Archiv der Kategorie: Indexselektion

Quant ESG: Researchpost 221

Quant ESG: 12x new research on tariffs, costly pollution, electric vehicles, steel, costly policy uncertainty, green/brown split, quantitative ESG, brown mortgage costs, diversification, bitcoin and financial AI (#shows the SSRN full paper downloads as of April 10th, 2025)

Social and ecological research

Trump trades: Anticipating Trade Turbulence: Assessing the Economic Impacts of President Trump’s Proposed Tariff Scenarios by Jianwei Ai, Wu Huang, Minghao Li, Terry Zhang, and Wendong Zhang as of Jan. 28^th, 2025 (#885): “This paper explores the potential economic consequences of President Donald Trump’s proposed tariff scenarios in his second term. … we study six tariff scenarios based on President Trump’s proposed tariffs … . The scenarios include both escalating US tariffs and retaliatory measures by trade partners. … we find that the proposed tariffs could significantly disrupt global trade and lead to mostly negative impacts on the US and its trading partners. In terms of welfare loss, Canada and Mexico will suffer the most from a trade war with the US. China also will experience substantial welfare decreases from an escalation of its existing trade war with the US but stands to benefit from US tariffs on Mexico and Canada. US will experience mixed welfare changes in different scenarios with smaller magnitudes” (abstract).

Costly pollution: The Cost of Air Pollution for Workers and Firms by Marion Leroutier and Hélène Ollivier as of April 8^th, 2025 (#9): “… even moderate air pollution levels, such as those in Europe, harm the economy by reducing firm performance. Using monthly firm-level data from France, we estimate the causal impact of fine particulate matter (PM2.5) on sales and worker absenteeism. Leveraging exogenous pollution shocks from local wind direction changes, we find that a 10 percent increase in monthly PM2.5 exposure reduces firm sales by 0.4 percent on average over the next two months, with sector-specific variation. Simultaneously, sick leave rises by 1 percent. However, this labor supply reduction explains only a small part of the sales decline. Our evidence suggests that air pollution also reduces worker productivity and dampens local demand” (abstract).

EV mania: The EV Shakeout by Rob Arnott, Bradford Cornell, Forrest Henslee, and Thomas Verghese as of April 8^th, 2025 (#19): “The electric vehicle (EV) sector’s dramatic trajectory from a 900% market capitalization surge in 2020–2021 to a widespread collapse by 2025 exemplifies a „big market delusion“—where investors overestimated the success of early entrants in a transformative industry, ignoring historical consolidation patterns. This paper analyzes how speculative fervor, rather than economic fundamentals, drove valuations to unsustainable heights, only for competition and capital constraints to trigger a brutal shakeout. We document substantial losses, with billions evaporated as firms like Rivian and Nikola faltered or failed. Tesla’s outsized valuation, defying traditional metrics, fueled the bubble, while Chinese manufacturers, leveraging state-backed innovation and pricing, reshaped global competition and pressured Western startups“ (abstract).

Green steel? Estimating firms’ emissions from asset level data helps revealing (mis)alignment to net zero targets by Hamada Saleh, Thibaud Barreau, Stefano Battiston, Irene Monasterolo, and Peter Tankov as of Feb.21^st, 2025 (#35): “We develop a new bottom-up methodology to estimate companies’ (mis)alignment to net-zero scenarios. It uses companies’ asset-level data on greenhouse gas emissions at production units. We apply the methodology to the steel sector globally and we find that companies’ projected emissions at 2030 exceed by up to 20% the levels of the corresponding net-zero scenario of the International Energy Agency …. Further, we find that projected emissions at 2030 exceed companies’ aggregate stated targets, even in the optimistic case of electricity supply decarbonization rate following the net-zero scenario. Moreover, the discrepancy is driven by the largest steel companies” (abstract).

ESG investment research (in: Quant ESG)

Green political cost: Climate Policy Uncertainty and Firms‘ and Investors‘ Behavior by Piero Basaglia, Clara Berestycki, Stefano Carattini, Antoine Dechezleprêtre, and Tobias Kruse as of April 7^th, 2025 (#14): “… This paper introduces a novel Climate Policy Uncertainty (CPU) index … we find that uncertainty surrounding climate policies negatively impacts firm financial outcomes, innovation, and stock-market outcomes for firms that are in CO2-intensive sectors, i.e. exposed to climate policy. Higher CPU reduces capital expenditures, employment, and research and development, which in turn translates to a decrease in innovation (patent filings), particularly for clean technologies. On the stock market, CPU leads to increased stock volatility and decreased returns for exposed firms” (abstract).

Green/brown split: The Political Economy of Green Investing: Insights from the 2024 U.S. Election by Marco Ceccarelli, Stefano Ramelli, Anna Vasileva, and Alexander F. Wagner as of April 1^st, 2025 (#62): “… We provide evidence from incentivized surveys of U.S. investors before and after the 2024 U.S. presidential election. After Trump’s victory, investors reduced green investments on average. However, investors who strongly disapprove of his climate policy increased their green investment taste. These “contrarians” placed greater weight on non-pecuniary considerations and less on financial ones, suggesting they view green investing as a way to compensate for perceived climate inaction. Empirical analyses of real-world ETF flows align with this interpretation …“ (abstract).

Quant ESG (1)? A Systematic Approach to Sustainable and ESG Investing by Andrew Ang, Gerald T. Garvey, and Katharina Schwaiger from Blackrock as of April 3^rd, 2025 (#58): “… Divesting from industries like tobacco, defense, coal, oil, and utilities can only decrease the investment opportunity set. Over 1969 to 2023, excluding these industries has resulted in lower returns: the average return comparing the market constructed excluding these industries is 1.1% lower than the full market. According to the framework of the dividend discount model, sustainable or ESG signals can predict stock prices only if they predict cashflows, or they are related to discount rates, or both. An important insight from this analysis is that, all else equal, higher demand for stocks with more sustainable characteristics or higher ESG ratings would result in lower expected returns. … The second avenue that sustainable signals and ESG ratings can affect returns is if they are related to style factors. Since 2014, MSCI ESG scores have exhibited positive correlations to quality and low volatility factors which, all else equal, would contribute to higher expected returns. By construction, the E, S, and G signals measure or can help effect a real-world ESG outcome: firms with higher carbon-adjusted profits have, by definition, abnormally high earnings relative to the carbon they emit, geographical areas with higher CFPB complaints experience more consumers’ financial vulnerability, and greater board diversity may be an important signal of equality in and of itself …“ (p. 37/38). My comment: This research also shows that the divestment effect depends on the period chosen and taht stock price prediction is problematic. In my opinion, similar performance of sustainable and traditional investments clearly speaks for sustainable investments.

Quant ESG (2): ESG Return and Portfolio Attribution via Shapley Values by Andrew Ang, Debarshi Basu, and Marco Corsi as of April 3^rd, 2025 (#48): “… We show that over 2017 to 2024, Social and Governance scores contribute positively to the ESG portfolio outperforming the MSCI World Index, whereas Environmental scores detracted. Most of the realized active risk of the ESG portfolio is due to Environmental and Governance scores. There is very little contribution to performance, risk, and turnover from reducing carbon emission intensities” (p. 24/25).

Brown mortgage costs: From flood to fire: is physical climate risk taken into account in banks’ residential mortgage rates? by Adele Fontana, Barbara Jarmulska, Benedikt Scheid, Christopher Scheins, and Claudia Schwarz from the European Central Bank as of March 13^th, 2025 (#65): “Physical climate risks can have a large regional impact, which can influence mortgage loans’ credit risk and should be priced by the lenders. … We show that on average banks seem to demand a physical climate risk premium from mortgage borrowers and the premium has increased over recent years. … Banks that were identified as “adequately” considering climate risk in the credit risk management by the ECB Banking Supervision charge higher risk premia which have been increasing particularly after the publication of supervisory expectations. In contrast, the lack of risk premia of certain banks shows that ECB diagnostics in the Thematic Review on Climate were accurate in identifying the banks that need stronger supervisory focus” (abstract).

Other investment research

Implicit diversification: Reclassifying Investment Indexes Based on Sales and Earnings Instead of Legal Domicile by Erblin Ribari as of April 2^nd, 2025 (#21): “Based on two decades of financial and macroeconomic data, it challenges the common view of the S&P 500 as a purely domestic U.S. index, highlighting that around 45 percent of its constituent companies’ revenues come from international markets … the paper shows that the S&P 500 responds strongly to global economic factors“ (abstract).

Bitcoin speculation: The Optimal Long-term Portfolio Share of Bitcoin is Negative (or Zero) by Alistair Milne as of April 1^st, 2025 (#39): ” “Applying the standard Markovitz mean-variance framework to a two asset portfolio consisting of US stocks (S&P500) and Bitcoin (BTC) … With risk (variance and covariance) estimated using data from 02/14 to 02/25 and long-term returns based on standard efficient markets assumptions, the optimal portfolio share for Bitcoin-1.6% (full sample) and-7.3% (recent sample), regardless of investor preferences towards risk. Other studies of BTC in portfolio management report that a positive BTC portfolio share improves risk-return trade-offs. This difference is explained by their focus on short-term dynamic asset allocation strategies and the more recent data used here, exhibiting an increased +ve correlation between BTC and stock returns” (abstract).

Finance AI: Large Language Models in Equity Markets: Applications, Techniques, and Insights by Aakanksha Jadhav and Vishal Mirza as of April 9^th, 2025 (#18): “… This paper presents a comprehensive review of 84 research studies conducted between 2022 and early 2025, synthesizing the state of LLM applications in stock investing. … Our analysis identifies key research trends, commonalities, and divergences across studies, evaluating both their empirical contributions and methodological innovations. We highlight the strengths of existing research, such as improved sentiment extraction and the use of reinforcement learning to factor market feedback, alongside critical gaps in scalability, interpretability, and real-world validation. Finally, we propose directions for future research …“ (abstract).

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Werbung (in: Quant ESG)

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-/Mid-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R) investieren und/oder ihn empfehlen.

Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich einzigartig hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und sehr hohen E-, S- und G-Best-in-Universe-Scores sowie einem besonders umfangreichen Aktionärsengagement (siehe auch My fund).

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

Insgesamt hat der von mir beratene Fonds seit der Auflage im August 2021 eine ähnliche Performance wie traditionelle globale Small- und Mid-Cap-Fonds (vgl. z.B. Fonds-Portfolio: Mein Fonds | CAPinside und Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds?).

Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Ein besonders konsequent nachhaltiges Portfolio mit marktüblichen Renditen und (eher niedrigeren) Risiken. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.

Best-in-Universe und Best-in-Class ESG-Scores: Große Unterschiede

Best-in-Universe und andere Daten von Clarity.ai vom März 2025

Basierend auf denselben Basisdaten können sehr unterschiedliche ESG-Scores berechnet werden. In der Praxis finden sich häufig relativ anspruchslose Best-in-Class-Ansätze. Mit einem Best-in-Universe-Ansatz lassen sich Nachhaltigkeitsunterschiede aber viel besser erkennen. SDG-Umsätze differenzieren nachhaltige Investments sogar noch stärker.

ESG-Ratings oder ESG-Scores?

ESG-Scores sind die beliebtesten Indikatoren, um die Nachhaltigkeit von Geldanlagen zu messen. Jeder kann solche Scores auf Basis von Umwelt-, Sozial- und Unternehmensführungsinformationen erstellen. ESG-Ratings sind ESG-Scores von Ratingagenturen. Im Folgenden nutze ich den Oberbegriff ESG-Score.

ESG-Scores werden oft kritisiert, weil sie sich je nach Berechner stark unterscheiden können (vergleiche z.B. diese neue OECD-Studie: Behind ESG ratings: Unpacking sustainability metrics). Die Gründe dafür sind Unterschiede in den verwendeten Daten und in den Methoden zur Aggregation der Daten. Einige Marktteilnehmer hoffen, dass die ESG-Scoring-Unterschiede mit dem geplanten Europäischen (ESG) Datenpool weitgehend verschwinden (vgl. Einrichtung eines European Single Access Points (ESAP)). Das erwarte ich nicht.

In diesem Beitrag zeige ich, dass selbst mit demselben ESG-Datenpool sehr unterschiedliche ESG-Scores gebildet werden können. Der besonders konsequente Best-in-Universe-Ansatz wird bisher aber nur sehr selten genutzt. Ich zeige auch, dass SDG-vereinbarer Umsatz eine wichtige aber ebenfalls kaum genutzte Ergänzungskennzahl für ESG-Scores ist.

Methodische Unterschiede von Best-in-Class-ESG-Scores

2012 haben wir damit begonnen, die Aktien mit den besten ESG-Scores unseres damaligen Datenanbieters auszuwählen. Aber viele der Unternehmen mit den besten ESG-Scores hielt ich nicht für besonders nachhaltig. Ein Grund: Die ESG-Scores basierten auf Vergleichen mit Unternehmen aus denselben Branchen, also einem Best-in-Class-Ansatz. Ich wollte aber keine relativ guten ökologischen Unternehmen aus ökologisch schlechten Branchen in meine Portfolios aufnehmen.

2020 habe ich Clarity.ai als Anbieter von Nachhaltigkeitsdaten ausgewählt. Ein wichtiger Grund war die Möglichkeit, individuelle ESG-Scores zu erstellen, insbesondere Best-in-Universe-Scores.

Unterscheidungsmerkmale unterschiedlicher ESG-Scores sind das Universum der Unternehmen, für die Scores berechnet werden, die ESG-Gewichtungsschemata und die Benchmarks für die relativen ESG-Scores.

Für diese Analyse nutze ich vier unterschiedliche ESG-Scores: Der „Normale Durchschnitt“ ESG-Score verwendet alle Unternehmen und alle Daten ohne spezifische ESG-Gewichtungsdifferenzierungen nach Branchen. Dieser Ansatz macht wenig Sinn und wird sehr selten genutzt.

Beim ESG-Score „Alle Unternehmen“ (Clarity.ai Bezeichnung) werden nur Unternehmen mit einer ESG-Datenrelevanz von mindestens 25 % verwendet und die Gewichtung erfolgt anhand eines sogenannten Branchenkonsens. Für den ESG-Score „Hohe Relevanz“ werden nur Unternehmen mit einer Datenrelevanz von mindestens 40 % zugelassen und es wird ebenfalls nach Branchenkonsens gewichtet. „Alle Unternehmen“ und „Hohe Relevanz“ sind Best-in-Class-Ansätze. Ich nutze einen maßgeschneiderten „Best-in-Universe“-Ansatz für alle Unternehmen mit mindestens 25 % Datenrelevanz sowie Branchenkonsensgewichtung.

Anders als bei manchen anderen Anbietern werden für die ESG-Scores nur nachhaltigkeitsrelevante Informationen berücksichtigt und keine Finanzkriterien. Scores von über 50 von 100 sind Indikatoren für relativ geringe ESG-Risiken.

Große Unterschiede zwischen aggregierten ESG-Bewertungen auf der Grundlage desselben Datenpools

Für den Vergleich der unterschiedlichen ESG-Scoring-Ansätze habe ich sechs Aktienindex-ETFs ausgewählt, die ich für die Performance-Einschätzung des von mir beratenen Investmentfonds nutze. Bei dem Fonds handelt es sich um einen globalen Small- und teilweise Mid-Cap-Aktienfonds mit SDG-Ausrichtung. Der Fonds ist hauptsächlich in Aktien des Gesundheitswesens und „grüne“ Aktien aus den Bereichen erneuerbare Energien und Industrie investiert.

Die scheinbar gute Nachricht zuerst: Methodenunabhängig weisen alle ausgewählten ETFs (Indizes) durchschnittliche aggregierte ESG-Scores von mindestens 54 von 100 auf (Siehe Abb. 1: Titelbild des Blogposts). Das deutet auf geringe ESG-Risiken hin (Siehe Abb. 1: Titelbild des Blogposts). Der All Countries World ETF hat sogar einen Score von mindestens 63.

Die Unterschiede zwischen den durchschnittlichen ESG-Bewertungen der Methoden reichen von 74 bis 62, was einer Differenz von fast 20 % entspricht (siehe Zeile „Average“ in Abbildung 1 oben). Beim New Energy ETF beträgt der Unterschied zwischen dem besten und dem schlechtesten ESG-Score 30 % (Spalte „Difference Best/Worst“).

Meiner Erfahrung nach sind ESG-Scores nicht normalverteilt sondern tendenziell besser als 50 von 100. Sehr niedrige und sehr hohe Scores sind äußerst selten. In einer kürzlich durchgeführten Analyse tausender Fonds habe ich keinen einzigen Fonds mit einem Best-in-Universe ESG-Score von über 72 gefunden (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!).

Noch größere Unterschiede bei separaten E-, S- und G-Scores

In einer zusätzlichen Analyse habe ich die separierten E-, S- und G-Scores miteinander verglichen (vgl. Abb. 2). Bei der Best-in-Universe-Methode fallen die Sozial-Scores der Healthcare-, New Energy- und Small-Cap-ETFs unter 50. Mit 44 ist das Sozialrisiko von Small-Caps demnach relativ hoch, während es bei den beiden erstgenannten ESG-Scoringmethoden mit 66 bzw. 61 gering erscheint.

Abb. 2: Sozial-Scores ausgewählter Fonds

Während die verschiedenen Methoden bei den Governance-Scores nur um 5 % und bei den ökologischen Scores um 10 % voneinander abweichen (nicht aus den beiden Abbildungen ersichtlich), beträgt die Divergenz bei den sozialen Scores 36 % (s. Zeile bzw. Spalte „Difference Best/Worst“). Der Small-Cap-ETF weist mit 50% die größte Abweichung zwischen einem Normal Average S-Score von 66 und einem Best-in-Universe S-Score von 44 auf.

Und die Streuung der ESG-Bewertungen einzelner Aktien ist noch erheblich größer als die diversifizierter Indizes (vgl. Zeile „Difference Best/Worst“ in Abb. 3 und auch Glorreiche 7: Sind sie unsozial?).

Abb. 3: Sozial-Scores für die Aktien der sogenannten „Glorreichen 7“

Best-in-Universe-Scores sind am strengsten und differenzieren am meisten

Der Normal Average Score, aber auch die anderen Best-in-Class Scores, sind (viel) weniger streng als der Best-in-Universe Score (siehe Average in Abb. 1, 2 und 3).

Wenn einige Bewertungsmethoden zu systematisch (z. B. linear) höheren oder niedrigeren Werten als andere führen würden, könnten die Scores durch Auf- oder Abschläge leicht miteinander verglichen werden. Die Rangfolge der ESG-Scores der verschiedenen Indizes und Wertpapiere ist jedoch manchmal unterschiedlich: Der Small-Cap-ETF hat immer die niedrigste aggregierte ESG-Bewertung. Aber der Mid-Cap-ETF hat die beste ESG-Bewertung mit der Best-in-Class All Companies, nicht aber mit der Best-in-Class High Relevance oder der Best-in-Universe-Bewertung (vgl. Abb. 1). Die Nachhaltigkeits-Rangfolge der ETFs unterscheiden sich noch etwas mehr, wenn nur die E- oder S-Scores verglichen werden (vgl. Abb. 2).

Auch die Differenz zwischen den besten und den schlechtesten ESG-Scores der weniger strengen Index-Scoring-Ansätze liegt nur 18% auseinander, während sie beim Best-in-Universe-Scoring-Ansatz um 30% differiert. Die Differenz der Best-in-Universe E- und S-Scores steigt sogar auf über 40% (vgl. Abb. 2).

Fast alle Forscher und Praktiker scheinen Best-in-Class-Bewertungen zu verwenden. Ich bezweifle, dass viele Fachleute den sehr einfachen Ansatz des normalen Durchschnitts nutzen. Ich gehe davon aus, dass sie in der Regel einen weniger strengen „Alle Unternehmen“-Score verwenden und nicht den strengeren „Hohe Relevanz“-Ansatz, allerdings kenne ich keine Studien zur Nutzungshäufigkeit. In Veröffentlichungen finden sich zudem vor allem aggregierte ESG-Scores und viel seltener differenzierte E-, S- und G-Scores (ein frühes Beispiel dafür siehe Fetsun/Söhnholz: „A quantitative approach to responsible investment: Using ESG multifactor models to improve equity portfolios“ Veritas Investment Arbeitspapier, präsentiert auf der PRI Academic Network Conference in Montreal, 23. September 2014).

Warum SDG-Umsätze wichtiger als Best-in-Universe Scores sind

Um besonders nachhaltige Investments zu identifizieren, sind ESG-Scores unzureichend (vgl. 18 Dimensionen nachhaltiger Anlagepolitik – DVFA veröffentlicht grundlegend überarbeiteten Leitfaden und kostenfreies Tool zu verantwortungsvoller Anlagepolitik). Bisher gibt es aber keine umfassenden Nachhaltigkeitskennzahlen.

Neben guten ESG-Scores, also geringen ESG-Risiken, ist vielen Anlegern die Vermeidung unerwünschter Aktivitäten und der Grad nachhaltiger positiver Aktivitäten wichtig. Für den ersten Punkt habe ich eine umfassende Liste von „Exposures“ definiert und für die analysierten ETFs miteinander verglichen. Bei dieser Kennzahl schneidet der ESG-schlechteste Small-Cap ETF besser als andere genutzten ETFs ab (vgl. Abb. 1).

Mir ist eine möglichst gute Vereinbarkeit mit den Nachhaltigen Entwicklungszielen der Vereinten Nationen (SDG) besonders wichtig (vgl. 241203_Nachhaltigkeitsinvestmentpolitik_der_Soehnholz_Asset_Management_GmbH.pdf). Der Grund: Sehr viele Unternehmen mit hohen ESG-Scores bieten Produkte oder Dienstleistungen an, die ich nicht für ökologisch oder sozial vorteilhaft halte. Das gilt zum Beispiel für 6 der Glorreichen 7 (die typischerweise hohe aggregierte Best-in-Class ESG-Scores aufweisen).

Ursprünglich habe ich Aktien auf der Grundlage ihrer „reinen“ Ausrichtung auf Marktsegmente wie erneuerbare Energien und Gesundheitswesen ausgewählt. Inzwischen muss ich die SDG-Vereinbarkeit nicht mehr selbst einschätzen, da Claity.ai (und einige andere) jetzt aktivitätsbasierte Netto-SDG-Umsätze für viele Aktien bereitstellen (zur Definition dieser und anderer SDG-Metriken siehe SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl).

Diese Kennzahl differenziert noch erheblich deutlicher zwischen besonders nachhaltigen (vgl. New Energy Abb. 1) und besonders wenig nachhaltigen (vgl. Small Caps) Investments als ESG-Scores.

Zwar gibt es – wie für ESG-Scores – auch mehrere SDG-Umsatz-Berechnungsmethoden (Aktivitäts- oder Entity-basiert, brutto- oder netto) mit sehr unterschiedlichen möglichen Ergebnissen, aber diese sind einfacher nachvollziehbar als die ESG-Methoden.

Fazit: Transparente und mehr (Best-in-Universe) Nachhaltigkeitsindikatoren verwenden

Anbieter und professionelle Nutzer von Nachhaltigkeitskennzahlen sollten klar begründen, welche sie verwenden. Darüber hinaus sollten Anleger darauf hingewiesen werden, dass einige der Wertpapiere sogenannter nachhaltiger Produkte möglicherweise hohe ESG-Risiken oder geringe SDG-vereinbare Umsätze ausweisen. Idealerweise werden separate E-, S- und G-Scores und SDG-Umsätze pro Wertpapier veröffentlicht. Auch potenziell kritische Aktivitäten sollten offengelegt werden.

Bisher habe ich nur sehr wenige Investmentanbieter gesehen, die dies tun.

Hinweis: Ich bin Berater des FutureVest Equity Sustainable Development Goals Fonds, Mitglied des DFVA Fachausschusses Impact und Kunde von Clarity.ai.

Meinen Offenlegungsansatz findet man unter https://futurevest.fund/ in den Rubriken „Fondspositionen“ mit ESG-Risiken und SDG-Erträgen, CO2-Informationen, Exposure-Informationen und Informationen zum Shareholder Engagement und dokumentiert in der „Nachhaltigkeitsinvestmentpolitik“.

Dieser Beitrag wurde zunächst in Englisch geschrieben und dann mit Hilfe der kostenlosen Version von DeepL.com übersetzt.

Green impact? Researchpost 205

Green impact: 9x new research on the end of oil, biodiversity stress and neighbor risks, high greenwashing costs, bad climate solution returns, green patent disappointments, venture impact and there is no passive investing (# shows the number of SSRN full paper downloads as of Dec. 5^th, 2024)

Nachhaltigkeits- und Investmentforschung aus Impact Investing Insights 2024 von Dirk Söhnholz vom 3. Dezember 2024: „In diesem Beitrag geht es vor allem um die Frage, wie man neue wissenschaftliche Forschung findet, die für die eigene Geldanlage relevant sein kann. Der Fokus liegt dabei auf nachhaltigkeitsbezogenem Research … wer sich nicht auf meine (Sö: Research-=Posts verlassen möchte, kann mit Hilfe dieses Beitrags selbst für sich relevante wissenschaftlich Forschung finden. Damit gibt es keine guten Ausreden mehr, wissenschaftliches Research zu vernachlässigen“ (S. 12/13).

Social and Ecological Research

Winning green paradox? The End of Oil by Ryan Kellogg as of Dec. 2^nd, 2024 (#12): “It is now plausible to envision scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption of stringent climate policies, or both. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is the well-known “green paradox”: because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers‘ investment rates, decreasing near-term oil production and CO2 emissions. … I develop a tractable model of global oil supply that incorporates both effects … I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox. In order for anticipation effects on net to substantially increase cumulative global oil extraction, I find that industry investments must have short time horizons, and that producers must have discount rates that are comparable to U.S. treasury bill rates” (abstract).

ESG investment research (in: Green impact)

Low biodiversity risk? A Biodiversity Stress Test of the Financial System by Sophia Arlt, Tobias Berg, Xander Hut and Daniel Streitz as of Dec. 3^rd, 2024 (#25): “Our study provides a comprehensive assessment of the European financial system’s exposure to biodiversity-related transition risk, alongside a comparative analysis with climate-related transition risk. … we find that while a non-negligible share of bank credit is linked to industries exposed to biodiversity transition risk (approximately 15% of total credit to non-financial firms), the overall financial system impact appears moderate. The bottom-up stress test indicates that even under severe stress scenarios, the additional losses from biodiversity risks are estimated at only 0.3 to 0.5% of the total non-financial corporate loan portfolio. … the capital shortfall associated with a severe shock to the biodiversity risk factor would only amount to about 0.5% of banks’ market capitalization“ (p. 23).

High biodiversity risk? Double Materiality of Biodiversity-related Risks: From Direct to Supply Chain Portfolio Assessment by Anthony Schrapffer, Jaime Andres Riano Sanchez, and Julia Bres as of Dec. 3^rd, 2024 (#32):“42.7% (resp. 31.4%) of a portfolio based on the Stoxx 600 has a strong or very strong direct (resp. indirect) dependency on biodiversity and that 59.9% (resp. 44.64%) has a strong or very strong direct (resp. indirect) impact on biodiversity. … The integrated oil and gas, clothing and electricity sectors are particularly sensitive as they have both a very high dependency and a very high negative impact on biodiversity“ (abstract).

Dangerous neighbors? Proximity Peril: The Effects of Neighboring Firms’ Biodiversity Risk on Firm Value by Chenhao Guo and Rui Zhong as of Nov. 13^th, 2024 (#56): “Since geographically proximate firms operate in local biosphere and rely on common ecosystem services, a focal firm value might be affected by proximate firms’ biodiversity risk. … We find that one standard-deviation increase in neighboring firm’s biodiversity risk measure is associated with about 3.78% decline in the corresponding focal firm’s value on average. Using the Deepwater Horizon oil spill in 2010 as an exogenous shock, we establish a causal relationship. … we find that proximate firm’s biodiversity risk leads to significant declines in sector-wide and long-run value components. Further analysis shows that the negative effects are more pronounced in industries with high biodiversity risk or when firms are connected through supply chains …” (abstract).

High cleanwashing costs: Greenwashing: Measurement and Implications by Qiyang He, Ben R. Marshall, Justin Hung Nguyen, Nhut H. Nguyen, Buhui Qiu, and Nuttawat Visaltanachoti as of Dec. 3^rd, 2024 (#102): “This study employs earnings conference call transcripts and a specialized machine learning model, FinBERT, to measure greenwashing intensity for a broad sample of U.S. public-listed firms spanning the 2007-2021 sample period. … First, we observe that the economy-wide aggregate GW measure markedly increased after the 2015 Paris Agreement. Second, we find that the utility industry has the highest level of GW intensity among all industries. Third, we … find that relative to other firms, firms in the fossil fuel industry or the broader stranded asset industries, experienced a significant increase in greenwashing intensity after the Paris Agreement. Fourth, we find that firms with higher greenwashing intensity incur a greater amount of future environmental incidents, experience a higher amount of future EPA enforcement actions, and have higher future carbon emissions. Fifth, despite their higher likelihood of experiencing future environmental incidents and EPA enforcement, we find no evidence that GW firms produce more green innovation than other firms. … Our findings indicate that GW is associated with lower cumulative abnormal stock returns after earnings conference calls and predicts poorer future corporate operating performance. … we … document that firms with greater GW intensity tend to receive higher future environmental ratings from different rating companies. … after the Paris Accord, there is a positive relation between GW and top executives’ future job security. … greenwashing firms are more likely to link their CEO pay with corporate environmental performance in their compensation contracts. These findings suggest an agency explanation for greenwashing: managers engage in greenwashing to increase their job security and compensation, at the expense of shareholders and other stakeholders“ (p. 37/38). My comment: With my focus on high SDG-aligned revenues, high best-in-class instead of best-in-universe E, S an G Scores and my engagement focus on the CEO to average employee pay ration instead of the introduction of ESG-linked compensation I think that I am rather well protected against greenwashing of my portfolio companies.

SDG investment research

Climate hedges: Climate Solutions, Transition Risk, and Stock Returns by Shirley Lu, Edward J. Riedl, Simon Xu, and George Serafeim as of Nov. 21^st, 2024 (#112): “A long-short portfolio constructed from firms with high versus low climate solutions within an industry group generates an average excess return of-5.37% per year from 2005 to 2023” (p. 34). … “… we find that high-climate solution firms exhibit lower stock returns and higher market valuation multiples. Their stock prices respond positively to events signaling increased demand for climate solutions. These firms also show higher future profitability during periods of regulatory uncertainty, unexpected increases in climate concerns, and when a larger share of their sales occurs in states with climate plans and stronger public support for addressing climate change. Overall, our results indicate that high-climate solution firms, whose business benefits as climate transition risks materialize, hedge investors against such risks”. My comment: Maybe it is good, that most investors cannot go short climate stocks. And remember: Past returns may not be a good indicator of future returns. My experience with climate-solution investments is rather positive.

No patent green impact? Green Innovations – Do patents pay off for the environment or for the investors? by Malte Schlosser, Ester Trutwin and Thorsten Hens as of Feb. 28^th, 2024 (#271): “An examination of WIPO (Sö: World Intellectual Property Organization) patent data in conjunction with MSCI data reveals that companies with relatively more new green patents are those with less carbon emissions … Our analysis indicates that the firm’s green patent ratio does not contribute to an improved ESG score. However, we find evidence that the number of green patents within the last 240 months results in a better E, and industry adjusted ESG score. … While all patent strategies are underperforming the market, they tend to outperform or produce similar returns compared to the environmental and ESG strategies“ (p. 24/25).

Venture capital green impact? Impact Investment Funds by Alan S. Gutterman as of Sept. 16^th, 2024 (#37): “This Work begins with an overview of the “impact startup” financial market .. The Work then dives into the practical “nuts and bolts” of practicing impact venture capital including the structure of impact investment funds and the steps that fund managers need to take to effectively “organize for impact” and the fundraising process for capitalizing the fund including due diligence, preparation and use of offering documents and negotiation of terms of the fund’s limited partnership or operating agreement. … The Work closes with a review of some of the challenges that must be overcome for the impact venture capital sector to fulfill its promise as important contributor to developing and implementing innovative and financially viable solutions to achieve society’s aspirations for sustainable development and progress” (p. 1).

Other investment research (in: Green impact)

No passive investing? Casting a Wide Net: Why True Passive Strategies Are Rare Catches by Alejandro Gaba, Jennifer Bender, Yvette Murphy, and John Tucker State Street Global Advisors from State Street Global Advisors as of Sept. 23^rd, 2024 (#67): “With the rapid expansion of index funds, including smart beta and factor portfolios, what is active versus what is passive has become difficult to discern. Here we argue that only the theoretical market portfolio is “purely” passive and in practice only index portfolios that track broad market cap weighted indices (“passive-adjacent”) can be viewed as passive investing. Everything else is active. However, everything that is active lies on a spectrum and can be evaluated based on a framework we call “Conceptual Activeness.” We discuss three key parts of Conceptual Activeness – Simplicity, Transparency, and Acceptance …”. My comment: I miss a discussion of Multi-Asset Portfolios which are even less passive than equity portfolios, see Multi-Asset Benchmarks: Gibts nicht, will keiner. Oder doch? – Responsible Investment Research Blog. All my portfolios are rather simple, transparent but – unfortunately – not widely accepted (see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf).

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Werbung (in: Green impact)

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Wrong ESG compensation? Researchpost 196

Wrong ESG compensation illustration from Pixabay by Ray Alexander

10x new research on new toxics, climate target ambitions, financial analysts and climate topics, new ESG regulation effect on investments, ESG compensation governance deficits, ESG compensation outcome deficits, costly custom indices, unattractive private capital investments, gender-typical investment problems, and AI for retirement planning

ESG research

New toxics: Novel Entities – A financial time bomb by Planet Tracker as of Oct. 1^st, 2024: “There are hundreds of thousands of novel entities – toxic substances created by humans and released into the environment that may be disruptive to the planet – travelling through the global economy. … most novel entities have not undergone safety assessments or information on those are protected or not shared. … Evaluating novel entities after they have been created and released is not acceptable. … Novel entities are often viewed by investors and lenders as technological progress adding to revenue and earnings potential. Novel entities are a source of significant litigation risk. Novel entities produced decades ago can still cause significant financial downside to companies today and in the future” (p. 5).

Intrinsic climate success: Raising the bar: What determines the ambition level of corporate climate targets? by Clara Privato, Matthew P. Johnson, and Timo Busch as of Sept. 9^th, 2024: “Since the launch of the Science Based Targets initiative (SBTi), we have witnessed a steady increase in the number of companies committing to climate targets for large-scale reduction of greenhouse gas (GHG) emissions. … a two-stage qualitative study is conducted with a sample of 22 companies from five countries. … Within companies with highly ambitious climate targets, the findings indicate that certain factors are highly present, including leadership engagement, continual management support, employee involvement, participation in climate initiatives, and stakeholder collaboration. Conversely, none of these key factors are highly present in companies with less ambitious climate targets. Rather, these companies strongly identify the initiating factors of market-related pressures and non-market stakeholder influence as being the driving forces behind their target setting“ (abstract).

Climate analysts? Climate Value and Values Discovery by Zacharias Sautner, Laurence van Lent, Grigory Vilkov, and Ruishen Zhang as of July 24^th, 2024 (#953): “Analyzing more than 310,000 earnings calls spanning two decades … the interest of analysts in “green topics ” is situational, reflecting market demands rather than persistent individual traits. Trading volume around earnings announcements is positively associated with the degree of climate discussions on earnings calls. … we find correlations between an analyst’s profile in earnings calls and career trajectories, with climate-centric analysts, particularly those focusing on value, experiencing better job opportunities. Climate analysts use voice, not exit, to ask (brown) firms to change“ (p. 25/26).

Regulation-driven divestments: Triggering a Divestment Wave? How ESMA’s Guidelines on ESG Fund Names Affect Fund Portfolios and Stocks by Stefan Jacob, Pauline Vitzthum, and Marco Wilkens as of Sept. 12^th, 2024 (#58): “This paper examines the impact of the European Securities and Markets Authority’s (ESMA) Guidelines on funds’ names using ESG-related terms. These guidelines define clear exclusion criteria for sustainability-named funds. We examine the extent to which funds will be required to exclude non-compliant stocks, resulting in substantial divestments, particularly from firms with fossil fuel involvements. The enforcement of these guidelines is expected to significantly decarbonize the portfolios of sustainability-named funds, while at the same time triggering unprecedented selling pressure on certain stocks“ (abstract).

Wrong ESG compensation (1): ESG Overperformance? Assessing the Use of ESG Targets in Executive Compensation Plans by Adam B. Badawi and Robert Bartlett as of Sept. 10^th, 2024 (#366): “The practice of linking executive compensation to ESG performance has recently become more prevalent in US public companies. In this paper, we document the extent of this practice within S&P 500 firms during the 2023 proxy season … We find that 315 of these firms (63.0%) include an ESG component in their executives’ compensation and that the vast majority of these incentives are part of the annual incentive plan (AIA) … While executives miss all of their financial targets 22% of the time in our sample, we show that this outcome is exceptionally rare for ESG-based compensation. Only 6 of 247 (2%) firms that disclose an ESG performance incentive report missing all of the ESG targets. We ask whether the ESG overperformance that we observe is associated with exceptional ESG outcomes or, instead, is related to governance deficiencies. Our findings that meeting ESG-based targets is not associated with improvements in ESG scores and that the presence of ESG-linked compensation is associated with more opposition in say-on-pay votes provides support for the weak governance theory over the exceptional performance theory“ (abstract). My comment With my shareholder engagement I ask companies to publish the pay ratio between their CEO and the average employee. Thus, all stakeholders can monitor if ESG compensation increases this already typically critically high metric (which I fear), also see Wrong ESG bonus math? Content-Post #188 and Kontraproduktive ESG-Ziele für Führungskräfte? | CAPinside

Wrong ESG compensation (2)? Paychecks with a Purpose: Evaluating the Effectiveness of CEO Equity and Cash Compensation for the Triple Bottom Line by Dennis Bams, Frederique Bouwman, and Bart Frijns as of Oct. 2^nd, 2024 (#4): “We find that CEOs are more inclined to opt for a CSR strategy emphasizing Environmental Outcomes when they receive a larger proportion of their compensation in cash. … additional tests show that intentions have no predictive power for outcomes. … While the proportion of option compensation is beneficial for a CSR strategy that focuses on outcomes, the proportion of stock compensation motivates a focus on intentions. … In conclusion, our study shows that the prevailing approach of compensation packages focusing on equity compensation does not promote the triple bottom line principle.

Other investment research (in: Wrong ESG compensation)

Index illusion: Index Disruption: The Promise and Pitfalls of Self-Indexed ETFs by Bige Kahraman, Sida Li, and Anthony Limburg as of Sept. 27^th, 2024 (#42): “The market for index providers is a concentrated market where the five largest providers serve approximately 95 percent of the market. … An increasing number of ETF issuers are creating proprietary indices in-house to avoid paying fees to third party index providers. In this paper, we … find that self-index funds offer higher, not lower, fees to their customers. To explain this, we suggest two hypotheses, one based on product differentiation and the other one based on conflicts of interest. Our results support the latter“ (p. 22). My comment: There are many (sustainability policy) reasons for custom portfolios but these portfolios should not be more expensive (see e.g. my direct SDG indexing options)

Private capital alpha illusion: The Private Capital Alpha by Gregory Brown, Andrei S. Goncalves, and Wendy Hu as of Sept. 25^th, 2024 (#368): “We combine a large sample of 5,028 U.S. buyout, venture capital, and real estate funds from 1987 to 2022 to estimate the alphas of private capital asset classes under realistic simulations that account for the illiquidity and underdiversification in private markets as well as the portfolio allocation of typical limited partners. We find that buyout as an asset class has provided a positive and statistically significant alpha during our sample period. In contrast, over our sample period, the venture capital alpha was positive but statistically unreliable and the real estate alpha was, if anything, negative“ (p. 31). My comment: Most investors use gatekeepers of funds of funds to invest in private capital and after those costs even buyout alpha may be negligible”.

Lower-risk women: How Gender Differences and Behavioral Traits matter in Financial Decision-Making? Insights from Experimental and Survey Data by Giuseppe Attanasi, Simona Cicognani, Paola Paiardini, and Maria Luigia Signore as of Feb. 3^rd, 2024 (#112): “… Our research suggests that gender alone does not exclusively determine diverse behavioral and investment choices. Instead, it is the context in which these choices are elicited that plays a crucial role. …(but) female investors consistently demonstrated a lower likelihood of engaging in investment activities across the financial domains of risk and ambiguity. … a tendency to invest less in risky financial assets limits the potential for accumulating greater wealth over time “ (p. 30).

Financial AI? Can ChatGPT Plan Your Retirement?: Generative AI and Financial Advice by Andrew W. Lo and Jillian Ross as of Sept. 4^th, 2024 (#896): “… We focus on three challenges facing most LLM applications: domain-specific expertise and the ability to tailor that expertise to a user’s unique situation, trustworthiness and adherence to the user’s moral and ethical standards, and conformity to regulatory guidelines and oversight. … we focus on the narrow context of financial advice … Our goal is not to provide solutions to these challenges … but to propose a framework and road map for solving them as part of a larger research agenda for improving generative AI in any application” (abstract).

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Werbehinweis

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung (aktuell durchschnittlich außerordentlich hohe 97% SDG-vereinbare Umsätze der Portfoliounternehmen: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen (siehe auch My fund).

Green salt: Researchpost 187

Green salt picture by H. Hach from Pixabay

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

Social and ecological research

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

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

ESG investment research (in: Green salt)

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

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

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

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

Impact investment research (in: Green salt)

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

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

Oher investment research

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

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

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Werbehinweis (in: Green salt)

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Smallcap-Investmentfonds (SFDR Art. 9) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die Ziele für nachhaltige Entwicklung (SDG: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen: Vgl. My fund.

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

SDG performance: Researchpost #168

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

ESG research

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

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

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

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

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

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

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

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

Impact investing research (in: SDG performance)

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

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

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

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

Other investment research (in: SDG performance)

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

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

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Biodiversity diversion: Researchpost #165

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

Social and ecological research

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

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

ESG investment research (in: „Biodiversity diversion“)

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

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

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

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

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

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

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

SDG- aligned and impact investment research

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

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

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

Other investment research (in: „Biodiversity diversion“)

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

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

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

Sustainable investment = radically different?

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

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

Central role of investment philosophy and sustainability definition for sustainable investment

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

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

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

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

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

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

Better no additional allocation to illiquid investments?

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

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

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

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

Sustainability advantages for (corporate) bonds over equities?

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

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

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

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

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

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

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

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

Source: Soehnholz ESG GmbH 2023

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

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

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

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

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

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

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

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

Still not enough consistently sustainable ETF offerings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary and outlook: Much more individuality?

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

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

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

ESG research criticism? Researchpost #156

ESG research criticism: 13x new research on e-commerce, petrochemical and corruption problems, good and average sustainable performance, high transition risks, EU Taxonomy, Greenium, climate disaster effects, good investment constraints and private equity benchmarks (# shows SSRN full paper downloads as of Dec. 14^th, 2023)

Social and ecological research (ESG research criticism)

Brown e-commerce: Product flows and GHG emissions associated with consumer returns in the EU by Rotem Roichman, Tamar Makov, Benjamin Sprecher, Vered Blass, and Tamar Meshulam as of Dec. 6th, 2023 (#5):“Building on a unique dataset covering over 630k returned apparel items in the EU … Our results indicate that 22%-44% of returned products never reach another consumer. Moreover, GHG emissions associated with the production and distribution of unused returns can be 2-14 times higher than post-return transport, packaging, and processing emissions combined“ (abstract).

US financed European petrochemicals: Toxic Footprints Europe by Planet Tracker as of December 2023: “Petrochemicals, which provide feedstocks for numerous products embedded in the global economy, carry a significant environmental footprint. One of the most important is toxic emissions. The financial market appears largely unconcerned by toxic emissions. This could be for several reasons: • perhaps because they are viewed as an unpriced pollutant or investors’ focus remains on carbon rather than other discharges or for those monitoring the plastic industry the spotlight is on plastic waste rather than toxic releases. In the Trilateral Chemical Region of Europe – an area consisting of Flanders (Belgium), North Rhine-Westphalia (Germany), Planet Tracker identified 1,093 facilities …. These facilities have released and transferred 125 million tonnes of chemicals since 2010 resulting in an estimated 24,640 years of healthy life being lost and 57 billion fractions of species being potentially affected. … BASF and Solvay are the most toxic polluters in the region, appearing in the top 5 of all four metrics analysed (physical releases, ecotoxicity, human toxicity and RSEI hazard). The financiers behind these toxic footprints are led by BlackRock (5.4% of total investments by equity market value), Vanguard (5.2%) and JPMorgan Chase (3.6%). In terms of debt financing, Citigroup leads with 6.4% of total 10-year capital underwriting (including equity, loans and bonds), followed closely by JPMorgan Chase (6.3%) and Bank of America (5.2%)“ (p. 3).

Corruption Kills: Global Evidence from Natural Disasters by Serhan Cevik and João Tovar Jalles from the International Monetary Fund as of Nov. 2^nd, 2023 (#12): “… we use a large panel of 135 countries over a long period spanning from 1980 to 2020 … The empirical analysis provides convincing evidence that widespread corruption increases the number of disaster-related deaths … the difference between the least and most corrupt countries in our sample implies a sixfold increase in the number of deaths per population caused by natural disaster in a given year. Our results show that this impact is stronger in developing countries than in advanced economies, highlighting the critical relationship between economic development and institutional capacity in strengthening good governance and combating corruption“ (p. 11/12).

Investment ESG research criticsm

Complex sustainability: Sustainability of financial institutions, firms, and investing by Bram van der Kroft as of Dec. 7^th, 2023 (#22): “… financial institutions will take on additional risk in ways unpriced by regulators when facing financial constraints. Throughout the paper, we provide evidence that this additional risk-taking harms society as banks and insurance corporations acquire precisely those assets most affected in economic downturns” (p. 194) … “we find for over four thousand listed firms in 77 countries, as two-thirds of firms substantively improve their sustainable performance when institutional pressure is imprecise and increases, while one-third of firms are forced to start symbolically responding” (p. 196) … “One critical assumption underlining .. sustainable performance advances is that socially responsible investors can accurately identify sustainable firms. In practice, we show that these investors rely on inaccurate estimates of sustainable performance and accidentally “tilt the wrong firms” (p. 196) … “First, we find that MSCI IVA, FTSE, S&P, Sustainalytics, and Refinitiv ESG ratings do not reflect the sustainable performance of firms but solely capture their forward-looking sustainable aspirations. On average, these aspirations do not materialize up to 15 years in the future” (p. 84). …“Using unique identification in the real estate market and property-level sustainable performance information, we find that successful socially responsible engagement improves the sustainable performance of firms”(p. 196). My comment regarding the already published ESG rating criticism: Not all rating agencies work in the criticized way. My main ESG ratings supplier shifted its focuses to actual from planned sustainability (see my Researchpost #90 as of July 5^th, 2022 relating to this paper: Tilting the Wrong Firms? How Inflated ESG Ratings Negate Socially Responsible Investing under Information Asymmetries).

ESG research criticism (1)? Comment and Replication: The Impact of Corporate Sustainability on Organizational Processes and Performance by Andrew A. King as of Dec. 7th, 2023 (#186): “Do High Sustainability companies have better financial performance than their Low Sustainability counterparts? An extremely influential publication in Management Science, “The Impact of Corporate Sustainability on Organizational Processes and Performance”, claims that they do. … after reviewing the report, I conclude that its critical findings are unjustified by its own evidence: its main method appears unworkable, a key finding is miscalculated, important results are uninterpretable, and the sample is biased by survival and selection. … Despite considering estimates from thousands of models, I find no reliable evidence for the proposed link between sustainability and financial performance” (abstract). My comment: If there is no negative effect of sustainability on performance, shouldn’t all investors invest 100% sustainably

ESG research criticism (2)? Does Corporate Social Responsibility Increase Access to Finance? A Commentary on Cheng, Ioannou, and Serafeim (2014) by Andrew A. King as of Dec. 12^th, 2023 (#7): “Does Corporate Social Responsibility (CSR) facilitate access to finance? An extremely influential article claims that it does … I show that its research method precludes any insight on either access to finance or its connection to CSR. … I correct the original study by substituting more suitable measures and conducting further analysis. Contrary to the original report, I find no robust evidence for a link between CSR and access to finance” (abstract).

High transition risk: The pricing of climate transition risk in Europe’s equity market by Philippe Loyson, Rianne Luijendijk, and Sweder van Wijnbergen as of Aug. 22nd, 2023 (#46): “We assessed the effect of carbon intensity (tCO2/$M) on relative stock returns of clean versus polluting firms using a panel data set consisting of 1555 European companies over the period 2005-2019. We did not find empirical evidence that carbon risk is being priced in a diversified European equity portfolio, implying that investors do not seem to be aware of or at least do not require a risk premium for the risk they bear by investing in polluting companies“ (p. 32). My comment: Apparently, at least until 2019, there has not been enough sustainable investment to have a carbon risk impact

Green indicator confusion: Stronger Together: Exploring the EU Taxonomy as a Tool for Transition Planning by Clarity.ai and CDP as of Dec. 5^th, 2023: „We find that out of the 1,700 NFRD (Sö: EU’s Non-Financial Reporting Directive) companies that published EU Taxonomy reports this year, around 600 identified their revenues and spending as part of their transition plans, and approximately 300 have validated science-based targets, both of which correlate to higher taxonomy alignment overall. There is a large dispersion of eligibility across companies within similar sectors which suggests that individual companies are involved in a variety of economic activities. This influences the low correlation between corporate GHG emissions and Taxonomy eligibility and alignment, as non-eligibility can be the result of exposure to either very high-impact or very low-impact economic activities. We observe that higher taxonomy alignment does not necessarily lead to lower carbon intensity when comparing companies within sectors. It is important to highlight that the largest source of corporate emissions might not always be well reflected in revenue shares” (p. 38). My comment: My experience is that the huge part of Scope 3 CO2 emissions and almost all non-CO2 emissions like methane are still seriously neglected by many corporations and investors

Greenium: Actions Speak Louder Than Words: The Effects of Green Commitment in the Corporate Bond Market by Peter Pope, Yang Wang, and Hui Xu as of Nov. 22nd, 2023 (#64): “This paper studies the effects of green bond issuance on the yield spreads of other conventional bonds from the same issuers. A traditional view of new bond issuance suggests that new bonds (whether green or brown) will increase secondary market bond yields if higher leverage increases default risk and dilutes creditors’ claim over assets. However, we find that the issuance of green bonds reduces conventional bond yield spreads by 8 basis points in secondary markets, on average. The effect is long-lasting (beyond two years) … An event study shows that the “bond” attribute of the green bonds still increases the yield spreads of outstanding conventional bonds by 1 basis point. It is the “green” attribute that lowers the yield spreads and ultimately dominates the net effects. … we show that socially responsible investors increase their demand for, and hold more, conventional bonds in their portfolios following the issuance of green bonds … we show that shareholders submit fewer environment-related proposals following green bond issuance. … Finally, our analysis highlights that green bonds give rise to positive real effects, though such effects are confined to the issuer“ (p. 42/43).

Costly values? Perceived Corporate Values by Stefano Pegoraro, Antonino Emanuele Rizzo, and Rafael Zambrana as of Dec. 4^th, 2023 (#54): “…. analyzing the revealed preferences of values-oriented investors through their portfolio holdings … Using this measure of perceived corporate values, we show that values-oriented investors consider current and forward-looking information about corporate misconduct and controversies in their investment decisions. We also show that values-oriented investors sacrifice financial performance to align their portfolios with companies exhibiting better corporate values and lower legal risk” (p. 24). My comment: According to traditional investment theories, lower (ESG or other) risk should lead to lower returns. Any complaints about that?

Some investor impact: Propagation of climate disasters through ownership networks by Matthew Gustafson, Ai He, Ugur Lel, and Zhongling (Danny) Qin as of Dec. 5^th, 2023 (#127): “We find that climate-change related disasters increase institutional investors’ awareness of climate change issues and accordingly these investors engage with the unaffected firms in their portfolios to influence corporate climate policies. In particular, we observe that such institutional investors vote in greater support of climate-related shareholder proposals at unaffected firms only after getting hit by climate change disasters in their portfolios and compared to other institutional investors. … In the long-run, firm-level GHG emissions and energy usage cumulatively decline at the same time as the unaffected firms adopt specific governance mechanisms such as linking their executive pay policies to GHG emission reductions, suggesting that changes in governance mechanisms potentially incentivize firms to internalize some of the negative externalities from their activities. … our results are more pronounced in brown industries“ (p. 26). My comment: When changing executive pay, negative effects have to be mitigated, see Wrong ESG bonus math?

Other investment research

Good constraints: Performance Attribution for Portfolio Constraints by Andrew W. Lo and Ruixun Zhang as of Nov. 1^st, 2023 (#57): “While it is commonly believed that constraints can only decrease the expected utility of a portfolio, we show that this is only true when they are treated as static. … our methodology can be applied to common examples of constraints including the level of a particular characteristic, such as ESG scores, and exclusion constraints, such as divesting from sin stocks and energy stocks. Our results show that these constraints do not necessarily decrease the expected utility and returns of the portfolio, and can even contribute positively to portfolio performance when information contained in the constraints is sufficiently positively correlated with asset returns“ (p. 42). My comment: Traditional investment constraints are typically used to reduce risks. Looking at a actively managed funds, that does not always work as expected. Maybe responsible investment constraints are better than traditional ones?

PE Benchmark-Magic: Benchmarking Private Equity Portfolios: Evidence from Pension Funds by Niklas Augustin, Matteo Binfarè, and Elyas D. Fermand as of Oct. 31^st, 2023 (#245): “We document significant heterogeneity in the benchmarks used for US public pension fund private equity (PE) portfolios. … We show that general (Soe: investment) consultant turnover predicts changes in PE benchmarks. … we find that public pension funds only beat their PE benchmarks about 50% of the time, that they tend to use public market benchmark indices that underperform private market benchmark indices, and that their benchmarks have become easier to beat over the last 20 years“ (abstract).

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Nachhaltige ETF-Portfolios seit 2015: Vor- und Nachteile

Nachhaltige ETF-Portfolios: Ich der ESG ETF Portfoliopionier. Und immer wieder werde ich gefragt, warum ich so kritisch in Bezug auf nachhaltige ETFs bin. Hier sind meine wichtigsten Argumente:

ETF-Vorteile

+ ETFs sind regelbasiert und transparent

+ ETS sind günstig

+ Es werden immer mehr und nachhaltigere ETFs angeboten

+ Viele Vermittler und Vermögensverwalter mögen ETF

ETF-Nachteile

– ETFs sind meist an kapitalgewichteten Indizes orientiert und enthalten deshalb oft auch wenig-nachhaltige Branchen und Länder

– ETFs sind meist stark diversifiziert und enthalten deshalb in der Regel auch Wertpapiere von wenig nachhaltigen Emittenten

– Nachhaltige ETFs nutzen oft nur unvollständige Ausschlusskriterien und ESG-Selektionsregeln wie Best-in-Class statt Best-in-Universe und aggregierte statt separate ESG-Ratings

Ziel meiner ETF-Portfolios ist es, die Vorteile zu nutzen und die Nachteile so gut wie möglich zu reduzieren. Dazu biete ich Core und Satellite-Portfolios an, allerdings nur B2B, also für Vermögenverwalter und Vermittler.

ESG ETF Core Portfolios (Nachhaltige ETF-Portfolios)

Start Ende 2015 als ESG ETF-Portfolio
Konzeptionell möglichst nachhaltige ETFs: Start mit Socially Responsible Investment (SRI) ETFs und heute SRI PAB (Paris Aligned Benchmark) und andere, die anhand von separaten E, S und G Best-in-Universe Ratings selektiert werden
Angebot von Multi-Asset-, Aktien-, Anleihen-, Income- und risikogesteuerte ETF-Portfolios

SDG ETF Satellite Portfolios (Nachhaltige ETF-Portfolios)

Start 2019 als ETF-Portfolio mit Themen-ETFs, die möglichst im Einklang mit den nachhaltigen Entwicklungszielen der Vereinten Nationen (SDG) stehen wie erneuerbare Energien, Gesundheit, nachhaltige Ernährung und Infrastruktur
Keine ETFs mit mehr als 5% Allokationen zu unerwünschten Ländern wie China
ETF-Selektion mit separaten E, S und G Best-in-Universe sowie SDG-Ratings
Fokus auf ETFs aus kleinen und mittelgroßen Unternehmen, damit Überschneidungen mit Core-Portfolios möglichst vermieden werden
Angebot einer risikogesteuerten Variante

Core- und Satellite Portfolio-Vergleich

Das Multi-Asset Core-Portfolio enthält aktuell 6 ETFs von 5 Anbietern mit >3.000 Wertpapieren und kostet 0,21% p.a.. Das Satellite-Portfolio beinhaltet 9 ETFs von 5 Anbietern mit >1.000 Aktien zu Kosten von 0,42% p.a.. Damit sind die Portfolios stark risikogestreut und relativ günstig. Und die Performance war bisher typischerweise besser als die von traditionellen aktiv gemanagten Fonds und ähnlich wie die von traditionellen ETF-Portfolios. So spricht nur noch wenig für traditionelle ETF-Portfolios.

Nachhaltige ETF-Portfolios: Fazit

Mit direkten (Aktien-)Portfolios ist mehr mehr Nachhaltigkeit als mit ETFs möglich. Nach meiner eigenen Nachhaltigkeitsbewertung haben die Core-Portfolios einen Nachhaltigkeitsscore von 50% und die Satellite-Portfolios einen von 75% während direkte Aktienportfolios 100% erreichen können. Aber für alle Fans von diversifizieren Portfolios sind solche strengstmöglich nachhaltigen ETF-Portfolios sehr attraktiv. Meine Geschäftspartner und ihre privaten und Stiftungskunden scheinen jedenfalls zufrieden zu sein.

Weiterführende Informationen

Portfolioregeln, Hintergründe, Nachhaltigkeitspolitik etc: Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com) und zum Beispiel Artikel 9 ETF-Portfolios bzw. PAB ETF-Portfolios sind attraktiv – Responsible Investment Research Blog (prof-soehnholz.com)

Performances: Soehnholz ESG (und „Historische Zeitreihen der Portfolios, ebenda) und letzter Blogpost dazu Soehnholz ESG 2021: Passive Allokationsportfolios und Deutsche ESG Aktien besonders gut – Responsible Investment Research Blog (prof-soehnholz.com)