Archiv der Kategorie: Politik

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).

…………………………………………………………………………………………………………………………………………..

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.

Illiquid impact investments: Researchpost 220

11x new research on green/brown ideology, tax pollution, solar risks, brown sovereign risk, green backtest risk, green supplier engagement, greening M&A, biodiversity startups, impact private equity, liquid impact, SDG revenues (# shows the number of SSRN full paper downloads as of April 3^rd, 2025)

Ecological Research

Green/brown ideology: Public Support for Environmental Regulation: When Ideology Trumps Knowledge by Markus Dertwinkel-Kalt and Max R. P. Grossmann as of April 1^st, 2025 (#8) “When environmental regulations are unpopular, policymakers often attribute resistance to information frictions and poor communication. We test this idea in the context of a major climate policy: Germany’s Heating Law of 2023, which mandates the phase-out of fossil fuel heating. … Despite successfully increasing factual knowledge, information provision has no significant effect on intended technology adoption, policy support, or incentivized measures of climate preferences. Instead, pre-existing environmental preferences and demographic characteristics emerge as the key predictors of responses to the regulation. A feeling that existing systems still work well and cost considerations dominate fossil fuel users’ stated reasons for non-adoption, while independence from fossil fuels and perceived contributions to the common good drive adoption among switchers. Our findings suggest that opposition to climate policy stems from fundamental preference heterogeneity rather than information frictions“ (abstract).

Tax pollution: Dirty Taxes: Corporate Taxes and Air Pollution by …. Thilo Erbertseder, Martin Jacob, Constance Kehne, and Hannes Taubenböck as of March 11^th, 2025 (#128): “… We use satellite data on nitrogen dioxide (NO2) levels and exploit local business tax variation in Germany over 2008-2020. We find that a 1% tax increase leads to 0.15% higher NO2 levels. … This increase in pollution can be explained by higher taxes preventing firms from shifting towards cleaner assets“ (abstract).

Sustainable investment research (in: Illiquid impact)

Solar risks: Solar Flare Up: Systemic Organizational Risk in the Residential Solar Industry by David F. Larcker and Brian Tayan as of Dec. 3^rd, 2024 (#87): “… A systemic risk is one in which the system itself — through its incentives, structure, and culture — encourages or fails to detect behavior contrary to what is intended by those who developed or manage the system. To illustrate the potential for systemic organizational risk to arise, we consider the curious case of the residential solar industry, in which complex financing, generous tax credits, generous sales commissions, and uncertain costs — coupled with widespread public interest in the adoption of solar — have combined to create an incredibly complex industry with multiple points of potential breakdown” (abstract) … iSun, a publicly traded solar company based in Vermont, has been accused of misappropriating funds; the company went bankrupt in 2024 and delisted from the NASDAQ. One firm estimates that as many as 75 percent of solar companies in California face bankruptcy because of the state’s revision of net-metering rules. Major publicly traded companies, such as Sunrun and Sunnova, have seen their stock prices fall in excess of 80 percent from their peak. Recently, the external auditor for SunPower resigned because the company did not have the “internal controls necessary to develop reliable financial statements” and therefore it was “unwilling to be associated with the financial statements prepared by management.” The company subsequently declared bankruptcy“ (p. 5). My comment: See Neues Research: Systemische Risiken von Solarinvestments | CAPinside

Brown sovereign risk: Creditworthy: do climate change risks matter for sovereign credit ratings? By Lorenzo Cappiello, Gianluigi Ferrucci, Angela Maddaloni, and Veronica Veggente from the European Central Bank as of March 26^th, 2025 (#32): “… higher temperature anomalies and more frequent natural disasters—key indicators of physical risk—are associated with lower credit ratings. In contrast, transition risk factors do not appear to be systematically integrated into credit ratings throughout the entire sample period. … Additionally, more ambitious CO2 emission reduction targets and actual reductions in CO2 emission intensities are associated with higher ratings post-Paris Agreement, … countries with high levels of debt and those heavily reliant on fossil fuel revenues tend to receive lower ratings after the Paris Agreement …“ (abstract). My comment: I use bonds of multilateral development banks instead of sovereign bonds for my portfolios.

Green backtest risk: Performance of sustainable indices: Are there differences between pre- and post-inception by Niklas Kestler and Hendrik Scholz as of April 1^st, 2025 (#14) “… this paper conducts a comprehensive analysis of 141 sustainable indices … There is evidence that the pre-inception period seems to perform better than the post-inception period. This is especially visible for Smart-Beta-ESG and Thematic-ESG indices. … Moreover, we find some indication of outperformance for Broad-ESG indices“ (p. 13/14). My comment: Since many years, I do not use backtests anymore

Green supplier engagement: Climate Disclosures and Decarbonization along the Supply Chain by Pietro Bonetti, Yang (Ellen) En, Igor Kadach, and Gaizka Ormazabal as of Dec. 26^th, 2024 (#338): „… Our … exploit the unique features of the CDP, the world-leading platform of corporate climate risk disclosures. We find a strong positive association between customer and supplier disclosures to the CDP. … We also observe that supplier CDP disclosures likely induced by customers’ demand are associated with subsequent lower carbon emissions. Moreover, customers are more (less) likely to terminate relationships with the most (least) polluting suppliers and with those not meeting their disclosure demands”. My comment: With my shareholder engagement I ask to publish GHG Scope 3 emissions (including suppliers) and I also ask for independent ESG-Scoring of all significant suppliers (which typically prominently include GHG-effects), see Shareholder engagement: 21 science based theses and an action plan

Greening M&A: Environmental Disclosure, Regulatory Pressure, and Sustainable Investment: Evidence from Mergers and Acquisitions by Kee-Hong Bae, Hamdi Driss, and Nan Xiong as of April 1^st, 2025 (#1): “We investigate how environmental disclosure regulations influence firms’ mergers and acquisitions. Leveraging the staggered adoption of 26 environmental disclosure mandates across the globe as shocks that pressure companies to improve their environmental performance, we find that 1) acquirers increasingly target firms with better environmental performance following the mandates, 2) these acquirers realize positive short-term and long-term abnormal stock returns, and 3) they achieve substantial reductions in greenhouse gas emissions and environmental damage costs post-acquisition” (abstract). My comment: This speaks against the often-used hypothesis, that public companies sell brown businesses to private companies which may not care much about environmental issues.

Biodiversity startups: Biodiversity Entrepreneurship by Sean Cao, G. Andrew Karolyi, William W. Xiong, and Hui Xu as of March 31^st, 2025 (#14) “… we identify 630 biodiversity-linked start-ups in PitchBook and compare their financing dynamics to other ventures. We find biodiversity start-ups raise less capital but attract a broader coalition of investors, including … mission-aligned impact funds and public institutions (“values-driven investors”). Values investors provide incremental capital rather than substituting value investors, but funding gaps persist. …” (abstract).

Illiquid impact: Impact Investing and Worker Outcomes by Josh Lerner, Markus Lithell, and Gordon M. Phillips as of March 26^th, 2025 (#199): “… Consistent with earlier studies, impact investors are more likely than other private equity firms to fund businesses in economically disadvantaged areas, and the performance of these companies lags behind those held by traditional private investors. We show that post funding impact-backed firms are more likely to hire minorities, unskilled workers, and individuals with lower historical earnings, perhaps reflecting the higher representation of minorities in top positions. They also allocate wage increases more favorably to minorities and rank-and-file workers than VC-backed firms“ (abstract).

SDG-Revenues: ESG rating providers: Survey on impact ratings by the DVFA Sustainability Committee as of April 1st, 2025: „Impact ratings are often the basis for calculating the proportion of sustainable investments in investment funds. …10 of the 18 rating providers surveyed answered our questions about their impact ratings in the period from September to November 2024. … The participants in the survey have a combined market share of up to 90% for sustainability data and ratings … The approach of the various rating providers shows, in addition to a large number of similarities, some significant differences…. almost all providers use the UN Sustainable Development Goals (SDGs) as the basis for their rating system … It turns out that almost all providers place a strong focus on the impact of a company’s products and services. The impact is often quantified on the basis of sales data. … Three providers determine impact purely on a company basis and three providers purely on an activity basis. A further three calculate both company and activity-based impact. This reflects the DVFA’s impression that neither investors nor regulators have developed a uniform standard for measuring sustainable investments. …“ My comment: I am a member of the DVFA Sustainability Committee (Translated with the free version of DeepL.com)

German impact research studies (in: Illiquid impact)

SDG-Umsätze: ESG-Ratinganbieter: Befragung zu Impact-Ratings vom DVFA-Fachausschuss Sustainability vom 1. April 2025: „Impact-Ratings sind oftmals die Grundlage zur Berechnung des Anteils nachhaltiger Investitionen in In vestmentfonds. …10 der 18 befragen Ratinganbieter beantworteten im Zeitraum von September bis November 2024 unsere Fragen zu ihren Impact-Ratings. … Die Teilnehmer der Umfrage haben gemeinsam einen Marktanteil bei Nachhaltigkeitsdaten und -ratings von bis zu 90 % … Die Vorgehensweise der verschiedenen Ratinganbieter zeigt, neben einer Vielzahl von Gemeinsamkeiten, einige wesentliche Unterschiede…. nahezu alle Anbieter nutzen die UN Sustainable Development Goals (SDGs) als Grundlage für ihr Bewertungssystem … Es zeigt sich, dass fast alle Anbieter einen starken Fokus auf die Wirkung der Produkte und Dienstleistungen eines Unternehmens legen. Dabei wird die Wirkung oft anhand von Umsatzdaten quantifiziert. … Drei Anbieter ermitteln Impact rein unternehmensbasiert und drei Anbieter rein aktivitätsbasiert. Weitere drei ermitteln gleichermaßen unternehmens- und aktivitätsbasiert. Das spiegelt den Eindruck der DVFA wider, dass weder bei Investoren noch bei Regulierern ein einheitlicher Standard zur Messung der nachhaltigen Investitionen entwickelt hat. …“ Mein Kommentar: Ich bin Mitglied des DVFA Fachausschusses Sustainability. Mein Ansatz siehe auch SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl

Liquid impact: Wirkungen der nachhaltigen Kapitalanlage von Rolf Häßler von NKI Research vom März 2025: „… Ergebnisse der Befragung der größten börsennotierten Unternehmen im deutschsprachigen Raum … 41,9 % der befragten Unternehmen stellen fest, dass die Anforderungen der nachhaltigen Kapitalmarktakteure einen sehr oder eher großen Einfluss auf ihre Gesamtstrategie haben – Tendenz steigend. Noch höher ist dieser Einfluss mit Blick auf Ziele und Strategie im ESG-Management (58,1 %) und die konkreten Maßnahmen (67,8 %). Im Hinblick auf den Einfluss der verschiedenen ESG-Anlagestrategien bewerten die Unternehmen die beiden Dialogstrategien als besonders einflussreich“ (S. 3). My comment: Impact is possible even with exchange-listed investments (for my shareholder engagement activities see e.g. My shareholder engagement: Failures, successes and adaption)

…………………………………………………………………………………………………………………………………………..

Werbung (in: Illiquid impact)

Polluting AI: Researchpost 217

Polluting AI: 8x new research papers on migration, cities, ESG Ratings, ESG (credit) risks, climate versus financial investors, green companies, polluting AI, biodiversity (# shows the number of full paper SSRN downloads as of March 13th, 2025)

Social and ecological research

BILD beats migration: Attitudes to Migration and the Market for News by Razi Farukh, Matthias Heinz, Anna Kerkhof, and Heiner Schumacher as of May 29^th, 2024 (#32): “We examined the coverage of the topic of migration in three different news markets: Germany, Hungary, and the US. … For Germany, we found that most national news outlets adopt an attitude to migration that is in between the two ideological extremes, but closer to pro- than to anti-migration campaigns. … Only the largest newspaper in Europe– the tabloid newspaper Bild– changed its attitude to migration from very positive to fairly negative within a few months … for the US, we found that, the average attitude to migration in the market for news is comparable to that in Germany. However, both the most positive and the most negative news outlet in the our US sample are fairly large …“ (p. 29).

Good city growth: Cities, Aggregate Welfare, and Growth by Katja Gehr, and Michael Pflüger as of March 10^th, 2025 (#6): ”Escalating housing costs and a lack of affordable housing in desirable places have brought cities in the focus of public and political debate, in recent years. Current research converges on the idea that these housing market pressures stem not only from the interplay of demand and supply but are significantly influenced by regulatory measures, enacted by local policymakers to protect the interests of city incumbents (‘city insiders’) at the expense of ‘city outsiders’. … Our key policy counterfactual involves a reduction of land-use regulations in Germany’s Top 7 such that the population in each grows by 10%. This yields an overall welfare benefit of 1.11% per person, but only mild losses for city incumbents, which indicates that urban containment policies in Germany have significant societal costs …“ (p. 35/36).

ESG investment research (in: Polluting AI)

Reputation ratings: Measuring ESG Risk Management: Are ESG Ratings Reliable Predictors? by W. Chad Carlos, Shon R. Hiatt and Bell Piyasinchai as of Nov. 14^th, 2024 (#88): “Our analysis reveals that while ESG ratings are strongly tied to firm reputation, only one MSCI appears to consistently predicts future ESG-related risks …. Furthermore, we found that both ESG risk management and firm reputation contribute to the relationship between ESG ratings and financial performance, with reputation playing a more significant role. … In contrast to credit ratings …the breadth of dimensions that ESG ratings attempt to capture may make it unlikely for different ESG ratings to achieve the level of convergence similar to credit ratings” (p.23/24).

ESG credit risks: ESG Ratings, ESG News Sentiment and Firm Credit Risk Perception by Fangfang Wang, Florina Silaghi, Steven Ongena, and Miguel García-Cestona as of March 7^th, 2025 (#93): “We document a significant increase in CDS (Sö: Credit default Swap) spreads following ESG rating downgrades, especially for the social pillar, while we find a muted reaction to ESG upgrades. A similar asymmetrical effect is documented for ESG news. We further show that the adverse effect of ESG downgrades on the CDS market is mitigated in the presence of positive ESG sentiment, a transparent information environment and higher rating disagreement. Lastly, the reaction is stronger for firms with lower creditworthiness, higher bankruptcy probability and tighter financial constraints” (abstract). My comment: I focus on firms with good ESG-ratings and divested much more than expected because of ESG-downgrades and the portfolio volatility is rather low.

SDG investments

Green vs. brown investor? The Alignment of Corporate Carbon Performance and Shareholder Preferences: Evidence of a Capital Market Separation by Johannes Leister, Martin Rohleder, and Marco Wilkens as of March 5^th, 2025 (#46): “… This study is the first to empirically test the predicted capital market separation, wherein climate-conscious investors primarily hold firms with strong carbon performance, while financially driven investors retain those with weaker climate records. … We show that green firms consistently concentrate in sustainability-focused portfolios, whereas brown firms remain in traditional investor holdings. The market separation intensifies over our sample period … the Paris Agreement significantly altered market dynamics: post-Paris, separation intensified in the U.S., while were less pronounced in the EU …“ (abstract).

Seriously green? Commitment to Climate Action: Global Evidence from Carbon Performance Disclosure by Hai Hong Trinh and H. Kent Baker as of March 11^th, 2025 (#12): “… “How Do We Know Firms Seriously Commit to Climate Action?” Our findings show that firms commit to climate action if they simultaneously present the following outcomes. First and foremost, firms should have to disclose their carbon performance with improving environmental performance. Second, carbon-disclosing firms maintain progressive and sound ESG performance with no ESG controversies expected. Third, financial analysts and the management boards of carbon-disclosing firms pay increasing attention to climate change risks …” (abstract). My comment: I focus on firms with good ESG ratings and very few serious controversies and engage with them to disclose broad (Scope 3) carbon performance

Polluting AI: The Silent Polluter: Artificial Intelligence and CO2 Emissions by Ashrafee T. Hossain and Neal Willcott as of March 8^th, 2025 (#19): “We find statistically significant and economically consequential results supporting a positive association between AI investments and CO2 emissions. Additional analyses indicate that this positive association is prominent for firms that lack ethical behavior or those that are poorly governed. … the market provides support for AI investments in the form of higher valuations as long as CO2 emissions remain low; however, valuations decline when AI investments are accompanied by higher emissions. Concurrently, we find that CEO compensation is lower for firms that invest in AI while causing more CO2 emissions compared to their counterparts that make such investments but keep CO2 emissions at a lower level“ (p.59/60).

Biodiversity lecture: Lecture Notes On Biodiversity by Thierry Roncalli as of March 10^th, 2025 (#33): 266 pages on biodiversity with lots of interesting data and sources (amazing as always with Thierry Roncalli).

…………………………………………………………………………………………………………………………………………..

Werbung (in: Polluting AI)

Zum Vergleich: Ein Gesundheits-ETF hat eine netto SDG-Umsatzvereinbarkeit von 12%, Artikel 9 Fonds haben 21%, Impactfonds 38% und ein ETF für erneuerbare Energien 45% (vgl. Hohe SDG Umsätze? Nur wenige Investmentfonds!).

Climate risks: Researchpost 216

Climate risks:16x new research on bigger EU benefits, green conservatives, green US deposits, cool country risks, deforestation cost, ESG rating deficits, climate risks, carbon ratings, green VCs, life-cycle analysis, carbon offsets, transition bonds, green procurement, German impact and luxury watches (#shows the numer of SSRN full downloads as of March 6th, 2025)

Social and ecological research

Bigger EU benefits: Economic Benefits from Deep Integration: 20 years after the 2004 EU Enlargement from the International Monetary Fund by Robert Beyer, Claire Yi Li, and Sebastian Weber as of Feb. 26^th, 2025 (#23): “EU enlargement has stalled since the last member joined over ten years ago … we estimate that EU membership has increased per capita incomes by more than 30 percent. Capital accumulation and higher productivity contributed broadly equally, while employment effects were small. Gains were initially driven by the industrial sector and later by services. Despite substantial regional heterogeneity in gains—larger for those with better financial access and stronger integration in value chains prior to accession—all regions that joined the EU benefited. Moreover, existing members benefited too, with average income per capita around 10 percent higher …“ (abstract).

Green conservatives: How natural disasters and environmental fears shape American climate attitudes across political orientation by Christopher R. H. Garneau, Heather Bedle, and Rory Stanfield as of Nov. 5^th, 2024:”results support hypotheses that conservatives demonstrate lower climate concern and that fear of natural and environmental disasters increases climate concern. Interaction results show that fear of anthropogenic environmental disasters elicits greater climate concern amongst conservatives. At high levels of ecological fear, the political divisions diminish as all orientations converge on higher levels of acknowledging climate risks and causes”.

Greening US deposits: Climate change and bank deposits by H. Özlem Dursun-de Neef and Steven Ongena as of Feb. 27^th, 2025 (#381): “Using branch-level deposit data from the U.S., we find that depositors divest from fossil fuel-financing banks when they experience warmer-than-usual temperatures. This is because of an upward shift in their climate change beliefs. Deposit reallocation is mainly due to prosocial motives rather than financial preferences” (abstract).

Cool country climate risks: A New Perspective on Temperature Shocks from the International Monetary Fund by Nooman Rebei as of Feb. 26th, (#23): “… While cold and wealthy nations experience smaller output losses than warm and poor countries in response to temporary temperature increases, the situation reverses with the permanent temperature rises associated with climate change. In this scenario, cold and rich countries suffer greater economic damage than their warmer and poor counterparts. The rationale behind this result is that, according to country-specific estimates, the magnitude of permanent temperature shocks is greater in both absolute and relative terms in colder regions. Additionally, in recent decades, these countries have faced a notorious increase in the frequency and intensity of climate-related disasters, namely storms and wildfires ,,,“ (p. 24).

Deforestation costs: Not Just Knocking on Wood: The Short- and Long-Term Pricing of Deforestation Risk on Global Financial Markets by Marc-Philipp Bohnet, Philip Fliegel, and Tycho Max Sylvester Tax as of Feb. 26^th, 2025 (#49): “… We … conduct long-term asset pricing analyses of a Brown Minus Green (BMG) deforestation risk portfolio and a short-term event study of the EU Deforestation Regulation (EUDR). We find that the BMG deforestation risk portfolio does not pay a deforestation risk premium in the long term, but actually underperforms significantly by roughly 0.5% per month …” (abstract).

ESG investment research (in: Climate risks)

ESG rating deficits: Behind ESG ratings: Unpacking sustainability metrics by the OECD as of Feb.19^th, 2025: “… this report aims to assess the scope and characteristics of over 2 000 ESG metrics from eight major ESG rating products. The analysis helped identify four key findings as presented below. Metric scope: significant imbalances and gaps across ESG topics … over 20 different metrics are used on average to measure performance related to topics such as corporate governance, business ethics and environmental management, compared to less than five metrics for topics such as biodiversity, business resilience, and community relations. In some cases, certain topics are entirely omitted from ESG rating products, including human rights and corruption. … Metric comparability: Considerable divergences in measurement approaches across products … For instance, one rating product uses 28 times more metrics to measure Corporate Governance performance compared to another. The range varies from 1 to 47 metrics to measure corporate GHG Emissions, and from 4 to 113 metrics to gauge a company’s corporate governance. … Metric characteristics: … ESG rating products rely primarily on input-based metrics (68%). These metrics capture self-reported policies and activities put in place to address potential and actual ESG impacts, risks, and opportunities. … Moreover, ESG performance is predominantly assessed using qualitative metrics (72%). … Moreover, most ESG rating products assess observance or “violations” of the OECD Guidelines through controversy-related metrics as a proxy … rather than evaluating a company’s due diligence efforts and effectiveness in mitigating sustainability impacts. 15% of all metrics could be broadly identified as ‘controversy-based’. Finally, measurement of ESG performance beyond an entity direct operation is limited, including measurement of how businesses identify, prevent, mitigate and account for adverse impacts in their business relationships and global supply chains …“ (p. 7/8). My comment: See this detailed comment Neues Research: Lieber keine ESG-Daten nutzen? | CAPinside and watch out for my upcoming blog post on ESG rating differences based on the same data pool

ESG lowers risk: Sustainability and financial risks of the best-in-class: A comprehensive analysis by Almudena García-Sanz, Juan-Ángel Jiménez-Martín, and M.-Dolores Robles as of March 3^rd, 2025 (#14): ” We investigate the implications of firms‘ sustainability practices in mitigating their financial risks between 2000 and 2021 in the USA and Europe. … We find that the commitment to sustainability, as indicated by Thomson Reuters ESG scores, significantly impacts financial risks … the analysis by pillars highlights the Environmental pillar as the primary driver of risk mitigation …“ (abstract).

Many sectors with cli-risk: Climate risk and corporate valuations from Allianz Research by Jordi Basco Carrera and Patrick Hoffmann as of February 25^th, 2025: “Investors today face dual climate risks that stem from both the transition to a sustainable economy and the increasing severity of physical climate events. Transition risks arise from rapid policy changes, technological innovations and evolving market behaviors, while physical risks include the damaging impacts of extreme weather, rising sea levels, prolonged droughts or productivity losses for workers exposed to heat. … Fossil fuels are not the only sector on the watchlist. Real estate, automotive, agriculture and heavy industry are also increasingly vulnerable due to stricter energy standards, rapid technological advancements and tighter regulatory measures. … Overall, we find that the technology and healthcare sectors show resilience under all climate transition scenarios in both the US and Europe, while the energy sector faces heightened vulnerability due to rising operational costs and regulatory pressures …” (p. 3). My comment: I am happy with the strong healthcare focus of the mutual fund which I advise

Carbon rating dominance: Environmental ratings and stock returns: The dominant role of climate change by Rients Galema and Dirk Gerritsen as of Feb. 27^th, 2025 (#13): “We analyze the effect of MSCI’s environmental rating changes on stock returns for U.S. listed firms. … We find that the positive effect of aggregate environmental rating changes on subsequent stock returns is completely driven by changes in the underlying climate change rating with no significant impact of any of the other underlying theme ratings. Specifically, a one point increase in climate change rating, measured on a ten-point scale, is associated with stock returns increasing by about one percentage point over a subsequent period of six months. The impact of climate change rating changes is driven by changes of the underlying carbon emissions rating. Further analyses highlight the forward-looking nature of carbon emissions ratings in capturing emissions-related risks. Specifically, they show carbon emissions rating changes predict changes in future carbon emissions and carbon emission intensity” (abstract).

Green VC premium: Birds of a Feather Flock Together – How Investors Select and Affect Startups Based on Sustainability Signaling by Markus Koenigsmarck, Florian Kiesel, Martin Geissdoerfer and Dirk Schiereck as of Feb. 25^th,2025 (#6): “Our results show that both startups select their investors, and investors select startups, according to sustainability signaling. In addition, we identified a substantial treatment on sustainability signaling when a green VC invests. Conversely, brown VCs do not influence the sustainability of their portfolio investments. Finally, we found a green alignment premium, with investors allocating more funding to startups with similar sustainability signals to themselves” (p. 32).

SDG and impact investment research

Carbon life analysis: Simplifying Life Cycle Assessment: Basic Considerations for Approximating Product Carbon Footprints Based on Corporate Carbon Footprints by Maximilian Schutzbach, Robert Miehe, and Alexander Sauer as of March 3^rd, 2025 (#9): “.. calculating individual product carbon footprints (PCF) for each product remains impractical for companies, especially with extensive product portfolios … This article addresses this gap by proposing basic considerations that enable PCF approximation based on a CCF” (Sö: corporate carbon footprints, in: abstract).

Offsetting premium: Do Investors Care About Offsetting Carbon Risk? by Yumeng Gao, Andreas G. F. Hoepner, Florent Rouxelin, and Tushar Saini as of Feb. 26^th, 2025 (#19): “…This paper provides empirical evidence that investors price carbon emissions as a material risk, demanding a higher transition risk premium for firms with substantial Scope 1 and Scope2 emissions. Regulatory pressures, shifting investor sentiment, and energy transition drive this premium, with proactive climate policies and higher renewable adoption reducing risk, while weak regulations and fossil fuel dependence amplify it. We also find that carbon offset inventory can help mitigate this premium, as firms located in regions with higher offset inventory tend to experience reduced transition risk …” (abstract).

Transition & bonds: Understanding climate risk in Europe: Are transition and physical risk priced in equity and fixed-income markets? by Nicola Bartolini, Silvia Romagnoli, and Amia Santini as of Oct. 29^th,2024 (#42): “… climate risk variables have different effects on stocks and bonds, with stock returns appearing mostly unaffected by climate-related variables. In contrast, bond z-spreads show significant statistical relationships with both physical and transition climate risks. Physical risk, on average, rewards the green bonds in the sample, and penalizes the traditional bonds. As for transition risk, the two proxies are shown to capture different types of information and to affect different bonds. This suggests that credit default swaps are pricing a transition risk that goes beyond carbon emissions” (abstract).

Good green procurement: The Greener, the Better? Evidence from Government Contractors by Olga Chiappinelli, Ambrogio Dalò, Leonardo M. Giuffrida, and Vitezslav Titl as of Oct. 24^th, 2024 (#45): “Governments support the green transition through green public procurement. Using US data, this paper provides the first empirical analysis of the causal effects of green contracts on corporate greenhouse gas emissions and economic performance. We focus on an affirmative program for sustainable products, which represents one-sixth of the total federal procurement budget, and publicly traded firms, which account for one-third of total US emissions. Our results show that securing green contracts reduces emissions relative to firm size and increases productivity. We find no evidence that the program selects greener firms, nor that green public procurement sales crowd out private sales” (abstract). My comment: For a reason, I focus on green procurement with my shareholder engagement activities

German impact: Beyond grants: Foundations‘ responses to the hybrid practice of impact investing by Marie-Christine Groß as of Jan. 29^th, 2025 (#23): “… this study conducts a multiple case study with ten large German foundations. Drawing on institutional logics, the paper constructs a conceptual model to enhance the understanding of foundations‘ responses to impact investing. … the affiliation to both logics at play and the level of risk aversion shape how foundations respond to impact investing. These factors influence whether foundations reject the hybrid practice, engage directly in impact investing, or support indirectly via system building. … Approaches of foundations engaged in impact investing are analyzed in detail …” (abstract). My comment: Investors can have some impact with my “most responsible” investment fund

Other investment research (in: Climate risks)

Double-luxury watches: Time is Money: an Investment in Luxury Watches by Philippe Masset and Jean-Philippe Weisskopf as of Feb. 24^th, 2025 (#72): “The luxury watch market offers lower returns than equities but is less volatile. It also outperforms fixed income and real estate, with significant performance variation across brands. Illiquidity, analogous to other collectables, is an important feature, yet luxury watches enhance portfolio diversification and reduce risk. Additionally, the study contrasts the distinct features of investing in physical watches versus stocks of watch manufacturers …”. My comment: Lower returns with high illiquidity (and high costs): The marginal diversification benefits most be really high to add luxury watches to investment portfolios.

…………………………………………………………………………………………………………………………………………..

Werbung (in: Climate risks)

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

AI for SDGs: Researchpost 209

AI for SDGs: 22x new research on smartphones, state aid, green policy, green procurement, public benefit, risk-reducing ESG, ESG dividends, biodiversity costs and risks, ESG willingness to pay, pollution divestments, climate adaptions, green employee value, AI driven financial research, LLM investing help, virtual robo advisors, discount illusion, hedge funds and pixel art (#shows the number of SSRN full paper downloads as of Jan. 16^th, 2025: A low number shows a high news-potential).

Social and ecological research

AI for SDGs: Key Digital Enablers of Sustainability: A Bibliometric Analysis Using Elsevier Sustainable Development Goals (SDGs) Mapping by Jaewoo Bong, Jeongmi Ga, Myeongjun Yu, and Minjung Kwak as of Jan. 14^th, 2025 (#9): “The analysis identified key technologies frequently associated with the 17 SDGs, revealing trends in research volume, dominant technologies, and their impacts on specific SDGs. Notably, artificial intelligence and robotics have emerged as the most influential technologies across multiple goals, whereas other technologies such as 3D printing, cloud computing, and extended reality exhibit more targeted associations, highlighting their specialized applications. This study also highlights emerging research areas such as the integration of digital twins, blockchain, and the Internet of Things in sustainable development …” (abstract).

Stupid smartphones: From Decline to Revival: Policies to Unlock Human Capital and Productivity by Dan Andrews, Balázs Égert, Christine de La Maisonneuve as of Dec. 23^rd, 2024 (#20): “The productivity slowdown in many OECD countries over the last decades coincided with a significant deceleration in human capital growth. We show that nearly one-sixth of this productivity slowdown can be attributed to a decline in human capital growth, mainly driven by the decline in the quality of human capital, as measured by PISA scores. … The results highlight the negative effects of smartphone and social media usage on student performance and suggest that responsible internet use programs and education policy reforms could mitigate these effects. … Without policy intervention, continued declines in PISA scores could reduce long-term MFP (Sö: Multifactor productivity) growth by nearly 3%. Combining education reforms with structural reforms could mitigate these effects and boost long-term MFP by about 1.5%“ (abstract).

Bad state aid: A Bitter Aftertaste: How State Aid Affects Recipient Firms and Their Competitors in Europe by Luis Brandao Marques and Hasan Toprak from the International Monetary fund as of Dec. 16^th, 2024: “This paper estimates the effects of state aid between 2016 and 2023 on listed nonfinancial firms in Belgium, France, Germany, the Netherlands, Spain, and the United Kingdom (until 2020) … It finds that firms that receive state aid increase employment and revenue, but not investment or labor productivity. Moreover, it finds that there are adverse spillover effects to competing firms that significantly undo any positive own effects“ (abstract).

Green over all: Green Investing and Political Behavior by Florian Heeb, Julian F. Kölbel, Stefano Ramelli, and Anna Vasileva as of Jan. 6^th, 2025 (#1586): “A fundamental concern about green investing is that it may crowd out political support for public policy addressing negative externalities. We examine this concern in a preregistered experiment shortly before a real referendum on a climate law with a representative sample of the Swiss population (N = 2,051). We find that the opportunity to invest in a climate-friendly fund does not reduce individuals’ support for climate regulation, measured as political donations and voting intentions. The results hold for participants who actively choose green investing. We conclude that the effect of green investing on political behavior is limited”.

Green procurement: The New EU-US Joint Catalogue of Best Practices on Green Public Procurement: A Breakthrough in International Dialogue on Sustainability and an Opportunity for the WTO Committee on Government Procurement to Move Forward by Robert D. Anderson and Antonella Salgueiro as of Jan. 14^th, 2025 (#29): “In April 2024, the European Union(EU) and the United States (US) jointly issued an extensive “Catalogue” of perceived best practices for promoting green public procurement (GPP) … The Catalogue provides an extremely useful compendium … the examples cited range from relatively standard goods procurement to the provision of public transport services through to building construction and a government-wide contract for IT and related infrastructure in an EU member state. The tools, approaches and innovations relating to the promotion of GPP that are set out in the Catalogue are equally diverse and impressive” (abstract).

Good intentions, bad outcome? For-benefit or For-profit? The Dark Side of Stakeholderism Legislation by Chenchen Li, Frank Zhang, and Kailiang Zhang as of Nov. 23^rd, 2024 (#50): “The Public Benefit Corporation (PBC) legislation redefines corporate purposes by introducing a new legal form of corporate structure, the for-benefit corporation, which must include public benefits in its certificate of incorporation. … We posit that PBC legislation heightens the uncertainty of directors’ fiduciary duties and diminishes the perceived commitment to public interests for traditional for-profit corporations. Consequently, for profit companies will reduce their corporate social responsibility activities following the enactment of PBC laws, a phenomenon we term the corrosion effect. By exploiting the staggered enactment of PBC legislation across U.S. states, we find results consistent with our predictions. … In addition, we find that traditional for-profit corporations become more shareholder-centric at the expense of broader stakeholder interests following PBC legislation, leading to improved financial performance. We also find an overall increase in state-level pollution, suggesting that the environmental efforts of for-benefit companies are insufficient to counterbalance the reduced environmental initiatives by for-profit firms“ (abstract).

ESG investment research (in: AI for SDGs)

Risk-reducing ESG: The Impact of Economic Uncertainty on Corporate ESG Performance by Geyao Zhang, Effie Kesidou, and Muhammad Ali Nasir as of Jan. 8^th, 2025 (#18): “… The results suggest that, in response to heightened economic uncertainty, firms tend to send positive signals by boosting their ESG performance. … the positive impact of economic uncertainty on corporate ESG performance is more significant for firms in consumer-facing and low-pollution industries. Additionally, the highly uncertain economic environment has had a significant positive impact on the ESG performance of firms in countries with lower media freedom and upper-middle income levels” (abstract).

ESG dividend effects: Are ESG ratings relevant? Evidence from dividend cuts by Guner Velioglu as of Jan. 14^th, 2025 (#30): “… the market reactions to dividend cuts are significantly less severe when the underlying firms have high Environmental, Social, and Governance (ESG) ratings. … the environmental pillar rating contributes most significantly to my findings. I further document that high ESG performance premium tend to partially substitute for dividend premium” (abstract).

Corporate biodiversity costs: The Silent Cost of Biodiversity Loss: Unveiling its Impact on Institutional Ownership by Yueyang Wang as of Sept. 11^th, 2024 (#14): “The research utilises a sample of U.S. companies from 2009 to 2023 … Companies facing higher biodiversity risks tend to experience a reduction in institutional ownership, likely due to concerns over increased debt risk and potential reputational damage” (abstract).

Costly biodiversity risks: Biodiversity, Governance, and Municipal Bonds by Yanghua Shi as of Jan. 9^th, 2025 (40): „The paper shows that legislative changes that are harmful to local biodiversity signicantly impact municipal bond markets and are associated with an increase in municipal bond yields. … The analysis is based on a series of statewide regulatory shocks that conservation biologists consider to be detrimental to biodiversity conservation. These regulatory changes result in laws that hinder effective population management of unowned cats a well-known invasive species that contributes to biodiversity loss” (abstract).

ESG Index WTP: Sustainability Preferences of Index Fund Investors: A Discrete Choice Experiment by Rob Bauer, Bin Dong, and Peiran Jiao as of Jan. 9^th, 2024 (#140): “… we show how index fund investors cope with the conflict between index tracking and the pursuit of sustainability. We measure the willingness-to-pay for sustainability in an online discrete choice experiment (DCE) with real index fund investors. On average, our participants are willing to pay for sustainability but are insensitive to ESG intensity. They prefer the negative screening strategy, but are indifferent among other ESG integration strategies. In the meantime, our latent class analysis shows considerable heterogeneity among investors in their sustainability preferences” (abstract).

Impact investment research

Pollution divestment (1): Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution by Ran Duchin, Janet Gao and Qiping Xu as of May 5^th, 2024 (#3616): “We study the asset market for pollutive plants. Firms divest pollutive plants in response to environmental pressures. The buyers are firms facing weaker environmental pressures, with supply chain relationships or joint ventures with the sellers. While pollution levels do not decline following divestitures, the sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher ESG ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution and with substantial gains from trade” (abstract). My comment: If buyers (and owners of these buyers) care for ESG, divesting pollution does not work well. Also, the use of Scope 3 Greenhouse Gas emissions which includes suppliers helps to mitigated pollution divestments.

Pollution divestment (2): Out of Sight, Out of Mind: Divestments and the Global Reallocation of Pollutive Assets by Tobias Berg, Lin Ma, and Daniel Streitz as of Nov. 13^th, 2024 (#762): “We analyze firms’ carbon reduction strategies worldwide and identify one key channel: large, primarily European firms facing increased investor pressure divest pollutive as sets to firms that are less in the limelight. There is no evidence of increased engagement in other emission reduction activities. We estimate that 369 million metric tons (mt) of CO2e are reallocated via divestments in the post-Paris Agreement period, shifting pollutive assets from Europe to the rest of the world. Our results indicate significant global asset reallocation effects and imply that responsible investors who want to truly invest responsibly need to monitor firms’ divestment strategies closely” (abstract).

Adaptation dividends: Why do we need to strengthen climate adaptations? Scenarios and financial lines of defense by Francesco Paolo Mongelli, Andrej Ceglar, and Benedikt Alois Scheid as of Dec. 17^th, 2024 (#39): “… we now have better granular climate data to study the impacts of climate hazards and forecast climate risks … and there is an increasing pool of case studies from which to learn. There is evidence that efficient adaptation investments can yield “triple-dividends” helping to close the financing gap. … Innovative financial instruments, such as catastrophe bonds and climate bonds, might support challenged insurance coverages“ (abstract).

Green employee pressure? Clients, employees and institutional owners: Who influences corporate decarbonisation commitments? by Andreas G. F. Hoepner, Ifigenia Paliampelou and Frank Schiemann as of Jan. 8^th, 2025 (#17): “This study examines the determinants of corporate decarbonization commitments … the findings highlight that institutional ownership (IO) exerts the strongest influence on decarbonization decisions, followed by employees with CSR concerns (SGA). Additionally, companies with higher green revenues are more likely to set decarbonization commitments, often at the subsidiary level, driven by specific customer pressures …” (abstract).

Employee engagement: Bottom-up collaborative approach to transformative sustainable business model innovation: Developing engagement in an incumbent firm by Genet Corine and Rose Bote as of Dec. 6^th, 2024 (#6): “This paper investigates the emergence of employee engagement through the process of transformative sustainable business model innovation (SBMI) within an established organization. … Recognizing the critical role that employees play in these transformations, we aim to examine how their engagement emerges. Based on a qualitative case study of a mature nuclear-based organization … From a practical perspective, we advocate for forums to encourage intrapreneurial creativity for incumbent firms seeking transformation in their business models” (abstract). My comment: I try to include employees in ma stakeholder engagement activities see HR-ESG shareholder engagement: Opinion-Post #210 – Responsible Investment Research Blog

Other investment research (in: AI for SDGs)

AI driven financial research: AI and Finance by Andrea Eisfeldt and Gregor Schubert as of November 18th, 2024 (#1102): “We provide evidence that the development and adoption of Generative AI is driving a significant technological shift for firms and for financial research. We review the literature on the impact of ChatGPT on firm value and provide directions for future research investigating the impact of this major technology shock. Finally, we review and describe innovations in research methods linked to improvements in AI tools, along with their applications. We offer a practical introduction to available tools and advice for researchers interested in using these tools” (abstract).

LLM investing help: Stock Portfolio Selection Based on Risk Appetite: Evidence from ChatGPT by Constantin J. Schneider and Yahya Yilmaz as of Dec. 17^th, 2024 (#155): “… We prompt ChatGPT to generate portfolios tailored to different risk appetites of retail investors focusing on U.S. and European equity markets. Our analysis of multiple ChatGPT models reveals that higher risk portfolios generally yield higher returns. However, the models exhibit varying performance across different markets … We further demonstrate that ChatGPT can effectively adjust portfolio risk and return metrics in accordance with individual risk preferences” (abstract).

Virtual robo advice: Artificial Intelligence (AI) and Virtual Reality Convergence in Financial Services: The Power of Digital Twin Robo-Advisers by Marco I. Bonelli and Jiahao Liu as of Dec. 31^st, 2024 (#22): “… By combining AI’s predictive power with the immersive nature of VR, robo-advisors now offer the most advanced toolset available to investors. AI-powered Digital Twins provide real-time simulations of investment portfolios, allowing users to explore multiple scenarios, assess risks, and optimize their strategies with precision. The addition of VR creates a lifelike, 3D financial environment where users can visualize their portfolios, simulate various financial decisions, and gain deeper insights into how these choices impact their long-term financial goals“ (p. 12).

Discount illusion: „Buy the Dip“ – Wie gut funktioniert diese Anlagestrategie? von Gerd Kommer vom 9. Januar 2024: Buy the Dip-Investieren (BTD) … produziert schlechtere Durchschnittsrenditen und Endvermögenswerte als vergleichbares Sofort-All-In Buy-and-Hold Investieren (SAI B&H). Zwar steigt die statistische Renditeerwartung von Aktien nach einem Abschwung in der Tat, dieser Anstieg gleicht die Minderrendite, also die Opportunitätskosten, der für BTD notwendigen Investitionsreserve nicht ausreichend aus. Die Argumentation, dass BTD-Strategien im Allgemeinen ein geringeres Risiko aufweisen als vergleichbare SAI B&H-Strategien relativiert die maue BTD-Performance u. E. nur partiell“ (in: Fazit).

Disappointing hedge funds: Hedge Funds: A Poor Choice for Most Long-Term Investors by Richard M. Ennis as of Dec. 13^th, 2024 (#27): “For years, hedge fund investments have reduced the alpha of most institutional investors (helped drive it negative, actually). At the same time, they deprive long-term investors of desired equity exposure. In other words, hedge funds have been alpha-negative and beta-light. For these reasons, it is difficult to see a strategic benefit to having a diversified hedge fund allocation in the mix for most endowment and pension funds. If, however, an institution has access to a few truly exceptional hedge funds and can resist the temptation to diversify hedge fund exposure excessively, a small allocation may be warranted” (p. 7).

Pixel passion: Passion for Pixels: Affective Influences in the NFT Digital Art Market by Guneet Kaur Nagpal and Luc Renneboog as of Jan. 8^th, 2025 (#23): “Passion investment (e.g., paintings, sculptures, non-fungible tokens [NFTs]) are not based on straightforward valuations. To establish the valuation of collectible NFTs in the nascent market of digital art, this study uses approximately 14,000 transactions by 3,230 unique traders in a highly liquid digital collectibles market … First, there is evidence of subjective valuation of visual (aesthetic) elements of art among market participants, who are homogenous on the value of objectively measurable traits. Second, contrary to popular perception, NFT market participants’ who are naive (in terms of crypto currency experience) or experienced a windfall gain (due to favorable cryptocurrency exchange rates) trade at lower prices. … Third, prior trading activity and prices positively associate with future prices, implying price extrapolation and anchoring. The findings suggest that compared to the traditional art and investment domains, digital ownership might evoke similar, if not stronger, emotional responses among consumers than physical ownership“ (abstract).

…………………………………………………………………………………………………………………

Werbung (in: AI for SDGs)

Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich außerordentlich hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement bei derzeit 28 von 30 Unternehmen (siehe auch My fund).

Zum Vergleich: Ein traditionelle globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 5%, für einen Gesundheits-ETF beträgt diese 1% und für einen ETF für erneuerbare Energien 44%.

Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Man erhält ein besonders konsequent nachhaltiges Portfolio mit markttypischen Renditen und Risiken.

Green gatekeepers: Researchpost 194

Green gatekeepers: 6x new research on green policy risk reduction effects, the roles and risks of green gate keepers such as SBTI, equity valuation effects of heat anomalies, the potential role of SDG scores, anti-diversification ETF effects and active share as return predictor (#shows the number of SSRN full paper downloads as of Sept. 19^th, 2024)

Green policy risk reduction: Economic Policy Uncertainty, Carbon Emissions and Firm Valuation: International Evidence by Sudipta Bose, Syed Shams, Searat Ali, Abdullah Al Mamun, and Millicent Chang as of Sept. 13^th, 2024 (#21): “… From a sample spanning 22 countries over the period 2007 to 2018, our results show that, while carbon emissions increase with policy uncertainty, this relationship is mediated by renewable energy consumption. Country factors such as climate change performance, emissions trading schemes, and business culture also affect this relationship. In countries where economic policy uncertainty tends to be high, firms generally have a lower market value, due in part to higher levels of carbon emissions” (abstract).

Green gatekeepers such as SBTI: Green Gatekeepers by Luca Enriques, Alessandro Romano, and Andrew F. Touch as of Sept. 12^th, 2024 (#122): “Environmental qualities … cannot be verified by consumers even after consumption. … green gatekeepers certify claims made about the green qualities of products or firms, … After distinguishing green gatekeepers from highly reputation-sensitive traditional gatekeepers in financial markets, we argue that green gatekeepers face weaker reputational constraints than traditional ones. Consequently, they are more likely to issue inaccurate certifications. We hand-code data on over 450 green gatekeepers, and we show that many of these gatekeepers are opaque, as in many instances they do not even disclose the standards they follow. We then propose a framework for regulation …“ (abstract).

Lower earnings, higher returns? The Heat Anomaly Premium by Amir Hosseini as of April 22^nd, 2024 (#67): “This paper investigates the premium for exposure to heat anomalies among firms with presence across the U.S. states. … I show that facing larger heat anomalies predicts lower earnings in five industries based on the Fama and French twelve industries classification. The effect is stronger, especially among firms with low geographic dispersion. Given the negative economic effect of heat anomalies and the uncertainty about their magnitude resulting from climate change, I argue that exposure to heat anomalies is a source of risk. I … show that stocks with the highest exposure to heat anomalies, outperform those with the lowest, especially in recent years. The premium for exposure to heat anomalies grows to an average of 62 bps per month for the period after the Paris Agreement when investors’ climate concerns reach their highest levels. I also show that the premium is concentrated among stocks belonging to the industries with earnings sensitivity to heat anomalies and especially among firms with low geographic dispersion. The heat anomaly premium responds positively to the monthly shocks in the news-based index of climate concerns, suggesting that investors’ climate concerns drive the premium“ (abstract).

SDG score benefits: Corporate Sustainability and Scandals by Anna Vasileva, Jan Anton van Zanten, and Laurens Swinkels as of Aug. 22^nd, 2024 (#190): “… we find evidence that positive contribution towards Sustainable Development Goals – measured by the SDG score – is broadly associated with fewer scandals in the next time period. We show that this measure offers explanatory power beyond the ESG score and exhibits a stronger and consistent relationship. … the most important individual SDG, which are associated with fewer scandals … are SDG 1 (“No Poverty”), SDG 7 (“Affordable and Clean Energy”), and SDG 13 (“Climate Action”)” (p. 27/28). My comments see Neues Research: SDG-Fokus besser als ESG-Fokus? | CAPinside

ETF risks: Limits to Diversification: Passive Investing and Market Risk by Lily Fang, Hao Jiang, Zheng Su, Ximing Yin, and Lu Zheng as of Sept. 18^th, 2024 (#24): “We show that the rise of passive investing leads to higher correlations among stocks and increased market volatility, thereby limiting the benefit of diversification. The extent to which a stock is held by passive funds (index mutual funds and ETFs) positively predicts its beta, correlation, and covariance with other stocks, but not its idiosyncratic volatility. During crisis periods, stocks with high passive holdings contribute more to market risk compared to before the crisis. Correlated trading by passive funds explains these results, which are further amplified by implicit indexing due to performance benchmarking” (abstract). My comment: The smallcap stocks in my fund are held only by rather few and typically small ETFs. The diversification in the corresponding 30-stock model portfolio works fine since it start in 2017.

Active advantage: The Value of Active Share in Global Equity Funds and Across Regions of Investment by Markus Broman and Jon Fulkerson as of April 18^th, 2024 (#68): “Using a sample of nearly 3,300 global equity funds from 19 developed markets, we provide out-of-sample evidence of active share as a return predictor in foreign portfolios. However … a fund’s within-region active share only predicts superior performance in Europe and Asia-Pacific, but not in the United States“ (abstract). My comment: My fund ha a very high active share compared to all potentially relevant benchmarks which I know.

…………………………………………………………………………………………………………………………

Werbehinweis (in: Green gatekeepers)

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Smallcap-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 93% 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).

Transition? Researchpost 182

Transition? 16x new research on migration, green jobs, green innovation, EU taxonomy, ESG risks, ESG ratings, ESG confusion, diversity, proxy advisors and big tech (# shows SSRN full paper downloads as of June 27^th, 2024)

Social research (Transition)

Germans against migrants? Discrimination in the General Population by Silvia Angerer, Hanna Brosch, Daniela Glätzle-Rützler, Philipp Lergetporer, and Thomas Rittmannsberger as of May 30^th, 2024 (#7): “In our incentivized allocation experiment with more than 2,000 participants representative of the German adult population … We find that discrimination against … Turkish migration background is widespread and substantial in size. Our causal moderation analysis indicates that while all migrant subgroups face discrimination, those with a better education and females experience significantly less. Furthermore, we find higher levels of discrimination among male decision makers, non-migrants, participants with right-wing political preferences, and residents of regions with a lower migrant share“(p. 13).

Inexpensive migration? Local Fiscal Effects of Immigration in Germany by Simone Maxand, Hend Sallam as of June 25^th, 2024 (#7): “We … investigate how the share of the local foreign population affects public finances mainly at the district level. Our analysis utilizes regional administrative data for Germany at the district level, inspecting the period from 2010 to 2019 … our findings … suggest that the foreigners’ share insignificantly impacts collected tax revenues and public investment spending at the district level. … we find that the share of foreigners negatively influences the enrollment rate for children under three in childcare facilities… . By contrast, the share of foreigners in a district does not seem to significantly impact emergency public health spending and public staffing“ (p. 27/28).

Migration emotions beat facts: News, Emotions, and Policy Views on Immigration by Elena Manzoni, Elie Murard, Simone Quercia, and Sara Tonini as of May 29^th, 2024 (#9): “We find evidence that the emotional reaction to the news of a rape committed by an immigrant moves policy views, with a significant increase in anti-immigration attitudes. Providing statistical information corrects factual beliefs … When presented in isolation, information tends to reduce anti-immigration views as it makes participants realize that the percentage of crime committed by immigrants is lower and that rape is a less frequent type of crime perpetrated by immigrants than what they previously thought. Yet, when information is combined with the rape news, the emotional reaction to the news dominates the beliefs-correcting effect of information: participants increase their anti-immigration views to the same extent as when exposed to the rape news only“ (p. 25).

Ecological research

Good green job pledges? Greenwashing the Talents: Attracting human capital through environmental pledges by Wassim Le Lann, Gauthier Delozière, and Yann Le Lann as of June 26^th, 2023 (#93): “… we examine a climate movement initiated by elite French students … To hasten the sustainable transition of businesses, participants in the climate movement threatened to boycott job offers from polluting employers. … environmental pledges have a strong effect on intentions to refuse to work for polluting employers: respondents initially intending to refuse a job offer from a polluting company are, on average, more than three times less likely to maintain these intentions after exposure to an environmental pledge. … Individuals who are not responsive to environmental pledges exclude large companies from their career perspectives, do not believe in the ability of a market economy and technological development to solve the ecological crisis, and support radical action in the name of ecology. … Our results … highlight that companies have incentives to strategically use environmental pledges to mitigate the adverse effects of negative organizational attractiveness shocks caused by a poor environmental responsibility” (p. 26/27). My comment: See HR-ESG shareholder engagement: Opinion-Post #210 – Responsible Investment Research Blog (prof-soehnholz.com)

Green job creation: The Greener, the Higher: Labor Demand of Automotive Firms during the Green Transformation by Thomas Fackler, Oliver Falck, Moritz Goldbeck, Fabian Hans, and Annina Hering as of June 19^th, 2024 (#6): “… we exploit the poly-crisis triggered by unexpected escalations of trade conflicts and sustained by consequences of the pandemic and the war in Ukraine. We find green firms’ labor demand is significantly and persistently higher than before the outbreak of the poly-crisis, by 34 to 50 percentage points compared to firms with a focus on combustion technology. This gap widens over time …. Green firms systematically adjust labor demand towards production and information technology jobs” (abstract).

Green innovations: The impact of environmental regulation on clean innovation: are there crowding out effects? by Nicola Benatti, Martin Grois, Petra Kelly, and Paloma Lopez-Garcias from the European Central Bank as of June 19^th, 2024 (#18): “We showed that highly polluting firms tend to respond to environmental policy tightening by increasing their innovation efforts in clean technologies in an economically significant manner, especially in response to large changes in regulation. At the same time, we largely observe no statistically significant change to their innovation efforts in other, non-clean technology classes. This finding suggests that innovation in clean technologies, is not necessarily crowding out innovation elsewhere. … We find that technology support policy and non-market based policy instruments tend to have a stronger impact on clean innovation compared to market-based policy“ (p. 32/33).

ESG investment research (in: Transition)

Willing-to-pay for sustainability: The EU Taxonomy in Action: Sustainable Finance Regulation and Investor Preferences by Henning Cordes, Philipp Decke, and Judith C. Schneider as of June 17^th, 2024 (#7): “We investigate ten sustainability objectives of the European Union (EU) for investment products. Our focus is on Germany as the largest economy affected by the EU regulation and the United States (US) … We show that participants in both countries value the sustainability objectives of the EU, expressed by a significant willingness-to-pay. However, the level is substantially lower in the US. Further, we identify individual as well as group heterogeneity in preferences“ (abstract). … “For example, investors are willing to forego significantly more return for a mutual fund that contributes to, e.g., the protection of biodiversity, than for one that contributes to, e.g., the creation of a circular economy” (p. 41) … the most important objectives for our sample of German participants are mirrored among US participants” (p. 42).

ESG reduces risks: Portfolios mit geringem ESG-Risiko schneiden in Krisenzeiten besser ab von Valerio Baselli von Morningstar vom 20.6.2024: „… Stresstests für ESG-strukturierte Portfolios während dreier vergangener Krisen durchzuführen: der Subprime-Krise 2007-09, der Griechenland-Krise 2010 und der US-Schuldenkrise 2011. In allen Regionen und für alle drei Szenarien erzielten die Portfolios mit geringerem ESG-Risiko eine bessere Rendite …. Geringes ESG-Risiko führt langfristig zu einer besseren risikoadjustierten Performance. Betrachtet man die durchschnittlichen Renditen über den untersuchten Zeitraum (Dezember 2014 bis April 2023), so zeigt sich, dass Portfolios mit niedrigem ESG-Risiko ihre jeweiligen regionalen Portfolios mit hohem ESG-Risiko in allen drei Regionen bei der Rendite übertreffen … Die Ergebnisse zeigen, dass sich Investitionen in Portfolios mit geringem ESG-Risiko besonders in den Sektoren Gesundheitswesen, zyklische Konsumgüter, Versorger und Grundstoffe lohnen“. Mein Kommentar: Der von mir beratene konsequent nachhaltige Fondsmit Fokus auf Gesundheit (und Versorger) hat bisher ebenfalls relativ niedrige Risiken

ESG confusion? Navigating the ESG-Financial relationship: A Sector-by-Sector Analysis of ESG Ratings and Financial Performance by Edmée Hogenmuller, Léna Tuvache, Anthony Schrapffer as of May 18^th, 2024 (#152): “…data on 1298 international firms from 2012 to 2022 … reveals that the correlation between ESG scores and financial performance varies significantly by industry. Some sectors, like Energy & Transportation, exhibit stronger correlations with ESG scores … Credit-based metrics showed slightly stronger relationships with ESG scores than market-based metrics, while market-based metrics had stronger relationships with ESG risk ratings” (abstract).

Noncredible emitters (Transition 1): Credible climate transition plans: Insights from an AI-driven analysis of corporate disclosures by Nico Fettes from Clarity.ai as of June 2024: “Globally, across various sectors, only 40% of companies disclose their decarbonization measures and simultaneously quantify their contribution to achieving emission targets. Both are important criteria for assessing credible transition plans” (p. 1). “… only about 22% of all companies in our sample reported using carbon credits to achieve their targets” (p. 5) … “companies in certain sectors, including aerospace & defense and oil & gas, were found to be among the heavier users of carbon credits compared to other sectors … controversies also exist around the use of negative emissions technologies such as Carbon Capture and Storage (CCS) or reforestation which are still in the early stages of development or have not yet been proven at scale. … across our sample, 38% of companies reported on the use of these technologies for target achievement … the share was much higher in the oil & gas and steel sectors, with over 70% …” (p. 6). My comment see Fraglicher Klimaschutz emissionsintensive Unternehmen | CAPinside

More brown investments (Transition 2): Burn now or never? Climate change exposure and investment of fossil fuel firms by Jakob Feveile Adolfsen, Malte Heissel, Ana-Simona Manu, and Francesca Vinci from the European Central Bank as of June 13^th, 2024 (#14): “… we show that fossil fuel firms with high exposure to climate change raised investment in response to the Paris Agreement relative to firms with low exposure. Importantly, investment sustained current business models, while there are no indications that fossil fuel firms transitioned towards renewable energy sources nor less carbon-intensive production technology after Paris” (p. 29).

ESG-rating details matter: Is ESG a Sideshow? ESG Perceptions, Investment, and Firms’ Financing Decisions by Roman Kräussl, Joshua D. Rauh and Denitsa Stefanova as of May 31^st, 2024 (#12): “… based on Refinitiv’s point-in-time (PIT) ratings product that ensures we … document false inferences about asset growth that would have been made about capital raising if using the standard Refinitiv product instead of the PIT data, which are primarily driven by the fact that the coverage of the standard Refinitiv dataset extends ratings back to time periods when investors did not actually have the information available in the scores. We find that higher environmental scores shift the firm’s capital structure towards equity and away from debt … Separately, we find that governance and social scores are not significantly associated with subsequent changes in either equity or debt issuance. Our findings are consistent with the hypothesis that changes in ESG scores neither affect a firm’s opportunity cost of capital for new investment projects nor relax financing constraints, … we find neither that ESG upgrades raise firm valuation ratios nor that they lead to balance sheet growth. Rather, they lead to firms issuing equity to reduce net debt“ (p. 18/19).

Good “E” lowers risks: Corporate Carbon Performance and Firm Risk: Evidence from Asia-Pacific Countries by Eltayyeb Al-Fakir Al Rabab’a, Afzalur Rashid, Syed Shams and Sudipta Bose as of June 19^th, 2024 (#9): “… using a sample of 9,212 firm-year observation from 13 Asia-Pacific countries from 2002–2021. … We find that CCP is negatively associated with firm risk … finding that the quality of country-level governance accentuates the negative association of CCP with firms’ total risk, idiosyncratic risk and systematic risk. … We also find that country-level business culture, emissions trading schemes (ETSs), climate change performance and attention to carbon emissions accentuate the negative association between CCP and firm risk“ (p. 32/33).

Diversity returns: Do investors value DEI? Evidence from the Stop WOKE Act by Hoa Briscoe-Tran as of June 21^st, 2024 (#10): “… this paper investigates whether capital markets value corporate Diversity, Equity, and Inclusion (DEI) initiatives. In 2022, Florida passed the Stop WOKE Act, which restricted DEI initiatives in the workplace. Upon the Act’s announcement, the market value of affected firms declined by 1.80 percentage points compared to others. The decline was more significant in industries where DEI is financially material and among firms with investors exhibiting stronger pro-social preferences” (abstract).

Other investment research (in: Transition)

Proxy questions: Seven Questions about Proxy Advisors by David F. Larcker and Brian Tayan as of April 29^th, 2024 (#285): “The proxy advisory industry–in which independent third-party firms provide voting recommendations to institutional investors for matters on the annual proxy–has grown in size and controversy. Despite a large number of smaller players, the proxy advisory industry is essentially a duopoly with Institutional Shareholder Services (ISS) and Glass Lewis controlling almost the entire market.
In this Closer Look, we examine seven important questions about the role, influence, and effectiveness of proxy advisors” (abstract).

Big-Tech Finanzkonkurrenz: Mehr Geld, mehr Macht: Big-Techs im Finanzwesen von Carolina Melches und Michael Peters von Finanzwende vom Juni 2024: „In Südostasien und insbesondere China sind die Tech-Giganten tief in der Finanzbranche verankert. … In den USA sind ebenfalls Big-Techs mit einer Vielzahl an Finanzangeboten wie Ratenkrediten („Buy Now Pay Later“- Angebote), Sparkonten und Zahlungsdiensten unterwegs. In der EU bieten sie vorwiegend Zahlungsdienste an und werden vergleichsweise weniger genutzt“ (S. 4).

………………………………………………………………………………………………………………………………………..

Werbehinweis

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: My fund – Responsible Investment Research Blog (prof-soehnholz.com). Zur jetzt wieder guten Performance siehe zum Beispiel Fonds-Portfolio: Mein Fonds | CAPinside

Private company ESG: Researchpost #178

Private company ESG: 10x new research on climate risk and nudging, private company ESG, ESG rating changes, AI and greenwashing, transformation, political engagement and impact asset allocation (# shows number of SSRN full paper downloads as of May 30th, 2024)

Social and ecological research

More climate risks? The globalization of climate change: amplification of climate-related physical risks through input-output linkages by Stephan Fahr, Richard Senner, and Andrea Vismara as of May 21^st, 2024 (#164): “While global supply chains … risks across countries has received surprisingly little attention. … The findings suggest that direct GDP loss estimates can severely underestimate the ultimate impact of physical risk because trade can lead to losses that are up to 30 times higher … than what looking at the direct impacts would suggest. However, trade can also mitigate losses if substitutability across country-sectors is possible“ (abstract).

Easy climate nudging: Misperceived Social Norms and Willingness to Act Against Climate Change by Peter Andre Teodora Boneva Felix Chopra Armin Falk as of May 21^st, 2024 (#237): “Americans vastly underestimate the prevalence of climate norms in the US …. We show that a relatively simple, scalable, and cost-effective intervention – namely informing respondents about the actual prevalence of climate norms in the US – reduces these misperceptions and encourages climate-friendly behavior. Importantly, we find that this intervention is depolarizing and particularly effective for climate change skeptics, the group of people who are commonly difficult to reach. Our results suggest that informing people about the behavior of relevant peers constitutes a particularly effective tool to target, reach, and convince skeptics“ (p. 29/30).

Private company ESG? Do ESG disclosure mandates affect the competitive position of public and private firms? by Peter Fiechter, Jörg-Markus Hitz, and Nico Lehmann as of May 23^rd, 2024 (#46): “… we find that the staggered adoption of ESG disclosure mandates in different economies around the globe has an economically meaningful impact on competition in these domestic markets, as private suppliers gain contracts at the expense of public suppliers. … (i) ESG regulated corporate customers shift contracts from public to private suppliers, consistent with a preference for ESG opaque over ESG transparent supply chains, and (ii) adverse price competition effects for treated suppliers due to incremental direct and indirect costs associated with the ESG disclosure mandate. We also show that treatment effects are concentrated in contractual relations with suppliers of low importance to their corporate customers” (p. 27).

ESG investment research (in: Private company ESG)

ESG mechanics (1): Sovereign Environmental, Social, and Governance (ESG) Investing: Chasing Elusive Sustainability by Ekaterina Gratcheva and Bryan Gurhy from the International Monetary Fund as of May 23^rd, 2024 (#35): “Most sovereign ESG scores used by the industry focus on evaluating sustainability risks that could impact financial returns – and not those that impact positive sustainability outcomes. … This mismatch has prompted regulatory bodies in various jurisdictions, including the FCA (2023), to consider stricter regulations governing the use of terms such as „responsible“ and „sustainable“ in investment fund nomenclature. … ESG factors … have limited effectiveness in reducing national emissions or advancing the achievement of SDGs” (p. 24). My comment see Neues Greenwashing-Research | CAPinside

ESG mechanics (2): Do Investors Respond to Mechanical Changes in ESG Ratings by Seungju Choi, Fabrizio Ferri, and Daniele Macciocchi as of May 24^th, 2024 (#98): “… we study whether investors change their portfolio holdings in response to mechanical changes in ESG ratings––i.e., changes independent of concurrent changes in a firm’s actual ESG activities. To do so, we exploit a change in Refinitiv’s ESG ratings mechanically driven by the expansion of its coverage in 2015. We first document that the coverage expansion automatically and substantially improved the relative position – and thus the ESG rating – of the firms already covered by Refinitiv. Next, we show that these firms did not exhibit any improvement in their ESG performance (as measured using actual ESG outcomes, ESG ratings by other providers, as well as our estimated Refinitiv’s ESG rating absent the coverage expansion). … the probability of being selected by an ESG fund is higher for treatment firms relative to control firms, whereas we do not find that ESG funds increase their holdings of treated stocks already in their portfolio. These findings suggest that ESG funds use ESG ratings mostly in the selection process rather than the portfolio weighting process. … our analyses show that passive ESG funds (those with an index-based investing strategy) and active ESG funds that are more “passive” in their selection strategy (due to resource constraints) are more likely to add to their portfolio firms that experience an increase in ESG ratings independent of concurrent changes in the firm’s ESG activities” (p. 20/21). My comment: I f my ESG rating provider updates its methodology and company ESG ratings change only because of this change, I still react regarding my investment/divestment portfolio decisions. The reason: I assume (and can usually confirm) that the updated rating methdodology I better than the old methodology. “Rule-change” examples see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (prof-soehnholz.com)

AI vs Greenwashing: Combining AI and Domain Expertise to Assess Corporate Climate Transition Disclosures by Chiara Colesanti Senni, Tobias Schimanski, Julia Bingler, Jingwei Ni, and Markus Leippold as of May 14^th, 2024 (#417): “… the lack of one clear reference framework paves the way for inconsistencies in transition plans and the risk of greenwashing. We propose a set of 64 common ground indicators from 28 different transition plan disclosure frameworks to comprehensively assess transition plans … Applying the tool to 143 reports from the carbon-intensive CA100+ companies, we find that companies tend to disclose more indicators related to target setting (talk) but fewer indicators related to the concrete implementation of strategies (walk)“ (abstract). My comment: I am not sure if there is an added value compared to the approaches of good ESG rating providers.

Impact investment research (in: Private company ESG)

More transformation? Consistency or Transformation? Finance in Climate Agreements by Sebastian Rink, Maurice Dumrose and Youri Matheis as of May 21^st, 2024 (#21): “Our paper critically examines the role of responsible institutional investors… we show that responsible investors tend to avoid high-emitting companies in their portfolios. Companies with higher ownership by responsible investors do not decarbonize faster. In contrast, companies’ ESG ratings improve significantly with higher responsible investor ownership. This highlights a focus by responsible investors on these widely used ESG metrics instead of real economy decarbonization“ (abstract).

Private company ESG: Entrepreneurial Finance and Sustainability: Do Institutional Investors Impact the ESG Performance of SMEs? by Wolfgang Drobetz, Sadok El Ghoul, Omrane Guedhami, Jan P. Hackmann, and Paul P. Momtaz as of May 22^nd, 2024 (#83): “We show that … investor backing by venture capital and private equity funds leads to an increase in SMEs’ (Sö: Small and medium size enterprises) externally validated ESG scores compared to matched non-investor-backed SMEs. Consistent with ESG-as-insurance theory, we find that the ESG performance of SMEs with a higher probability of failure, especially low-revenue SMEs and SMEs with high revenue volatility, is more likely to benefit from institutional investor backing. The positive effect is non-linear: SMEs with high ex-ante ESG performance are more likely to further improve ESG policies following investor backing, while SMEs with low ex-ante ESG performance are unlikely to improve“ (abstract). My comment: With my shareholder engagement focus on supplier ESG ratings improvement I want to leverage my engagement efforts, see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog (prof-soehnholz.com)

Political engagement: Collaborative investor engagement with policymakers: Changing the rules of the game? by Camila Yamahaki and Catherine Marchewitz as of April 12^th, 2024 (#41): “… this article analyzes what drives institutional investors to engage with government entities and what challenges they find in the process. … We identify a trend that investors conduct policy engagement to fulfill their fiduciary duty, improve investment risk management, and create an enabling environment for sustainable investments. As for engagement challenges, investors report the longer-term horizon, a perceived limited influence toward governments, the need for capacity building for investors and governments, as well as the difficulty in accessing government representatives“ (abstract).

Impact asset allocation: How sustainable fnance creates impact: transmission mechanisms to the real economy by Ben Caldecott, Alex Clark, Elizabeth Harnett, and Felicia Liu as of May 23^rd, 2024: “Our findings suggest that fixed income, notably sustainability-linked bonds and loans, could present the greatest opportunity for impact if they are appropriately designed, passively-managed public equities the least, and hedge funds strategies the most variable. … we suggest how this analysis might be applied to strategic asset allocation by investors with multi-asset portfolios, suggesting that the addition of an “impact budget” as a way of operationalising these decisions” (p.27). My comment see Sustainable investment = radically different? – Responsible Investment Research Blog (prof-soehnholz.com) or Nachhaltige Geldanlage = Radikal anders? – Responsible Investment Research Blog (prof-soehnholz.com)

…………………………………………………………………………………………………………………………………………

Werbehinweis (in: Private company ESG):

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Small-Cap-Anlagefonds (SFDR Art. 9) investieren und/oder ihn empfehlen. Der Fonds mit aktuell sehr positiver Performance 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 28 von 30 Unternehmen: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T und My fund – Responsible Investment Research Blog (prof-soehnholz.com)

Healthcare IT and more new research: Researchpost #166

Healthcare IT: 17x new research on climate profits, biodiversity, carbon policy, noisiness, brown subsidies, child marriages, diversity returns, ESG ratings, climate measures, index pollution, impact funds, engagement returns, green research, green real estate, green ECB (# shows number of SSRN full paper downloads as of March 7^th, 2024).

Ecological research (in: Healthcare IT)

Climate adaption profits? Fiscal Implications of Global Decarbonization by Simon Black, Ruud de Mooij, Vitor Gaspar, Ian Parry, and Karlygash Zhunussova from the International Monetary Fund as of March 7^th, 2024 (#2): “The quantitative impact on fiscal revenues for countries depends on the balance between rising carbon revenue and a gradual erosion of existing carbon and fuel tax bases. Public spending rises during the transition to build green public infrastructure, promote innovation, support clean technology deployment, and compensate households and firms. Assumptions about the size of these spending needs are speculative and estimates vary with country characteristics (especially the emissions intensity of the energy sector) and policy choices (whether investments are funded through user fees or taxes for the sector or by the general budget). On balance, the paper finds that the global decarbonization scenario will likely have moderately negative implications for fiscal balances in advanced European countries. Effects are more likely to be positive for the US and Japan if public spending is contained. For middle and low-income countries, net fiscal impacts are generally positive and sometimes significantly so—mostly due to relatively buoyant revenue effects from carbon pricing that exceed spending increases. For low-income countries, these effects are reinforced if a portion of the global revenue from carbon pricing is shared across countries on a per-capita basis. Thus, a global agreement on mitigation policy has the potential to support the global development agenda” (p. 26).

Green productivity? The impact of climate change and policies on productivity by Gert Bijnens and many more from the European Central Bank as of Feb. 28^th, 2024 (#26): “The impact of rising temperatures on labour productivity is likely to be positive for Northern European countries but negative for Southern European countries. Meanwhile, extreme weather events, having an almost entirely negative impact on output and productivity, are likely to have a relatively higher impact on Southern Europe. … The impact of climate policies on resource reallocation across sectors is likely negative, as the more carbon-intensive sectors are currently more productive than the sectors that are expected to grow due to the green transition. … Smaller firms that have a harder time in securing finance and less experience in creating or adapting new innovations may initially face challenges and see a decline in their productivity growth. However, their productivity outlook improves as they gradually adjust and gain access to support mechanisms, such as financial assistance and technological expertise. … Market-based instruments, like carbon taxes, are not enough in themselves to spur investment in green innovation and productivity growth. As others have found, the green transition also calls for an increase in green R&D efforts and non-market policies such as standards and regulations, where carbon pricing is less adequate. … In conclusion, while shifting towards a greener economy can lead to temporary declines in labour productivity in the shorter term, it could yield several long-term productivity benefits“ (p. 60/61).

Biodiversity degrowth: Biodiversity Risks and Corporate Investment by Hai Hong Trinh as of Oct. 1^st, 2023 (#188): “I document a strong adverse association between corporate investment and biodiversity risks (BDR) …. More importantly, in line with the life-cycle theory, the relation is pronounced for larger and more mature firms, suggesting that firms with less growth opportunities care more about climate-induced risks, BDR exposures in this case. When environmental policies become more stringer for climate actions, the study empirically supports the rationale that climate-induced uncertainty can depress capital expenditure due to investment irreversibility, causing precautionary delays for firms”.

“Good” carbon policies: Carbon Policy Design and Distributional Impacts: What does the research tell us? by Lynn Riggs as of Sept. 21^st, 2023 (#15): “There are two main veins of literature examining the distributional effects of carbon policy: the effects on households and the effects on production sectors (i.e., employment). These literatures have generally arisen from two common arguments against carbon policies – that these polices disproportionately affect lower income households and that the overall effect on jobs and businesses will be negative. However, existing research finds that well-designed carbon policies are consistent with growth, development, and poverty reduction, and both literatures provide guidance for policy design in this regard” (abstract).

Social research (in: Healthcare IT)

Costly noise: The Price of Quietness: How a Pandemic Affects City Dwellers’ Response to Road Traffic Noise by Yao-pei Wang, Yong Tu, and Yi Fan as of July 15^th, 2023 (#44): “We find that housing units with more exposure to road traffic noise have an additional rent discount of 8.3% and that tenants are willing to pay an additional rent premium for quieter housing units after the pandemic. We demonstrate that the policies implemented to keep social distance like WFH (Sö: working from home) and digitalization during the COVID-19 pandemic have enhanced people’s requirement for quietness. We expect these changes to persist and have long-lasting implications on residents’ health and well-being …” (p. 25/26).

Ungreen inequality subsidies? Do Commuting Subsidies Drive Workers to Better Firms? by David R. Agrawal, Elke J. Jahn, Eckhard Janeba as of March 5^th, 2024 (#5): „Increases in the generosity of commuting subsidies induce workers to switch to higher-paying jobs with longer commutes. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality” (abstract).

Polluted marriages: Marriages in the shadow of climate vulnerability by Jaykumar Bhongale and Oishik Bhattacharya as of May 15^th, 2023 (#26): “We discover that girls and women are more likely to get married in the year of or the year after the heat waves. The relationship is highest for women between the ages of 18 and 23, and weakest for those between the ages of 11 and 14. We also investigate the idea that severe weather influences families to accept less suitable daughter marriage proposals. We discover that people who get married in extremely hot weather typically end up with less educated men and poorer families. Similarly to this, men with less education who married during unusually dry years are supportive of partner violence more than other married men married in normal seasons of the year. These findings collectively imply that families who experience environmental shocks adapt by hastening the marriage of daughters or by settling for less ideal marriage offers “ (abstract).

Diversity returns: Diversity and Stock Market Outcomes: Thank you Different! by Yosef Bonaparte as of Feb. 9^th, 2024 (#30): “… we gather data from 68 countries on key financial results and their level of diversity. We define diversity via four dimensions: ethnicity, language, religion, and gender. … our results demonstrate that the impact of diversity components on the stock market varies, yet overall, the greater the level of diversity the greater the stock market performance, and there is no volatility associated with this high return. In fact, we present some evidence that the overall volatility declines as diversity increases. To sum up, diverse culture is better equipped to understand and serve diverse consumer markets, thereby expanding the potential customer base. This inclusive approach not only reflects social responsibility but also aligns with economic advantages, as it results in improved corporate governance, risk management, and overall corporate performance“ (p. 15).

ESG investment research

ESG rating issues: Unpacking the ESG Ratings: Does One Size Fit All? by Monica Billio, Aoife Claire Fitzpatrick, Carmelo Latino, and Loriana Pelizzon as of March 1^st, 2024 (#70): “In this study, we unpack the ESG ratings of four prominent agencies in Europe …” (abstract) … “First, using correlation analysis we show that each E, S, and G pillar contributes differently to the overall ESG rating. … the Environmental pillar consistently plays a significant role in explaining ESG ratings across all agencies … When analysing the intra-correlations of the E, S and G pillar we find a low correlation between the three E, S, and G pillars. An interesting accounting methodology emerges from RobecoSAM which exhibits notably high intra-correlations. This prompts us to raise questions about the validity of relying exclusively on survey data for calculating ESG ratings as RobecoSAM does. … the Governance pillar displayed the highest divergence across all years, followed by Social, Environmental and finally ESG. … Finally, our study on the main drivers of ESG ratings reveals that having an external auditor, an environmental supply chain policy, climate change commercial risks opportunities and target emissions improves ratings across all agencies, further emphasizing the importance of firms’ environmental strategies“ (p. 12/13). My comment: Unterschiedliche ESG-Ratings: Tipps für Anleger | CAPinside

Pro intensity measures: Greenness and its Discontents: Operational Implications of Investor Pressure by Nilsu Uzunlar, Alan Scheller-Wolf, and Sridhar Tayur as of Feb. 28^th, 2024 (#23): “… We explore two prominent environmental metrics that have been proposed for carbon emissions: an absolute-based target for absolute emissions and an intensity-based target for emission intensity. … we observe that, for high-emission companies, an intensity-based target increases the producer’s expected profit, leading to less divestment compared to the absolute-based target. We also find that the intensity-based target is more likely to facilitate investments in increased efficiency than the absolute-based target“ (abstract).

Index-hugging pollution? Reducing the Carbon Footprint of an Index: How Low Can You Go? by Paul Bouchey, Martin de Leon, Zeeshan Jawaid, and Vassilii Nemtchinov as of Feb. 13^th, 2024 (#31): “… The authors find that an investor may be able to reduce the carbon footprint of a typical index-based portfolio by more than 50%, while keeping active risk low, near 1% tracking error volatility. … We study the effects of constraints on the optimization problem and find that loosening sector and industry constraints enables a greater reduction in carbon emissions, without a significant increase in overall active risk. Specifically, underweights to Utilities, Energy, and Materials allow for a greater reduction in carbon emissions” (abstract). My comment: The Carbon footprint can be reduced much more by avoiding significant emitters altogether. Index deviation will increase in that case, but not necessarily relevant risk indicators such as drawdowns or volatility, see also 30 stocks, if responsible, are all I need (prof-soehnholz.com)

SDG and impact investment research (in: Healthcare IT)

Better sustainability measure: Methodology for Eurosif Market Studies on Sustainability-related Investments by Timo Busch, Eric Pruessner, Will Oulton, Aleksandra Palinska, and Pierre Garrault from University Hamburg, Eurosif, and AIR as of February 2024: “Past market studies on sustainability-related investments typically gathered data on a range of different sustainability-related investment approaches and aggregated them to one of a number of “sustainable investments”. However, these statistics did not differentiate between investments based on their investment strategy and/or objectives to actively support the transition towards a more sustainable economy. The methodology presented in this paper aims to reflect current approaches to sustainability-related investment across Europe more accurately. It introduces four distinct categories of sustainability-related investments that reflect the investments’ ambition level to actively contribute to the transition towards a more just and sustainable economy … Two core features of the proposed approach are that it applies to all asset classes and that investments only qualify as one of the four categories if they implement binding ESG- or impact related criteria in their investment process. The methodology will serve as a basis for future market studies conducted by Eurosif in cooperation with its members“ (p. 2). My comment: I like the four categories Basic ESG, Advanced ESG, Impact-Aligned and Impact-Generating. For further details regarding impact generation see also DVFA-Leifaden_Impact_2023-10.pdf. The “Leitfaden” is now also available in English (not online yet, though)

Engagement returns: Value of Shareholder Environmental Activism: Case Engine No. 1 by Jennifer Brodmann, Ashrafee T Hossain, Abdullah-Al Masum, and Meghna Singhvi as of Feb. 13^th, 2024 (#20): “We observe short-term market reactions to S&P100 index constituents around two subsequent events involving Engine No. 1 – an environment activist investment firm: first, they won board seats at ExxonMobil (the top non-renewable energy producer) on May 26, 2021; and second, on June 2, 2021, they announced their plan to float Transform-500-ETF (an ETF targeting to ensure green corporate policies) in the market. We find that the market reacts significantly positively towards the stocks of the firms with more serious environmental (and emission) concerns around each of these two events. Overall, our findings suggest that a positive move by the environment activist shareholders results in an incremental favorable equity market reaction benefitting the polluting firms. … we posit that this reaction may be a product of market anticipation of a future reduction in environmental (and emission) concerns following the involvement of green investors” (abstract).

Bundled green knowledge: Wissensplattform Nachhaltige Finanzwirtschaft by Patrick Weltin vom VfU as of February 2024: “The final report summarizes the key findings of the Knowledge Platform for Sustainable Finance project. The research project is helping to increase understanding of sustainable finance among various key stakeholders. In addition to policymakers, financial market players, the real economy and civil society, these include employees in the financial sector, in particular trainees, young professionals and students. The final report summarizes and presents the key results of the work packages and possible overarching findings” (p. 5). My comment: I offered the VfU to discuss about a potential inclusion of my research summaries, but I did not get a reply.

Greener real estate: Finanzierung von energetischen Gebäudesanierungen Eine kritische Analyse unter besonderer Berücksichtigung der Sustainable Finance-Regulierung der Europäischen Union von Tobias Popovic und Jessica Reichard-Chahine vom Februar 2024: “Financing of energy-efficient building renovations: … At 1 percent per year, the renovation rates in the building stock in Germany are significantly below the 2-4 percent that would be necessary to achieve the climate targets of the Paris Agreement as well as those of the EU and the German government. The too low renovation rates, the insufficient renovation quality and the associated sluggish standardisation are due to various obstacles, such as a lack of data on the energy status of buildings, a lack of renovation and financial knowledge on the part of building owners and users, a lack of renovation incentives and, last but not least, the lack of availability of appropriate financing and insurance products. … On the market side .. there is still a need for the development of innovative financing instruments …” (p. 5).

Healthcare-IT potential: Next Health – a new way to navigate the healthcare ecosystem by Karin Frick, David Bosshart and Stefan Brei as of Nov. 7^th, 2023 (Deutsch; Francais #27): “Human and artificial intelligence working together have the potential to significantly increase quality in both medicine and productivity, thereby reducing costs. … The more cooperative the approach to data sharing, the greater the amount and quality of data available in the system, and the better the results. These developments will also change the position of patients in the healthcare system and how they see their role. The more frequently they come into contact with the healthcare system while they are healthy, the more their behaviour will come to resemble that of consumers. Even the hierarchical distance between doctor and patient will shrink or perhaps even disappear completely, for the simple reason that both parties will be taking advice from smart assistants when making decisions“ (p. 2). My comment: About a third of my small cap SDG fund is now invested in healthcare companies. With Nexus from Germany and Pro Medicus from Australia there are two healthcare IT companies in my mutual fund. For further information on Medtech also see What to expect from medtech in 2024 by Karsten Dalgaard, Gerti Pellumbi, Peter Pfeiffer, and Tommy Reid from McKinsey.

Other investment research (in: Healthcare IT)

ECB for green? Legitimising green monetary policies: market liberalism, layered central banking, and the ECB’s ongoing discursive shift from environmental risks to price stability by Nicolás Aguila and Joscha Wullweber as of Feb. 17^th, 2024: “Through the analysis of ECB Executive Board member speeches, we have identified three main narratives about the consequences of the environmental crisis in the monetary authority’s spheres of influence: The first emphasises environmental phenomena as financial risks; the second highlights the green investment or financing gap; and the third focuses on the impacts of climate change on price stability. … We show that the third narrative is displacing the first as the dominant discourse around ECB climate policy. The shift in focus from the central bank’s duties to maintain financial stability to its responsibilities regarding price stability under the primary mandate could lead to far-reaching green monetary policies” (abstract).

……………………………………………………………………………………………………………………………………..

Advert for German investors:

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).

ESG bluff? Researchpost #164

ESG bluff: 10x new research on Swiss/sustainable retail, lab meat, Weimar politics, sustainable women, SDG financial research, green funds, real estate ESG, free trading governance effects and bond factors (#shows the number of SSRN full paper downloads as of February 22^nd, 2024)

Social and ecological research (in: ESG bluff?)

Sustainable retail (English version below): Ausgebummelt – Wege des Handels aus der Spass- und Sinnkrise by Gianluca Scheidegger, Johannes Bauer, and Jan Bieser as of Dec. 7th, 2023 (#21): „Die Zeit wird neu verteilt: Was keine Freude oder Sinn stiftet, wird gestrichen … Nachhaltiger Konsum gewinnt an Bedeutung … Umfassend informiert: KI erleichtert die Produktsuche für Konsument:innen …Auf einer Linie: Persönliche Werte werden bei der Produkt- und Händlerwahl entscheidend: Purpose-driven Consumers sind die weltweit größte Kundengruppe. Tendenz steigend. Diese Kund:innen kaufen nur bei Firmen ein, die ihre Werte teilen. Die Konsument:innen erwarten in Zukunft mehr von den Unternehmen. Händler müssen Stellung zu gesellschaftlichen Problemen beziehen und aktiv zu ihrer Lösung beitragen. Die gute Nachricht ist: Die Menschen trauen dies den Unternehmen zu. Jedem Kanal seine Rolle: Transaktion primär online, Inspiration eher offline. Schnell und nachhaltig: … Händler, die beide Ansprüche unter einen Hut bekommen, verschaffen sich einen klaren Wettbewerbsvorteil“ (p. 84).

Sustainable retail (German version above): Going shopping is dead – How to Restore Meaning and Fun in Retail by Gianluca Scheidegger, Johannes Bauer and Jan Bieser as of Dec. 4^th, 2023 (#17): “Time is being reallocated: what’s not fun or meaningful will be crossed off the schedule … Sustainable consumption is gaining in importance Overconsumption has a massive impact on the environment. … Fully informed: AI facilitates consumers’ searches for products … In aligment: personal values becoming decisive in choosing products and retailers Purpose-driven consumers are the largest customer group worldwide. This trend is rising. These customers only buy from companies that share their values. Consumers will expect more from companies in the future. Retailers must take a stand on social problems and actively contribute to solving them. The good news is that people trust companies to do this. Each channel has its role: transactions primarily online, inspiration mostly offline … Fast and sustainable: delivery under greater scrutiny … The fastest form of delivery is often not the most sustainable. Retailers who can reconcile both requirements gain a clear competitive advantage“ (p. 84).

Lab meat: Good conscience from the lab? The State of Acceptance for Cultivated Meat by Christine Schäfer, Petra Tipaldi and Johannes C. Bauer as of Jan. 8^th, 2024 (#12; German version: Gutes Gewissen aus dem Labor? So steht es um die Akzeptanz von kultiviertem Fleisch by Christine Schäfer, Petra Tipaldi, Johannes Bauer :: SSRN, #26): “Lab-grown meat instead of beef fillet, cell-cultured patties instead of burgers – for many Swiss people this sounds far from appetising. A mere 20% would even try cultivated meat, whilst 15% remain undecided. … The Swiss population is also sceptical about other kinds of novel foods, such as insects or coffee made from mushrooms. There are, however, customer groups who may be more inclined to tuck into a steaming plate of crispy lab-grown schnitzel: They are young, male, educated, mainly live in the city, already have experience with a particular diet, such as vegetarian or low carb, and know a lot about sustainable food. … Lab-grown meat is one such example of a novel food. It is cultivated from stem cells in a bioreactor and has many advantages, namely that factory farming and the use of antibiotics are all but eliminated, less space and water is needed for production, no rainforests need to be cut down to cultivate animal feed and the combination of nutrients in the meat can be adapted to specific target groups. But there are risks …. the production facilities needed eat up enormous amounts of energy … Lab-grown meat is still hard to find on the market. Customers can only taste chicken derived from cellular agriculture in a few restaurants in Singapore and the USA at the moment. As yet, it has not been approved anywhere in Europe“ (p. 2). My comment: I am skeptical about the ecological footprint and market potential of lab meat compared to plant-based meat alternatives.

Sustainable women: Sustainable leadership among financial managers in Spain: a gender issue by Elena Bulmer, Iván Zamarrón, and Benito Yáñez-Araque as of Dec. 29^th, 2023 (#13): “A total of 131 senior financial managers (106 men and 25 women), from various sectors in Spanish companies (a multi-sector study), responded to two scales: the Honeybee Sustainable Leadership Scale (focusing on stakeholder orientation and a vision of social and shared leadership) and the Locust Leadership Scale (primarily centered on achieving short-term profits at any cost). … The main finding was that female financial managers scored significantly higher on the Honeybee Leadership Scale compared to their male counterparts, signifying that female presence is key to sustainable leadership” (abstract).

Deglobalization effect? The consequences of a trade collapse: Economics and politics in Weimar Germany by Björn Brey and Giovanni Facchini as of Jan. 17^th, 2024 (#18): “What are the political consequences of de-globalization? We address this question in the context of Weimar Germany, which experienced a 67% decline in exports between 1928-1932. During this period, the Nazi party vote share increased from 3% to 37%. … we show that this surge was not driven by the direct effects of the export decline in manufacturing areas. At the same time, trade shock-induced declines in food prices spread economic hardship to rural hinterlands. We document that this indirect effect and the pro-agriculture policies put forward by the Nazis are instead key to explain their electoral success” (abstract).

Responsible investment research (in. ESG bluff?)

SDG research: Finance Research and the UN Sustainable Development Goals – an analysis and forward look by Yang Sua, Brian M. Lucey, and Ashish Kumar Jha as of Feb. 13^th, 2024 (#183): “This study conducts a comprehensive analysis of the interplay between the United Nations Sustainable Development Goals (UN SDGs) and scholarly output in financial journals from 2010 to 2022. … The findings demonstrate a focus within finance research on Economic Growth (Goal 8) and Peace and Justice (Goal 16), while also identifying areas that warrant further scholarly attention” (abstract). My comment: For mutual funds it seems to be easiest to focus on SDGs 3 (Health), 7 (Energy) and 9 (Industry/Infrastructure). That is my experience with a bottom-up stock selection approach, see www.futurevest.fund “Nachhaltigkeitsreport”.

ESG bluff? Sustainable in Name Only? Does Bluffing or Impact Explain Success in a Moral Market? by Kevin Chuah and Witold Henisz as of Feb. 13^th, 2024 (#16): “… US-domiciled equity-focused investment funds that are labeled as focusing on environmental, social, and governance (ESG) issues. Although we find that product success in terms of investment inflows is more likely for funds with better ESG performance, the draw of larger fund operators and of superior financial returns remains substantial. We further segment our sample, finding that segments offering lower levels of ESG engagement achieve inflows that are unrelated to ESG performance, yet are a substantial part of the overall market. This suggests that bluffing by large product providers may undermine genuine attempts at social impact in moral markets“ (abstract). My comment: It certainly seems to help to grow fund assets to have huge marketing power and good returns, recently often based on high allocations to the glorious 7 which I do not consider to be very sustainable, see Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (prof-soehnholz.com)

Green disadvantage? Carbon Risk Pricing or Climate Catering? The Impact of Morningstar’s Low Carbon Designation on Fund Performance by K. Stephen Haggard, Jeffrey S. Jones , H. Douglas Witte, and C. Edward Chang as of Jan. 18^th, 2024 (#21): “Our results show insignificant performance differences between Low Carbon Designated (LCD) funds and non-LCD funds for the most recent (three-year) period. For longer periods of five and ten years, we observe excess performance only for the Sharpe and Sortino ratios, but not for Total Return or the Treynor ratio. … our results are consistent with a catering hypothesis of climate investing. Initially, investors seeking low-carbon investments bid up the prices of low-carbon stocks. Firms respond by seeking Low Carbon Designations, whether through real efforts or greenwashing. Once enough low-carbon stocks are available to meet the demand of the lowcarbon clientele, the premium associated with low carbon disappears“ (p. 17). My comment: If low LCD funds have similar performance as high carbon funds, why invest in the latter?

Green disadvantage? Doing Good and Doing Well: The Relationships between ESG and Stock Returns of REITs by Neo Jing Rui Dominic and Sing Tien Foo as of Jan. 29^th, 2024 (#31): “Using a sample of 413 REITs from both the US and other developed countries covering the period from 2018 to 2022 …We find that REITs with an ESG rating have a lower price return of 0.8% relative to REITs not assessed for ESG. … The results show that the total returns of the ESG-rated REITs were even lower when the climate change risks increased, or more specifically, when investors became more salient about climate change news, they increased their preference for ESG-rated REITs, thus reducing the total return of REITs. … we find that higher compliance and operation costs for REITs with strong ESG agendas, which may come in the form of higher compensation for the Board and Senior Management, who take on more ESG responsibilities, may have a negative impact on the ESG-rated REIT stock performance“ (p. 19/20). My comment: The higher compensation for REIT Boards and Senior Management with the associated higher pay gap compared to median employee should be explored further. With my shareholder engagement strategy I try to alert regarding this issue, see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Retail anti-governance? Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading by Dhruv Aggarwal, Albert H. Choi, and Yoon-Ho Alex Lee as of Feb. 9^th, 2024 (#102): “We examine the effects of the sudden abolition of trading commissions by major online brokerages in 2019, which lowered stock market entry costs for retail investors, on corporate governance. … Firms with positive abnormal returns in response to commission-free trading subsequently saw a decrease in institutional ownership, a decrease in shareholder voting, and a deterioration in environmental, social, and corporate governance (ESG) metrics. Finally, these firms were more likely to adopt bylaw amendments to reduce the percentage of shares needed for a quorum at shareholder meetings” (abstract).

Other investment research (in: ESG bluff)

Few good bond factors: The Corporate Bond Factor Zoo by Alexander Dickerson, Christian Julliard, and Philippe Mueller as of Nov. 14^th, 2023 (#1299): “We find that the majority of tradable factors designed to price corporate bonds are unlikely sources of priced risk, and that only one factor, capturing the post-earnings an-nouncement drift in corporate bonds, which has not been utilized in prior asset pricing models, should be included in any stochastic discount factor (SDF) with very high probability. Furthermore, we find that nontradable factors capturing inflation volatility risk … and the term structure yield spread … as well as the return on a broad based bond market index, are likely components of the SDF” (p. 37/38).

:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Advert for German investors:

Sponsor my research by investing in and/or recommending my global smallcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 25 of 30 companies: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)