth on Household Consumption and Investment by Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson, and Jason Kotter as of June 28th, 2023 (#421): “Using financial transaction-level data for millions of U.S. households, we show that household crypto investors appear to treat crypto as one piece of an investment portfolio, some households chasing crypto gains and other households rebalancing a portion of crypto gains into traditional brokerage investments. Households also use crypto wealth to increase their discretionary consumption. The MPC (Sö: Marginal propensity to consume) out of crypto wealth is substantially higher than the MPC out of equity wealth …. Households also withdraw crypto gains to purchase housing—both to enter the market as new buyers and to upgrade their existing housing. This increased spending on housing puts upward pressure on local house prices, particularly in areas that are heavily exposed to crypto assets” (p. 33). My comment: I am worried about the effects of future crypto crashes on the real economy

Toxic effects: Pollution Risk and Business Activity by George Zhe Tian, Buvaneshwaran Venugopal, and Vijay Yerramilli as of June 18th, 2023 (#32): “… we use major toxic chemical spills as shocks to the pollution risk of their local neighborhoods and examine the consequent effects on local small business. …. Establishments in the smallest size quartile experience large reduction in sales, modest reduction in employment, and significant increase in likelihood of exit following exposure to pollution shocks, whereas those in the largest size quartile experience increase in sales and employment. … We also find that there is a significant and persistent exodus of population and income from counties that experience major toxic spills“ (p. 33/34).

Japanese greenwashing: Environmental Greenwashing: The Role of Corporate Governance and Assurance by Frendy, Tomoki Oshika, and Masayuki Koike as of May 17th, 2023 (#82): “First, companies with an indication of greenwashing decrease the extent of their disclosures for a given level of environmental performance. Second, those companies are likely to employ environmental assurance to intensify the greenwashing practice. … We found that organizational-level corporate governance characteristics of Japanese corporations are ineffective in mitigating greenwashing“ (p. 20).

Climate enforcement: The Environmental Spillover Effect through Private Lending by Lili Dai, Wayne R. Landsman, and Zihang Peng as of May 13th,2023 (#69): “We find evidence indicating that when one borrower experiences an enforcement action targeted by the Environmental Protection Agency (EPA), other firms sharing the common lender reduce toxic emissions in the following years. This spillover effect is more pronounced for lenders with stronger monitoring incentives and abilities and for borrowers with greater environmental pressures and larger similarities to EPA-targeted firms. Further analyses show increased abatement efforts and decreased profit margins following the enforcement shocks spread through lending networks. Taken together, these findings suggest that lenders can learn from and respond to borrowers’ EPA enforcement actions when dealing with other borrowers that pose similar environmental risks” (abstract).

ECB climate policy: Enhancing Climate Resilience of Monetary Policy Implementation in the Euro Area by Jana Aubrechtová, Elke Heinle, Rafel Moyà Porcel, Boris Osorno Torres, Anamaria Piloiu, Ricardo Queiroz, Torsti Silvonen, and Lia Vaz Cruz of the ECB as of June 23rd, 2023 (#28): “The European Central Bank (ECB) extensively reviewed its monetary policy implementation framework in 2020-21 to better account also for climate change risks. This paper describes these considerations in detail to provide a holistic perspective of one central bank’s climate-related work in relation to its monetary policy implementation framework. … Climate-related disclosures, improvements in risk assessment, a strengthened collateral framework and tilting of corporate bond purchases are the main pillars of the framework enhancements. … It also takes stock of the different challenges involved in the identification and estimation of climate change-related risk, how these can be partially overcome, and when they cannot be overcome, how they can constrain the ability of financial institutions, including central banks, to take further action. … This paper also examines possible future avenues that central banks, including the ECB, might take to further refine their monetary policy implementation using an assessment framework for climate change-related adjustments“ (abstract).

Climate communication: Ten key principles: How to communicate climate change for effective public engagement by Maike Sippel, Chris Shaw, and George Marshall as of June 19th, 2022 (#364): “This report summarises up-to-date social science evidence on climate communication for effective public engagement. It presents ten key principles that may inform communication activities. At the heart of them is the following insight: People do not form their attitudes or take action as a result primarily of weighing up expert information and making rational cost-benefit calculations. Instead, climate communication has to connect with people at the level of values and emotions. Two aspects seem to be of special importance: First, climate communication needs to focus more on effectively speaking to people who have up to now not been properly addressed by climate communications, but who are vitally important to build broad public engagement. Second, climate communication has to support a shift from concern to agency, where high levels of climate risk perception turn into pro-climate individual and collective action” (abstract).

Responsible investment research: Many greens

Climate policy costs: The Impact of Climate Change and Carbon Policy on Company Earnings by Matt Goldklang, Bingzhi Zhao, Ummul Ruthbah, Trinh Le, and Ben Bowring as of June 22th, 2023 (#158): “… we … build a framework for an asset-level, climate adjusted valuation of company earnings. In the European context, we see disparate impacts between and within sectors with carbon pricing impacts largest in the heavy emitting sectors, equivalent to -2% of earnings at the mean, whereas the physical impacts of climate change are more geographically segregated, with a median impact of -14% discounted 20 years into the future“ (abstract).

Brown trust: Green bonds pay when trustworthy by Sang Baum Kanga and Jiyong Eom as of May 30th, 2023 (#37): “… our empirical results support that green bond investors would pay more when they have greater confidence in the green management capability of the issuer. … the higher the relative intensity of GHG emissions, the greater the wedge between the green bond yield and the corresponding ”brown” bond yield. This may be puzzling to some readers because a firm with inferior environmental performance issues a more expensive green bond. However, the opportunity costs can explain this counter-intuitive finding. When a firm emits more GHG emissions, the firm is exposed to greater transition risk, and the firm’s environmental and financial successes become more correlated. Thus, the opportunity costs of committing greenwashing becomes higher, and the firm is more likely to use green bond proceeds responsibly. Therefore, the investor can regard the firm’s issuance of green bonds as a credible sign of commitment to green projects. Additionally, the markets are found to be statistically and economically sensitive to direct emissions (scope 1 emissions) rather than indirect emissions (scope 2 and 3 emissions) of bond issuers. According to our empirical results, the sub-investment-grade green bonds’ greenium is more negative than investment-grade green bonds. This may also surprise some audiences as the value of a green bond relative to its otherwise-equivalent conventional bond increases with a lower credit rating. …. Some might think the average greenium of -41 bps is small. However, recall that our sample, January 2013 to October 2021, is from low-interest-rate periods. More importantly, our primary market results are much more negative than other recent papers. … We conjecture that the green investors’ environmental preference may be reflected more clearly in the primary market, given their motives for providing affordable funds to the firm investing in green projects” (p. 18/19).

Impact PE: Private Market Impact Investing: A Turning Point by Michael Eisenberg, Katerina Labrousse and Ribhu Ranjan Baruah from the World Economic Forum as of May 8th, 2023: “Today, far more GPs (Sö: General Partners) at the higher end of the market are launching impact and energy transition products across private market asset classes and strategies, including infrastructure, buyouts, venture, private credit and other real assets. That means more and larger investments are made in impact-focused businesses, enabling the transition to a low-carbon economy” (p. 5). “Despite the many positive developments in the area of private market impact and transition investing over the last several years, much work remains to drive more capital to address the SDGs and accelerate the transition to a low-carbon economy. Asset owners need to further understand and develop convictions about the long-term secular tailwinds and favourable trends these opportunities present. Likewise, GPs need to further develop their track records and attract even more impact and transition investing talent to expand their capabilities in these areas and raise larger pools of capital over time” (p. 28). My comment: For public market “impact” investing see e.g. ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com) and Active or impact investing? – (prof-soehnholz.com)

Inclusive fintech: Fintech and Financial Inclusion: A Review of the Empirical Literature by Carter Faust, Anthony J. Dukes and D. Daniel Sokol as of May 16th, 2023 (#61): “Fintech has proven to enable financial inclusion on a global scale. This review highlighted case studies that demonstrate how digital lending, digital payment, and mobile money platforms can bring financial services to unbanked and underbanked communities. It further provided examples of how fintech can increase resilience in times of economic crises and shock, especially in underdeveloped regions. This review also acknowledged common challenges associated with the adoption of fintech, such as consumer data and privacy concerns, as well as infrastructure and education barriers“ (p. 151)

Political engagement: Collaborative investor engagement with policymakers: Changing the rules of the game? by Camila Yamahaki and Catherine Marchewitz as of June 25th, 2023 (#18): “A growing number of investors are engaging with policymakers on environmental, social and governance (ESG) issues, but little academic research exists on investor policy engagement. Applying universal ownership theory and drawing on eleven case studies of policy engagement … We identify a trend that investors engage with sovereigns to fulfil their fiduciary duty, improve investment risk management, and create an enabling environment for sustainable investments“ (abstract). My comment: Regarding shareholder engagement see also Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

and other research

Digital angst: Digital Anxiety in the Finance Function: Consequences and Mitigating Factors by Sebastian Firk, Yannik Gehrke and Miachel Wolff as of May 13th, 2023 (#36): “Based on a survey of more than 1,000 employees working in the finance function of a large multinational business group, we observe that digital anxiety is relevant among 40% of the respondents. We further find that digital anxiety is negatively associated with employees’ work engagement, which further relates to fewer realized benefits from digital technologies. Finally, we argue and find that digital trainings, the digital affinity of peers, and transformational leadership can help to mitigate digital anxiety among employees” (p. 31).

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