Archiv der Kategorie: Regulierung

ESG variety: Picture by Frauke Riether from Pixabay

ESG variety: Researchpost 172

Picture: „The Hands of Children“ by Frauke Riether from Pixabay

ESG variety: 12x new research on migration, climate politics, ESG (regulation, risk, disclosure, weigthings, ratings), Norwegian ESG, climate data, stewardship, impact measurement, and altruists (#shows the number of SSRN full paper downloads as of April 18th, 2024).

Social and ecological research

Migration to Germany: Walls, Not Bridges: Germany’s Post-WWII Journey with Refugee Integration by Noah Babel and Jackson Deutch as of Dec. 19th, 2023 (#15): “Given projections that by 2060, a third of its populace will be over 65, the economic argument for integrating a refugee workforce to counter labor shortages is compelling. However, current administrative measures like language proficiency assessments and residency restrictions inadvertently cast refugees as outsiders, hindering true integration. … Prolonged waits for asylum decisions, often extending for years, coupled with employment limitations, don’t just hamper economic advancement, they socially isolate refugees“ (p. 8).

Brown politics: The Behavioral Economics and Politics of Global Warming – Unsettling Behaviors Elements in Quantitative Finance by Hersh Shefrin as of Dec. 12th, 2023 (#50): “.. there is evidence that carbon continues to be priced in the range of 6 percent to 10 percent of its social cost …. Psychological biases, especially present bias, lie at the root of my analysis of the big behavioral question. In particular, these biases explain the reluctance to use taxes to price GHGs in line with their respective social costs. This reluctance is an unsettling behavior, and results in abatement being more costly than necessary, plausibly by a factor of five to seven. The cost of reluctance is a behavioral cost, and it is large“ (p. 108).

Good ESG regulation: Cross-border Impact of ESG Disclosure Mandate: Evidence from Foreign Government Procurement Contracts by Yongtae Kim, Chengzhu Sun, Yi Xiang, and Cheng (Colin) Zeng as of April 12th, 2024 (#30): “We find robust evidence that firms from countries mandating ESG disclosure are more likely to secure foreign governments’ procurement contracts with higher values than counterparts in non-regulated countries” (p. 33).

ESG investment research (in: ESG variety)

Financial ESG risk: Market Risk Premium and ESG Risk by Joey Daewoung, Yong Kyu Gam, Yong Hyuck Kim, Dmitriy Muravyev, and Hojong Shin as of April 12th, 2024 (#29): “Using a panel dataset consisting of US firms for 2010-2021, we find that the stock market beta is positively related to average returns on the days when investors learn about negative ESG incidents that affect the market as a whole. Specifically, we report that the CAPM-implied market risk premium is, on average, 31.52 bps on ESG days, which is, on average, 32.92 bps higher than the market risk premium on non-ESG days (-1.40 bps). The magnitude of the market risk premium is both statistically and economically significant, and robust across different model specifications. Our findings contribute to the existing literature by showing that the ESG risk is systematic and priced” (p. 16).

ESG weighting issues: Comparing ESG Score Weighting Approaches and Stock Performance Differentiation by Matthias Muck and Thomas Schmidl as of April 12th, 2024 (#22): “… we compare the performance differences of stocks sorted according to ESG scores that utilize the same categories but have different weightings. … Interestingly, an uninformed, equally weighted score leads to larger performance differences compared to Refinitiv’s data-driven weighted score. … As a robustness check, we consider the Paris Agreement as an exogenous event. … the post-Agreement increase in performance differentiation is likely due to investors’ recognition that sustainability information is indeed relevant for stock pricing” (p. 7). My comment: I use separate (Best-in-Universe) E, S and G Scores for stock selection. Unfortunately, I have seen very few studies suing such separate scores so far.

ESG disclosure differences: The impact of real earning management and environmental, social, and governance transparency on financing costs by Adel Necib, Malek El Weriemmi and Anis Jarboui as of April 10th, 2024 (#21): “We use a fixed effects panel data analysis to examine 97 firm-year observations of UK firms from 2014 to 2023. According to the research, investors place a lower value on ESG disclosure and increase the price of shares, whilst lenders view it favourably and reduce the cost of debt“ (abstract).

Mind the ESG-downgrade: ESG rating score revisions and stock returns by Rients Galema and Dirk Gerritsen as of March 26th, 2024 (#470): “Because the main users of ESG ratings typically adopt a low rebalancing frequency, we study the effect of ESG rating revisions on stock returns in a period of up to six months. We consider all ESG rating revisions issued by one of the largest ESG rating providers and we present evidence that both ESG and E rating downgrades are followed by six-month negative buy-and-hold abnormal returns in the magnitude of 2.5% to 3% (annualized). For larger downgrades, this effect becomes even more pronounced: Around 4.5% per year. We find that the effect of the E rating is most robust because we can confirm its significance in a calendar-time portfolio analysis. We conclude from additional analyses (i.e., mid-cycle versus annual revisions; pre-event trends) that these BHARs would not have materialized in the absence of rating revisions, despite the fact that rating revisions rely to a large extent on public information. … changes in a quarterly updated sustainable investment index based on ESG ratings explain part of the effect of E rating changes on abnormal returns. Second, institutional investors adjust their portfolios in response to decreases in E ratings. … we show that return volatility slightly increases following both ESG downgrades and E downgrades, a finding which is congruent with a reduced commitment from long-term institutional investors“ (p. 26/27). My comment: I use E, S and G Ratings downgrades (Best-in-Universe) to divest from stocks, see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog ( or “Engagementreport” here FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Norwegian ESG? The ESG commitment of the Norwegian sovereign wealth fund: Is the socially responsible behaviour of companies considered in its investment strategy? by Iván Arribas, Fernando García García, and Javier Oliver Muncharaz as of April 11th, 2024 (#12): “… only seven of the leading sovereign wealth funds include ESG metrics in their investment process. The group includes the Norwegian GPFG, which is the biggest sovereign wealth fund worldwide in terms of assets under management. … findings suggest that favourable ESG performance of firms does have a positive impact on the probability of inclusion in the investment portfolio of Norway’s sovereign wealth fund. Notably, environmental performance is significant. Moreover, the GPFG’s criteria in relation to greenhouse gas emissions for companies in the electricity sector result in a lower probability of these firms becoming part of the fund’s investment portfolio compared with other industry sectors” (p. 20). My comment: The Norwegian SWF still invest in many companies and therefore has to compromise. Smaller investor can focus much better on demanding sustainability criteria, see 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (

Climate data issues: Climate Data in the Investment Process: Challenges, Resources, and Considerations by Andres Vinelli, Deborah Kidd, CFA, and Tyler Gellasch from the CFA Institute as of April 2024: “Before the maturation of accounting standards, financial data were imperfect for many years and are still imperfect for companies in emerging markets, where accounting and financial reporting practices are evolving. As with financial data, climate-related data availability and quality have improved over recent years and will continue to improve. In the meantime, investors should apply the same data interpretation, checks, and management techniques that they apply when working with other sets of estimated or incomplete data—such as validating data by cross-checking with original source data, understanding data provider methodologies (where disclosed), diversifying sources of data where possible, and using qualitative information and judgment as needed to fill in the gaps. … To help improve the current state of climate-related data, investors can participate in standards-setting processes, encourage issuers to voluntarily adopt standards, and advocate for high-quality, globally consistent disclosure regulations” (p. 13).

Impact investment research (in: ESG Variety)

Stewardship dilution?  ESG, Sustainability Disclosure, and Institutional Investor Stewardship by Giovanni Strampelli as of April 10th, 2024 (#20): “Several sets of sustainability standards have been adopted internationally. The European Commission recently adopted the CSRD, which places more stringent obligations and expanded the scope of companies, including unlisted ones, required to publish sustainability reports. … While such sustainability-related disclosure requirements may create a “name-and-shame” obligation for companies to take initiatives to improve their ESG performance, it is doubtful that such obligations can promote ESG-related stewardship activities by institutional investors. … the regulatory framework is still fragmented and there are differences between the various sustainability disclosure sets, concerning in particular the notion of materiality, which make it difficult to compare sustainability reports prepared under different standards. For these reasons, institutional investors rely on ESG ratings and indices for the purposes of their investment and stewardship strategies. … the choice of nonactivist institutional investors to focus part of their engagement initiatives on sustainability disclosure, requiring, for example, a higher degree of transparency or the adoption of a certain set of reporting, appears to be dictated by a desire to avoid more incisive initiatives (perceived as more aggressive) aimed directly at encouraging change in the environmental strategies or policies of the companies concerned” (p. 22/23). My comment: My broad and deep stewardship process see Shareholder engagement: 21 science based theses and an action plan – ( or in “Nachhaltigkeitsinvestmentpolitik” here FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Impact measurement: The Evolution of Impact Accounting and Utilization of Logic-Model in Corporate Strategy by Reona Sekino, Toshiyuki Imamura, and Yumiko Miwa as of Dec. 4th, 2023 (#77): “After discussing the existing methods for impact management, the article focuses on practical issues and investor engagement in impact management by companies. This article also makes recommendations on practical methods based on the current situation and issues. Specifically, this article proposes a method that integrates an Impact-Weighted Accounts framework that can quantify impact in a generalized format and a Logic Model that can visualize the ripple effects of corporate activities and clarify business strategies and value creation stories, thereby making it possible for stakeholders to evaluate impact. In addition, this article makes sample analysis to discuss the usefulness and challenges of the methodology“ (abstract). My comment: This article also includes interesting impact examples, see also Impactaktien-Portfolio mit 80% SDG-Vereinbarkeit? – Responsible Investment Research Blog (

Other investment research (in: ESG Variety)

Risk-taking altruists: How Altruism Drives Risk-Taking by Dan Rubin, Diogo Hildebrand, Sankar Sen, and Mateo Lesizza as of Dec. 1st, 2023 (#51): “Individuals motivated by altruism often put themselves in harm’s way in helping others. … The first explanation, predicated on risk activation, suggests that altruism decreases risk perception by impeding the activation of self-risk information, leading to reduced risk perception and increased risk-taking. Alternatively, the second explanation implies that altruism may increase risk-discounting, whereby the importance of risk is downplayed when deciding whether to help others. Results of three studies … provide strong evidence for the risk-activation account and establish substantive boundaries for this effect“ (abstract).


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SDG Performance Illustration with SDG Wheel

SDG performance: Researchpost #168

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

ESG research

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

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

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

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

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

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

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

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

Impact investing research (in: SDG performance)

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

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

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

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

Other investment research (in: SDG performance)

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

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


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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 27 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or My fund (

Healthcare IT: Illustration from Gordon Johnson from Pixabay

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 7th, 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 7th, 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. 28th, 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. 1st, 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. 21st, 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 15th, 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 5th, 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 15th, 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. 9th, 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 1st, 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. 28th, 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. 13th, 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 (

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. 13th, 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. 7th, 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. 17th, 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).


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Collectibles: Picture of Aliens by Gerhard Janson

Collectibles: Researchpost #158

Collectibles: 14x new research on migration, biodiversity, forests, sustainability disclosures, ESG performance, ESG skills, ESG progress, activists and NFTs (#shows full paper SSRN downloads as of Jan. 11th, 2024)

Social and ecological research (Collectibles)

Positive naturalization: From Refugees to Citizens: Labor Market Returns to Naturalization by Francesco Fasani, Tommaso Frattini, and Maxime Pirot as of Dec. 20th,2023 (#12): “… exploring survey data from 21 European … We find that obtaining citizen status allows refugees to close their gaps in labor market outcomes relative to non-refugee migrants … showing that migrants with the lowest propensity to naturalize would benefit the most if they did. This reverse selection on gains can be explained by policy features that make it harder for more vulnerable migrant groups to obtain citizenship, suggesting that a relaxation of eligibility constraints would yield benefits for both migrants and host societies” (abstract).

Fresh water risks: A Fractal Analysis of Biodiversity: The Living Planet Index by Cristina Serpa and Jorge Buescu as of June 15th, 2023 (#39): “The Living Planet Index (LPI) is a global index which measures the state of the world`s biodiversity. Analyzing the LPI solely by statistical trends provides, however, limited insight. Fractal Regression Analysis …allows us to classify the world`s regions according to the progression of the LPI, helping us to identify and mathematically characterize the region of Latin America and Caribbean and the category of freshwater as worst-case scenarios with respect to the evolution of biodiversity” (abstract).

Science- or politics-based? Taxomania! Shaping forest policy through financial regulation by Anna Begemann, Camilla Dolriis, Alex B. Onatunji, Costanza Chimisso and Georg Winkel as of Dec. 1th, 2023 (#6): “This study investigates the evolution of advocacy coalitions and their strategies in the development of the (Sö: EU sustainability) taxonomy’s forestry criteria. It builds on process tracing involving 46 expert interviews conducted in 2019, 2021, and 2022 and an extensive document analysis. Our findings illustrate a complex process … highlighting strikingly different worldviews and economic and bureaucratic/political interests connected to these. Owing to a rich set of strategies employed, and deals made at different policy levels, as well as an overall lack of transparency, the proclaimed “science-based” decision-making is significantly compromised” (abstract).

Responsible investment research (Collectibles)

Positive regulation: Imposing Sustainability Disclosure on Investors: Does it Lead to Portfolio Decarbonization? by Jiyuan Dai, Gaizka Ormazabal, Fernando Penalva, and Robert A. Raney as of Dec. 22nd, 2023 (#670): “… we document that the introduction of the EU SFDR (Sö: Sustainable Finance Disclosure Regulation) … was followed by a decrease in the average portfolio emissions of EU funds that claim to invest based on sustainability criteria. … Funds already subject to sustainability disclosure mandates prior to the SFDR have significantly less decarbonization compared to funds being exposed to a sustainability disclosure mandate for the first time and decarbonization patterns are more pronounced for funds with higher levels of portfolio emissions prior to the SFDR and for funds domiciled in countries that are more sensitive to sustainability issues” (p. 29/30). My comment: I promote disclosure, see the details for my fund at

Good SDG returns: Determinants and Consequences of Sustainable Development Goals Disclosure: International Evidence by Sudipta Bose, Habib Zaman Khan and Sukanta Bakshi as of Jan. 2nd, 2023 (#22): “The study examines the determinants and consequences of firm-level Sustainable Development Goals (SDG) disclosure using a sample of 6,941 firm-year observations from 30 countries during 2016– 2019. … The findings reveal that approximately 48.40% of firms in the sample had active stakeholder engagement programs, 53.90% maintained a sustainability committee, and 62.60% issued standalone sustainability reports. The findings indicate that Environmental, Social and Governance (ESG) performance, stakeholder engagement, and the issuance of standalone sustainability reports positively influence firm-level SDG disclosure. Moreover, the study finds a positive association between higher levels of SDG disclosure and increased firm value” (abstract). My comment: My experience: The good SDG returns lasted until 2022 but did not materialize in the first 9 months of 2023, but I expect them to come back (see 2023: Passive Allokation und ESG gut, SDG nicht gut – Responsible Investment Research Blog (

Peers matter? Conform to the Norm. Peer Information and Sustainable Investments by Max Grossmann, Andreas Hackethal, Marten Laudi, and Thomas Pauls as of Dec. 23rd, 2023 (#74): “We conduct a field experiment with clients of a German universal bank … Our results show that information about peers’ inclination towards sustainable investing raises the amount allocated to stock funds labeled sustainable, when communicated during a buying decision. This effect is primarily driven by participants initially underestimating peers’ propensity to invest sustainably. Further, treated individuals indicate an increased interest in additional information on sustainable investments, primarily on risk and return expectations. However, when analyzing account-level portfolio holding data over time, we detect no spillover effects of peer information on later sustainable investment decisions” (abstract).

More ESG or lower risk? Inferring Investor Preferences for Sustainable Investment from Asset Prices by Andreas Barth and Christian Schlag as of Dec. 20th, 2023 (#44): “We find that while firm CDS (Sö: Credit Default Swap) spreads co-vary negatively with equity returns, this effect is less pronounced for firms with a high ESG rating. This divergence between equity and CDS spreads for high- vs. low ESG-rated firms suggests that some equity investors have a preference for sustainability that cannot be explained with firm risk” (abstract).

Higher ESG returns? ESG Risk and Returns Implied by Demand-Based Asset Pricing Models by Chi Zhang, Xinyang Li, Andrea Tamoni, Misha van Beek, and Andrew Ang from Blackrock as of Dec. 20th, 2023 (#68): “We find increases in preferences for ESG may result in increases in downside risk for the stocks with low ESG scores as these stocks may exhibit decreases in stock returns. … Additionally, our analysis shows that if the trend in increasing ESG preferences continues, there may be higher returns from stocks with higher ESG scores as increasing demand drives up the prices for these types of stocks. Naturally, portfolio outcomes depend on many more factors and macro drivers, but according to the demand-based asset pricing framework and estimations in this paper, ESG demand and characteristics does represent a driver of stocks’ risk and returns“ (p. 11). My comment: I also believe in higher future demand for sustainable investments and therefore attractive performances

Best-in-class deficits: Chasing ESG Performance: Revealing the Impact of Refinitiv’s Scoring System by Matteo Benuzzi, Karoline Bax, Sandra Paterlini, and Emanuele Taufer as of Dec. 20th, 2023 (#19): “… we scrutinize the efficacy and accuracy of Refinitiv’s percentile ranking in ESG scoring, probing whether apparent improvements in scores truly reflect corporate advancement or are influenced by the entry of lower-scoring new companies and the relative performance with respect to the peer group universe. Our analysis uncovers a positive inflation in Refinitiv’s approach, where the addition of companies with limited information distorts ESG performance portrayal. … Our deep dive into score distributions consistently shows that Refinitiv’s method tends to produce inflated scores, especially for top performers“ (p. 19/20). My comment: Best-in-Class ESG-Ratings which cover a limited number of companies per „class“ are most likely much less robust compared to ratings with more peers per calls and best-in-universe ratings (which I use since quite some time, see Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog (

ESG rating changes: ESG Skill of Mutual Fund Managers by Marco Ceccarelli, Richard B. Evans, Simon Glossner, Mikael Homanen, and Ellie Luu as of Dec. 20th, 2023 (#29): “A proactive fund manager is one who takes deliberate positions in firms whose ESG ratings later improve. By contrast, a reactive fund manager is one who “chases” ESG ratings, i.e., she trades in reaction to changes in ESG ratings. The former type shows ESG skill while the latter does not. We use an international sample of mutual fund managers to estimate these measures of skill … After an exogenous (but un-informative) change in firms’ ESG ratings, reactive fund managers significantly rebalance their portfolios, buying firms whose ratings improve and selling those whose ratings worsen. Proactive funds, on the other hand, do not rebalance their portfolios … Only a relatively small fraction of investors reward ESG skills with higher flows. These are investors holding funds with an explicit sustainability mandate. Presumably, these investors both value ESG skill and have the required sophistication to detect skilled managers” (p.17/18). My comment: In my experience, ESG provider methodology changes lead to more informative ESG ratings which would contradict the interpretation of this study.

ESG progress-limits? Do companies consistently improve their ESG performance? Evidence from US companies by Yao Zhou and Zhewei Zhang as of Dec. 20th,2023 (#12): “This paper depicts the trend of corporate ESG scores by measuring the growth rate of ESG scores for 8,462 firms from 2002 to 2022. … the empirical results indicate that firms’ ESG scores tend to maintain the status quo after achieving a certain level, rather than being improved consistently. These findings imply that firms tend to improve their ESG score after the first rating, but the degree of improvement lowers down over time” (abstract). My comment: Investment strategies trying to focus on ever increasing ESG-ratings do not seem to make much sense. I try to focus on the already best-rated investments.

Positive activists: Is the environmental activism of mutual funds effective? by Luis Otero, Pablo Duran-Santomil, and Diego Alaizas of Dec. 20th, 2023 (#12): “This paper analyzes the differences between mutual funds that declare ESG commitment and those that do not. Additionally, we explore their behavior in terms of voting on resolutions related to climate change and the environment. Our analysis reveals that activist funds generally exhibit a behavior that is consistent with their sustainable focus and have a lower proportion of greenwashers, contributing to the reduction of carbon emissions. Importantly, this sustainability orientation does not negatively impact their financial performance, as they attract significant flows and do not show worse performance compared to their traditional counterparts“ (abstract).

Other investment research

Low-yield collectibles: Convenience Yields of Collectibles by Elroy Dimson, Kuntara Pukthuanthong, and Blair Vorsatz as of Nov. 29th, 2023 (#53): “Using up to 110 years of collectibles returns for 13 distinct asset classes … Convenience yield estimates for 24 of our 30 collectibles return series are positive, with an annualized mean (median) of 2.64% (2.53%). Despite various forms of underestimation, these results provide evidence that assets with positive emotional returns have lower equilibrium financial returns” (abstract).

Useless NFTs? The emperor’s new collectibles by Balázs Bodó and Joost Poort as of Dec. 13th, 2023 (#25): “Over the past years, NFTs (Sö: Non-fungible tokens) have by some been predicted to revolutionize the markets for arts and copyright protected works. In short, the vision was that on the basis of unique, blockchain based tokens, and through their automated exchange, an extension or even a replacement of the traditional art markets, and the copyright-based system of production, circulation and use of cultural works could emerge. Currently, however, the state of the NFT ecosystem can be summarized as an in some sense failed experiment. This chapter starts by unpacking what we consider the four broken promises of NFTs vis-à-vis the CCIs and copyright. We briefly describe the technological underpinning of these promises, and why they were broken. Subsequently, we discuss whether there may still be a future for NFTs as a new asset class related to creative output” (abstract).


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

Skilled fund managers – Researchpost #155

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

Social and ecological research

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

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

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

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

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

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

ESG investment research (Skilled fund managers)

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

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

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

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

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

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

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

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

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

Impact investment research (Skilled fund managers)

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

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

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

Other investment research

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

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

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

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

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

Skilled fund managers (?) advert for German investors

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Emissions trading: Illustration from Pixaby by AS_Appendorf

Emissions trading and more: Researchblog #146

Emissions trading: 16x new research on fossil subsidies, ECB eco policy, GHG disclosures, supplier ESG, workforce ESG, geospatial ESG data, ESG reputation and performance, investor driven greenwashing, sustainable blockchain, active management, GenAI for asset management and more

Emissions trading (ecological) research

Fossil subsidies: IMF Fossil Fuel Subsidies Data: 2023 Update by Simon Black, Antung A. Liu, Ian Parry, and Nate Vernon from the International Monetary Fund as of Oct. 4th, 2023 (#11): “Fossil fuel subsidy estimates provide a summary statistic of prevailing underpricing of fossil fuels. … falling energy prices provide an opportune time to lock in pricing of carbon and local air pollution emissions without necessarily raising energy prices above recently experienced levels. For example, even with a carbon price of $75 per tonne, international natural gas prices in 2030 (shown in Figure 1) would be well below peak levels in 2022. Energy price reform needs to be accompanied by robust assistance for households, but this should be both targeted at low-income households (to limit fiscal costs) and unrelated to energy consumption (to avoid undermining energy conservation incentives). Assistance might therefore take the form of means-tested transfer payments or perhaps lump-sum rebates in energy bills“ (p. 23). My comment: Total subsidies for Germany for 2022 amout to US$ bln 129 (or 3% of GDP, see table p. 27), one of the largest amounts worldwide.

ECB policy model: Climate-conscious monetary policy by Anton Nakov and Carlos Thomas from the European Central Bank as of Sept. 29th, 2023 (#23): “We study the implications of climate change and the associated mitigation measures for optimal monetary policy in a canonical New Keynesian model with climate externalities. Provided they are set at their socially optimal level, carbon taxes pose no trade-offs for monetary policy: it is both feasible and optimal to fully stabilize inflation and the welfare-relevant output gap. More realistically, if carbon taxes are initially suboptimal, trade-offs arise between core and climate goals. These trade-offs however are resolved overwhelmingly in favor of price stability, even in scenarios of decades-long transition to optimal carbon taxation. This reflects the untargeted, inefficient nature of (conventional) monetary policy as a climate instrument. In a model extension with financial frictions and central bank purchases of corporate bonds, we show that green tilting of purchases is optimal and accelerates the green transition. However, its effect on CO2 emissions and global temperatures is limited by the small size of eligible bonds’ spreads” (abstract).

Pollution trade? Are Developed Countries Outsourcing Pollution? by Arik Levinson as of summer 2023: “… in general, the balance of the evidence to date does not find statistically or economically significant evidence of regulations causing outsourcing. For all the talk of outsourcing pollution in the media and politics, there is surprisingly little empirical evidence that high-income regions increasingly and disproportionally import products of the most polluting sectors“ (p. 107).

Emission trading (1): Emissions trading system: bridging the gap between environmental targets and fair competition by Massimo Beccarello and Giacomo Di Foggia as of Aug. 27th, 2023 (#22)“The effectiveness of the European Emissions Trading System in supporting a level playing field while reducing total emissions is tested. While data show a robust impact on the environment as a steady decrease in carbon emissions is observed, it is reported that its ability to internalize emission costs may improve to better address the import of extra European generated emissions that negatively impact the economy when not properly accounted for. Analyzing data in six European countries between 2016 and 2020, the results suggest competitive advantages for industries with higher extra-European imports of inputs that result in biased production costs that, in turn, alter competitive positioning” (abstract).

Emissions trading (2): Firm-Level Pollution and Membership of Emission Trading Schemes by Gbenga Adamolekun, Festus Fatai Adedoyin, and Antonios Siganos as of Sept. 18th, 2023 (#7): “Our evidence indicates that firms that are members of ETS emit on average more carbon than their counterparts that are not members of the scheme. Members of emission trading schemes are more effective in their carbon reduction efforts. Firms that are members of an ETS emit significantly more sulphur and volatile organic compounds (VOCs) than their peers that are not members of an ETS. We also find that members of ETS typically have more environmental scandals than their counterparts that are non-members. … We also report that firms that choose to exit the scheme continue emitting more than their counterparts. … new entrants initially do not emit more than their peers at the beginning, but they increase their emissions in the years following” (S. 24/25).

Different disclosures: Climate Disclosure: A Machine Learning-Based Analysis of Company-Level GHG Emissions and ESG Data Disclosure by Andrej Bajic as of August 24th, 2023 (#39): “One of the key findings of the study indicates that larger firms tend to exhibit a greater tendency to disclose both ESG (partial disclosure) and GHG data (full disclosure) … more profitable and carbon-intensive firms tend to disclose data more frequently. Furthermore, we find that companies from Western, Northern, and Southern demonstrate a stronger propensity towards disclosing GHG emissions data, whereas those from North America, particularly the US, have a higher tendency to provide general ESG data (partial disclosure), but not as much transparency regarding their GHG emissions“ (p. 25/26). My comment: I try to convince small- and midcap companies to disclose GHG scope 3 emissions, see  Shareholder engagement: 21 science based theses and an action plan – (

No intrinsic ESG? Do Major Customers Affect Suppliers‘ ESG Activities? by Feng Dong, John A. Doukas, Rongyao Zhang, Stephanie Walton, and Yiyang Zhang as of Sept. 20th, 2023 (#18): “Our empirical findings show a significantly negative relation between customer concentration and suppliers‘ ESG engagement, indicating that firms with major customers have fewer incentives to engage in ESG activities to improve their social capital, thereby attracting other customers. Instead, they cater to (maintain) their current major customers by allocating capital resources to other activities aiming to increase their intangible asset base … firms tend to maintain higher levels of ESG engagement when their principal customers exhibit greater financial leverage and bankruptcy risk. … Additionally, we find that suppliers with concentrated customer bases and customers facing lower switching costs tend to have higher levels of ESG engagement, while suppliers with non-diversified revenue streams also exhibit higher levels of ESG activities” (p. 32/33). My comment: Regarding supplier ESG effects see Supplier engagement – Opinion post #211 – Responsible Investment Research Blog (

Social research

Green flexibility: More Flexibility, Less Sustainability: How Workforce Flexibility Has a Dual Effect on Corporate Environmental Sustainability by Tobias Stucki and David Risi as of Sept. 24th, 2023 (#6): “Research suggests a strong link between corporate environmental sustainability and workforce flexibility. On the one hand, forms of workforce flexibility, such as job rotation and temporary employment, are relevant for organizational learning and absorptive capacity. On the other, organizational learning and absorptive capacity influence the adoption of environmental management systems (EMS) and green process innovation. … we hypothesize that (a) workforce flexibility positively affects green process innovation because it stimulates absorptive capacity and that (b) workforce flexibility has a negative moderating effect on the relationship between EMS (Sö: environmental Management systems) adoption and green process innovation … Empirical tests based on two representative datasets support our premises” (abstract). My comment: For the above mentioned reasons I include temporary work providers in my SDG-aligned portfolios and in my fund (see e.g. Noch eine Fondsboutique? – Responsible Investment Research Blog ( I could not find many other investors with a similar approach, though.  

Responsible investment research (Emissions trading)

Geo-ESG-Caching? Locating the Future of ESG: The Promise of Geospatial Data in Advancing ESG Research by Ulrich Atz and Christopher C. Bruno as of Sept.20th, 2023 (#25): “We reiterate that most contemporary critiques of ESG are appropriate. But this does not contradict the enormous progress we have made over the last ten years in measuring ESG performance. The tension rather highlights that there is no shortcut for establishing the next generation of accounting for sustainability performance. Aggregate ESG scores can never serve more than a narrow purpose. Practitioners need to accept that they have to deal with a menu of ESG performance metrics depending on factors that affect their business, industry, or preferences of their investors. We see the frontier and most promising avenue for better ESG measurements in location-based data“ (p. 9).

ESG image costs: ESG Reputation Risk Matters: An Event Study Based on Social Media Data by Maxime L. D. Nicolas, Adrien Desroziers, Fabio Caccioli, and Tomaso Aste as of Sept. 22nd, 2023 (#73): “… this study is the first to examine how shareholders respond to ESG related reputational risk events and how social media shapes their perception on the matter. … On the event date of an ESG-risk event, we observe a statistically significant decrease of approximately 0.29% in abnormal returns. Furthermore, this effect is stronger for Social and Governance-related risks, specifically “Product Liability”, “Stakeholder Opposition”, and “Corporate Governance”. Environmental-risk events don’t have a significant impact on stock prices, unless they are about “Environmental Opportunities“ (p. 10/11).

ESG risks: ESG Performance and Stock Risk in U.S. Financial Firms by Kyungyeon (Rachel) Koha and Jooh Lee as of Sept. 25th, 2023 (#45): “This study empirically examines the relationship between ESG performance and firm risks in the U.S. financial services industry. Our findings of a negative relationship between ESG and firm risk (total, idiosyncratic, and systematic) underscore the importance of ESG as both an ethical imperative and a strategic tool to manage risk in financial firms. … Specifically, under-diversified CEOs, with larger stakes in their firms, stand to benefit even more from high ESG performance, reinforcing the negative association between ESG and firm risk. Similarly, the interaction between ESG and leverage provides insight into how ESG can counteract the inherent risks associated with high leverage” (p. 13/14).

Greenwashing differences: Measuring Greenwashing: the Greenwashing Severity Index by Valentina Lagasio as of Sept. 28th, 2023 (#83): “Using a diverse dataset of 702 globally-listed companies … Our findings reveal variations in greenwashing practices, with certain sectors exhibiting higher susceptibility to greenwashing, while smaller companies tend to engage in fewer deceptive practices. … Key implications highlight the importance of transparent ESG reporting, third-party verification, and regulatory frameworks in combating greenwashing” (abstract).

Investor driven greenwashing? Green or Greenwashing? How Manager and Investor Preferences Shape Firm Strategy by Nathan Barrymore as of Sept. 19th, 2023 (#72): “This paper examines how managers’ and investors’ preferences with regards to … pressure … for environmental and social (ESG) responsibility – causes firms to either make substantive changes that result in improved outcomes or to greenwash: adopt symbolic policies. I find that managers’ ESG preferences, as proxied using their language on earnings calls, are associated with both ESG policies and outcomes. However, investors’ ESG preferences are associated with policies, but not outcomes, suggestive of greenwashing. … Greenwashing also correlates with ESG ratings disagreement, providing practical insight for managers and investors“ (abstract). My comment: Unfortunately, having policies often seems to be enough for some self-proclaimed responsible investors. I focus much more on outcomes such as SDG-alignment, see e.g. No engagement-washing! Opinion-Post #207 – Responsible Investment Research Blog (

Sustainable blockchain? Blockchain Initiatives Dynamics Regarding The Sustainable Development Goals by Louis Bertucci and Jacques-André Fines-Schlumberger as of September 29th, 2023 (#60): “Using an open database of blockchain impact projects, we provide a dynamic analysis of these projects in relation with SDGs. We explain why the Bitcoin blockchain itself can help the development of clean energy infrastructure. … We also show that overall public blockchains are more popular than private blockchain and most importantly that the share of public blockchains as underlying technology is increasing among impact projects, which we believe is the right choice for global and transparent impact projects. More recently a new paradigm is emerging in the decentralized ecosystem called Regenerative Finance (or ReFi). Regenerative Finance merges the principles of Decentralised Finance (DeFi), which has the potential to broaden financial inclusion, facilitate open access, encourage permissionless innovation, and create new opportunities for entrepreneurs and innovators … with regenerative practices. … regenerative finance seeks to build a financial system that generates positive environmental and social outcomes … to fund public goods, encourage climate-positive initiatives and shift current economic systems from extractive models to regenerative ones“ (p. 20/21).

Other investment research (Emissions trading)

More effort, fewer trades? (Not) Everybody’s Working for the Weekend: A Study of Mutual Fund Manager Effort by Boone Bowles and Richard B. Evans as of Sept. 20th, 2023 (#53): “Our measure compares observable mutual fund work activity between regular workdays and weekends. We find that effort (P ctW k) varies over time (there is generally more effort between November and February) and across mutual funds (larger, more expensive, better run funds put in more effort). Further, we find that within-family increases in effort come in response to poor recent performance, outflows and higher volatility. We … find that after mutual funds increase their effort their portfolios are more concentrated, have higher active share, and experience lower turnover. … more effort leads to better performance in the future in terms of benchmark adjusted alphas“ (p.23/24).

GenAI for investments? Generative AI: Overview, Economic Impact, and Applications in Asset Management by Martin Luk frm Man AHL as of September 19th, 2023 (#1974): “This paper provides a comprehensive overview of the evolution and latest advancements in Generative AI models, alongside their economic impact and applications in asset management. … The first section outlines the key innovations and methodologies that underpin large language models like ChatGPT, while also covering image-based, multimodal, and tool-using Generative AI models. … the second section reviews the impact of Generative AI on jobs, productivity, and various industries, ending with a focus on use-cases within investment management. This section also addresses the dangers and risks associated with the use of Generative AI, including the issue of hallucinations” (abstract). My comment see AI: Wie können nachhaltige AnlegerInnen profitieren? – Responsible Investment Research Blog (

Advert for German investors:

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

Supplier ESG illustrated with delivery man by 28819275 from Pixabay

Supplier ESG – Researchpost #144

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

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

Ecological research (corporate perspective)

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

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

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

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

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

Generic ESG Research (investor perspective)

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

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

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

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

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

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

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

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

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

Impact investment research (supplier ESG)

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

Other investment research

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

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


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Supplier Engagement table by CAF as example

Supplier engagement – Opinion post #211

Supplier engagement is my term for shareholder engagement with the goal to address suppliers either directly or indirectly. I provide an overview of current scientific research regarding supplier engagement. I also explain my respective recommendations to the companies I am invested in. Supplier engagement can be very powerful.

The other two stakeholder groups which I address with my “leveraged shareholder engagement” are customers and employees (compare HR-ESG shareholder engagement: Opinion-Post #210 – Responsible Investment Research Blog (

Supplier emissions can be very high

Supplier relations have become much talked about in recent years. Climate change is one of the reasons. Greenhouse gas (GHG) emissions are one of the prime shareholder concerns if they are interested in environmental topics. To compare more or less vertically integrated companies with their competitors, evaluating GHG emissions of suppliers is important. Often, GHG emissions of suppliers (part of so-called scope 3) are much higher than the (scope 1 and 2) emissions of the analyzed company itself.

Relevant research (1): Managing climate change risks in global supply chains: a review and research agenda by Abhijeet Ghadge, Hendrik Wurtmann and Stefan Seuring as of June 13th, 2022: “The research … captures a comprehensive picture of climate change and associated phenomenon in terms of sources, consequences, control drivers, and mitigation mechanisms. … The study contributes to practice by providing visibility into the industry sectors most likely to be impacted; their complex association with other supply chain networks. The drivers, barriers, and strategies for climate change mitigation are particularly helpful to practitioners for better managing human-induced risks …” (p. 59).

Supply chain becomes more important for ESG-analyses

COVID and geopolitical changes such as the Russian attack on the Ukraine also showed that the management of supply chains is crucial for many companies. Even before, many supplier related incidents such as the Foxconn/Apple discussions had significant effects on company ESG perceptions and potentially also on ESG-ratings. Also, supply chains are becoming more in many countries.

Relevant research (2): ESG Shocks in Global Supply Chains by Emilio Bisetti, Guoman She, and Alminas Zaldokas as of Sept. 6th, 2023: “We show that U.S. firms cut imports by 29.9% and are 4.3% more likely to terminate a trade relationship when their international suppliers experience environmental and social (E&S) incidents. These trade cuts are larger for publicly listed U.S. importers facing high E&S investor pressure and lead to cross-country supplier reallocation …. Larger trade cuts around the scandal result in higher supplier E&S scores in subsequent years, and in the eventual resumption of trade” (abstract).

On the positive side, many suppliers have great knowhow and can help their clients to become better in ESG-terms.

Relevant research (3): Stakeholder Engagement by Brett McDonnell as of Nov. 1st, 2022t:  “Suppliers, like employees, also provide inputs to the production process of companies. Retaining the loyalty of suppliers may be important for companies, depending in part on how firm-specific inputs are. Where inputs are fungible, they can be bought on the market for the prevailing market price, but where they are firm-specific, the buying firm will have more trouble replacing a supplier that decides to withdraw. Suppliers have information about the quality of what they supply, and about conditions which may affect future availability and prices” (p. 8).

Supplier engagement: How investors can indirectly engage

Investors in publicly listed companies do probably not want to directly with the often many important suppliers of their portfolios companies. But they can indirectly leverage the knowhow and energy of suppliers. Here is what Brett McDonnell suggests:

Relevant research (4): Stakeholder Governance as Governance by Stakeholders by Brett McDonnell as of August 31st, 2023: “… American stakeholder engagement is limited to soliciting (and on occasion responding to) the opinions of employees, customers, suppliers, and others. True stakeholder governance would involve these groups in actively making corporate decisions. I have suggested various ways we could do this. The focus should be on employees, who could be empowered via board representation, works councils, and unions. Other stakeholders could be less fully empowered through councils, advisory at first but potentially given power to nominate or even elect directors” (p. 19).

In my opinion, too, advisory councils of suppliers could be helpful to improve listed companies. I prefer other forms of ESG engagement with suppliers, though. First, companies could regularly survey most of their direct and even some important indirect suppliers in a regular way regarding ESG topics. With regular surveys companies can find out how happy their suppliers are with the companies ESG activities and ESG-improvement ideas by suppliers can be collected.

Example (1): Surveys from Stakeholders Make Good Business Sense by Terrie Nolinske from the National Business Research Institute (no date) mentions The Body Shop and Michelin who use supplier surveys.

Example (2): AA1000 Stakeholder Engagement Standard from Accountability as of 2015 “provides a … practical framework to implement stakeholder engagement and … Describes how to integrate stakeholder engagement with an organization’s governance, strategy, and operations”.

I specifically suggest to regularly ask suppliers the following questions: 1) “How satisfied are you with the environmental, social and corporate governance activities of company XYZ?” and 2) “Which environmental, social and corporate governance improvements do you suggest to company XYZ?”.

Systematic supplier engagement using ESG evaluations

In my view, even more important to improve the full supply chain ESG-profile is that companies regularly, broadly and independently evaluate the ESG-quality of their suppliers. Independent ESG-ratings can be very useful for that purpose, since they systematically cover many environmental, social and governance aspects.

I try to invest in the 30 most sustainable publicly listed companies globally (see Active or impact investing? – (, but even most of these companies do not have such a supplier ESG evaluation process. Here are the two best examples of my portfolios companies:

Supplier ESG evaluation (1): Watts Water Sustainability Report 2022 p. 63: “In 2022, we met our goal of reviewing suppliers representing approximately 30% of our global annual spend using the Dun & Bradstreet (D&B) ESG Rating Service. The service is a web-based ratings platform that assesses the ESG operations of suppliers across 70 key topics, including through peer benchmarking and using leading sustainability frameworks …. Through our expanded use of this tool, we gained increased insight into our suppliers’ sustainability practices, including that suppliers making up one-sixth of the global spend we assessed already have advanced ESG systems in place”.

Supplier ESG evaluation (2): CAFs 2022 Sustainability Report: “… the evaluation effort focuses on 349 target suppliers out of a total of approximately 6,000 suppliers. The evaluations are carried out by Ecovadis …. Ecovadis adapts the evaluation questionnaire to each supplier based on the locations in which it operates, its sector and its size to evaluate 21 aspects of sustainability alligned with the most demanding international norms, regulations and standards …. Suppliers‘ responses are evaluated by specialised analysts … This analysis results in a general rating with a maximum score of 100 points …. If the result of an evaluation does not meet the requirements established by CAF (a general score of 45 out of 100 in sustainability management), the supplier is required to implement an action plan to improve the weaknesses identified. If the supplier does not raise its assessment to acceptable levels or does not show a commitment to improve, it is audited by experts in the field” (p. 83).

“By the end of 2022, the activities … have assessed … 78% of the prioritised suppliers (118 business groups) …. The assessed suppliers have an average overall rating of 58.6 out of 100 … which is 13 percentage points higher than the average of all suppliers assessed by Ecovadis worldwide (45/100). In addition, 71% of CAF suppliers reassessed in the last year improved their general rating … As a result of these assessments it has also been identified that 2% of the Group’s total purchases are made from suppliers with average or lower sustainability management and an improvement plan has been agreed with all of them”(p. 84).

The picture of my blogpost summarises the results of the 2022 supplier assessment campaign of one of my portfolio companies: Construcciones y Auxiliar de Ferrocarriles (CAF Sustainability Report 2022, p. 85):

But even Watts Water and CAF currently only cover a relatively small share of their suppliers with these evaluations.

Better fewer suppliers?

Such a sustainability-oriented supplier evaluation approach could result in fewer and therefore more important suppliers.

Relevant research (5): A Supply Chain Sourcing Model at the Interface of Operations and Sustainability by Gang Li and Yu A. Xia as of Aug. 25th, 2023: “This research investigates … how to integrate sustainability with sourcing planning decisions and how to address the challenges associated with the integration, such as the balance between operational factors and sustainability factors and the quantitative evaluation of sustainability performance. … Our model suggests that while increasing the number of suppliers may cause additional sustainability risk in supply chain management, decreasing the supply base will decrease the production capacity and increase the risk of delivery delay. Therefore, a firm should carefully set up its global sourcing network with only a limited number of selected suppliers. This finding is particularly true when the focus of sourcing planning gradually moves away from decisions based solely on cost to those seeking excellence in both supply chain sustainability and cost performance“ (p. 32).

Supplier engagement: Powerful supplier ESG disclosures

I think that is very important to make the supplier engagement activities transparent. Only transparent activities can be controlled by stakeholders. It is very useful for stakeholders, too, to know the identities of the major suppliers.

Relevant research (6):  Green Image in Supply Chains: Selective Disclosure of Corporate Suppliers by Yilin Shi, Jing Wu, and Yu Zhang as of Sept. 9th, 2022 (#2015): “We uncover robust empirical evidence showing that listed firms selectively disclose environmentally friendly suppliers while selectively not disclosing suppliers with poor environmental performance, i.e., they conduct supply chain greenwashing. This is a prevalent behavior in the sample of more than 40 major countries or regions around the world that we study. … we find that customer firms that face more competitive pressure, care more about brand image and reputation, and have larger shares of institutional holdings are more likely to conduct such selective disclosure. … we find that information transparency reduces such behavior. Finally, we study the outcomes of selectively disclosing green suppliers and find that customers benefit from the practice in terms of sales, profitability, and market valuation“ (p. 22/24). 

A supplier engagement proposal and first engagement experiences

Based on my engagement policy (Shareholder engagement: 21 science based theses and an action plan – (, I try to make it as simple as possible for my portfolio companies to implement my suggestions. Comprehensive and regular supplier ESG surveys would be a rather simple and low-cost approach and I certainly encourage them.

Given the importance of the supply chain for ESG-topics and the risks of greenwashing, I especially recommend a more demanding supplier ESG-rating approach to all my portfolio companies. Specifically, I tell them: “Favoring suppliers with better overall/comprehensive ESG scores is probably the way to go. Reporting aggregated information such as percentage of suppliers with XYZ ESG-scores can be one first step regarding transparency”. I also inform them about current relevant research and the two examples mentioned above.

No supplier engagement results yet

I started my respective engagement activities only at the end of 2022. Some companies answered that they like my suggestions and plan to analyze them, but I cannot report implementations so far (compare 230831_FutureVest_Engagementreport-2830ab605a502648339b4f8f58fa2ee2dce539ef.pdf).

I am only a small investors and cooperative engagement can me more powerful. Unfortunately, my attempts for cooperative engagement with other investors have not been fruitful yet. One reason is that I could only find very few sustainable investment funds with a dedicated small-and midcap focus such as mine. With the few such funds I have typically very little company overlap. The asset managers and the shareholder organizations which I have asked so far want to cooperate with larger asset managers and not with such a small entity as mine.

Nevertheless, I will continue to ask my portfolio companies for such stakeholder engagements and the publication of their results. I am confident, that at least a few companies will adopt such surveys and evaluations and thus position themselves even more as ESG-leaders. Research such as “A Test of Stakeholder Governance” by Stavros Gadinis and Amelia Miazad as of Aug. 25th, 2021 is one of the reasons for optimism on my part. And, maybe, with publications such as this blog post, I can encourage other companies, investors etc. to support such broad stakeholder engagement activities as well.

Additional research:

Bringing ESG Accountability to Global Supply Chains as of Oct. 30th, 2023 by Ingrid Cornander, Michael Jonas, and Daniel Weise from The Boston Consulting Group

Active ESG Share: Illustration by Julie McMurrie from Pixabay showing a satisfaction rating

Active ESG share: Researchpost #136

Active ESG share: 26x new research on SDG, climate automation, family firms, greenium and green liquidity, anti-ESG, ESG-ratings, diversity, sustainability standards, disclosure, ESG pay, taxes, impact investing, and financial education by Martijn Cremers and many more (#: SSRN downloads as of July 27th, 2023)

Ecological and social research: Active ESG share

SDG deficits: The Sustainable Development Goals Report Special edition by the United Nations as of July 10th, 2023: “At the midpoint on our way to 2030, the Sustainable Development Goals are in deep trouble. An assessment of the around 140 targets for which trend data is available shows that about half of these targets are moderately or severely off track; and over 30 per cent have either seen no movement or regressed below the 2015 baseline. Under current trends, 575 million people will still be living in extreme poverty in 2030, and only about one third of countries will meet the target to halve national poverty levels. Shockingly, the world is back at hunger levels not seen since 2005, and food prices remain higher in more countries than in the period 2015–2019. The way things are going, it will take 286 years to close gender gaps in legal protection and remove discriminatory laws. And in education, the impacts of years of underinvestment and learning losses are such that, by 2030, some 84 million children will be out of school and 300 million children or young people attending school will leave unable to read and write. … Carbon dioxide levels continue to rise – to a level not seen in 2 million years. At the current rate of progress, renewable energy sources will continue to account for a mere fraction of our energy supplies in 2030, some 660 million people will remain without electricity, and close to 2 billion people will continue to rely on polluting fuels and technologies for cooking. So much of our lives and health depend on nature, yet it could take another 25 years to halt deforestation, while vast numbers of species worldwide are threatened with extinction” (p. 4).

Climate automation: Labor Exposure to Climate Change and Capital Deepening by Zhanbing Xiao as of June 21st, 2023 (#31): “This paper looks into these risks and calls for more attention to the health issues of outdoor workers in the transition to a warmer era. … I find that high-exposure firms have higher capital-labor ratios, especially when their managers believe in climate change or when jobs are easy to automate. After experiencing shocks to physical (abnormally high temperatures) or regulatory (the adoption of the HIPS in California) risks, high-exposure firms switch to more capital-intensive production functions. …I also find that high-exposure firms respond to the shocks by innovating more, especially in technologies facilitating automation and reducing labor costs. … industry-wide evidence that labor exposure to climate change negatively affects job creation and workers’ earnings“ (p. 34/35).

Open or private data? Opening Up Big Data for Sustainability: What Role for Database Rights in the Fourth Industrial Revolution? by Guido Noto La Diega and Estelle Derclaye as of Nov. 8th, 2022 (#159): “… the real guardians of big data – the private corporations that are the key decision-makers in the 4IR (Sö: 4th Industrial Revolution) – are not doing enough to facilitate the sharing and re-use of data in the public interest, including the pursuit of climate justice. … While there may be instances where Intellectual Property (IP) reasons may justify some limitations in the access to and re-use of big data held by corporations, it is our view that, in general, IP should not be used to hinder re-use of data to pursue the SDGs. … First, we will illustrate the triple meaning of ‘data sustainability.’ Second, we will critically assess whether the database right (or ‘sui generis right’) can play a role in opening up corporate big data. Third, will imagine how a sustainable framework for sustainable data governance may look like. This focus is justified by the fact that the Database Directive, often accused of creating an unjustified monopoly on data, is in the process of being reformed by the yet-to-be-published Data Act” (abstract).

Clean family firms: Family Ownership and Carbon Emissions by Marcin Borsuk, Nicolas Eugster, Paul-Olivier Klein, and Oskar Kowalewski as of April 13th, 2023 (#159): “Family firms exhibit lower carbon emissions both direct and indirect when compared to non-family firms, suggesting a higher commitment to environmental protection by family owners. When using the 2015 Paris Agreement as a quasi-exogeneous shock, results show that family firms reacted more to the Agreement and recorded a further decline in their emissions. … Firms directly managed by the family experience a further reduction in their emissions. On the contrary, family firms with hired CEOs see an increase in emissions. We show that family firms record a higher level of R&D expenses, suggesting that they invest more in new technologies, which might contribute to reducing their environmental footprint. … Compared with non-family firms, family firms commit less to a reduction in their carbon emissions and display lower ESG scores“ (p. 26).

Green productivity: Environmental Management, Environmental Innovation, and Productivity Growth: A Global Firm-Level Investigation by Ruohan Wu as of June 18th, 2023 (#5): “… overall, environmental management and innovation both increase firm productivity but substitute for each other’s positive effects. Environmental management significantly increases productivity of firms that do not innovate, while environmental innovation significantly increases productivity of those without environmental management” (p. 30).

Good governance: Governance, Equity Issuance and Cash: New International Evidence by Sadok El Ghoul, Omrane Guedhami, Hyunseok Kim, and Jungwon Suh as of May 9th, 2023 (#18): “… we hypothesize that equity issuance is more frequent and growth-inducing under strong governance than under weak governance. We also hypothesize that cash added to or held by equity issuers creates greater value for shareholders under strong governance than under weak governance. Our empirical results support these hypotheses. Most remarkably, under weak governance, cash assets not only fail to create but destroy value for shareholders if they are in the possession of equity issuers instead of non-equity-issuers. Overall, strong institutions help small growth firms unlock their value through active equity issuance. On the flip side, weak institutions render an economy’s capital allocation inefficient by hindering value-creating equity issuance” (abstract).

ESG Ratings Reearch: Active ESG Share

MSCI et al. criticism? ESG rating agency incentives by Suhas A. Sridharan, Yifan Yan, and Teri Lombardi Yohn as of June 19th, 2023 (#96): “First, we report that firms with higher (lower) stock returns receive higher (lower) ratings from a rater with high index incentives relative to ratings from a rater with low index incentives. … Second, the rater with high index incentives provides higher ESG ratings for smaller firms with less ESG disclosure. … Third, we show that ESG index inclusion decisions are associated with stock returns. Collectively, our findings suggest that ESG data providers’ index licensing incentives influence their ESG ratings“ (p. 22).

Anti-ESG ESG: Conflicting Objectives of ESG Funds: Evidence from Proxy Voting by Tao Li, S. Lakshmi Naaraayanan, and Kunal Sachdeva as of February 6th, 2023 (#840): “ESG funds reveal their preference for superior returns by voting against E&S proposals when it is uncertain whether these proposals will pass. … active ESG funds and non-ESG focused institutions are more likely to cast votes against E&S proposals” (p. 26).

Non-ESG ESG? What Does ESG Investing Mean and Does It Matter Yet? by Abed El Karim Farroukh, Jarrad Harford, and David Shin as of June 26th, 2023 (#77): “… even ESG-oriented funds often vote against shareholder proposals related to E&S issues. When considering portfolio holdings and turnover, firms added to portfolios have better ESG scores than those dropped for both ESG and non-ESG funds. Nevertheless, portfolio additions and deletions do not improve fund scores on a value-weighted basis, and those scores closely track the ESG score of a value weighed portfolio of all public firms. This suggests that while investment filters based on ESG criteria may exist, they rarely bind. … we find that material E&S proposals receive more support, but only a small proportion (4%) of these proposals actually pass. Lastly, unconditional support from funds associated with families that have signed the United Nations Principles for Responsible Investing (UN PRI) would lead to a significant change in the voting outcomes of numerous E&S proposals. Overall, our findings suggest that the effects of ESG investing are growing but remain relatively limited. E&S proposals rarely pass, and the ESG scores of funds declaring ESG preferences are not that different from the rest of funds“ (p. 26).

ESG divergence: ESG Ratings: Disagreement across Providers and Effects on Stock Returns by Giulio Anselmi and Giovanni Petrella as of Jan. 23rd, 2023 (#237): “This paper examines the ESG rating assigned by two providers, Refinitiv and Bloomberg, to companies listed in Europe and the United States in the period 2010-2020. … Companies with higher ESG scores have the following characteristics: larger size, lower credit risk, and lower equity returns. The ESG dimension does not affect stock returns, once risk factors have been taken into account. The divergence of opinions across rating providers is stable in Europe and increasing in the US. As for the individual components (E, S and G), in both markets we observe a wide and constant divergence of opinions for governance as well as a growing divergence over time for the social component“ (abstract).

Active ESG share: The complex materiality of ESG ratings: Evidence from actively managed ESG funds by K.J. Martijn Cremers, Timothy B. Riley, and Rafael Zambrana as of July 21st,2023 (#1440): “Our primary contribution is to introduce a novel metric of the importance of ESG information in portfolio construction, Active ESG Share, which measures how different the full distribution of the stock-level ESG ratings in a fund’s portfolio is from the distribution in the fund’s benchmark … We find no predictive relation between Active ESG Share and performance among non-ESG funds and a strong, positive predictive relation between Active ESG Share and performance among ESG funds” (p. 41). My comment: My portfolios are managed independently from benchmarks and typically show significant positive active ESG shares, see e.g. Active or impact investing? – (

Responsible investment research: Active ESG share

Stupid ban? Do Political Anti-ESG Sanctions Have Any Economic Substance? The Case of Texas Law Mandating Divestment from ESG Asset Management Companies by Shivaram Rajgopal, Anup Srivastava, and Rong Zhao as of March 16th,2023 (#303): “Politicians in Texas claim that the ban on ESG-heavy asset management firms would penalize companies that potentially harm the state’s interest by boycotting the energy sector. We find little economic substance behind such claims or the reasoning for their ban. Banned funds are largely indexers with portfolio tilts toward information technology and away from energy stocks. Importantly, banned funds carry significant stakes in energy stocks and hold 61% of the energy stocks held by the control sample of funds. The risk and return characteristics of banned funds are indistinguishable from those of control funds. A shift from banned funds to control funds is unlikely to result in a large shift of retirement investments toward the energy sector. The Texas ban, and similar follow-up actions by Republican governors and senior officials, appear to lack significant economic substance“ (p. 23).

Better proactive: Gender Inequality, Social Movement, and Company Actions: How Do Wall Street and Main Street React? by Angelyn Fairchild, Olga Hawn, Ruth Aguilera, Anatoli Colicevm and Yakov Bart as of May 25th,2023 (#44): “We analyze reactions to company actions among two stakeholder groups, “Wall Street” (investors) and “Main Street” (the general public and consumers). … We identify 632 gender-related company actions and uncover that Wall Street and Main Street are surprisingly aligned in their negative reaction to companies’ symbolic-reactive actions, as evidenced by negative cumulative abnormal returns, more negative social media and reduced consumer perceptions of brand equity” (abstract)

Less risk? Socially Responsible Investment: The Role of Narrow Framing by Yiting Chen and Yeow Hwee Chua as of Dec. 8th, 2022 (#54): “Through our experiment, subjects allocate endowments among one risk-free asset and two risky assets. … Relative to the control condition, this risky asset yields additional payments for subjects themselves in one treatment, and for charities in the remaining two treatments. Our results show that additional payments for oneself encourage risk taking behavior and trigger rebalancing across different risky assets. However, payments for charities solely induce rebalancing“ (abstract). My comment: This may explain the typically lower risk I have seen in my responsible portfolios and in some research regarding responsible investments.

Greenium model: Asset Pricing with Disagreement about Climate Risks by Thomas Lontzek, Walter Pohl, Karl Schmedders, Marco Thalhammer, and Ole Wilms as of July 19th, 2023 (#113): “We present an asset-pricing model for the analysis of climate financial risks. … In our model, as long as the global temperature is below the temperature threshold of a tipping point, climate-induced disasters cannot occur. Once the global temperature crosses that threshold, disasters become increasingly likely. The economy is populated by two types of investor with divergent beliefs about climate change. Green investors believe that the disaster probability rises considerably faster than brown investors do. … The model simultaneously explains several empirical findings that have recently been documented in the literature. … according to our model past performance is not a good predictor of future performance. While realized returns of green stocks have gone up in response to negative climate news, expected returns have gone down simultaneously. In the absence of further exogenous shocks and climate-induced disasters, our model predicts higher future returns for brown stocks. However, if temperatures continue to rise and approach the tipping point threshold, the potential benefits of investments to slow down climate change increase significantly. In this scenario, our model predicts a significant increase in the market share of green investors and the carbon premium“ (p. 39/40).

More green liquidity: Unveiling the Liquidity Greenium: Exploring Patterns in the Liquidity of Green versus Conventional Bonds by Annalisa Molino, Lorenzo Prosperi, and Lea Zicchino as of July 16th, 2023 (#14): “… we investigate the relationship between liquidity and green bond label using a sample of green bonds issued globally. … our findings suggest that green bonds are more liquid than comparable ordinary bonds. … The difference is large and statistically significant for bonds issued by governments or supranationals, while it is not significantly different from zero for corporates, unless the company operates in the energy sector. … companies that certify their commitment to use the proceeds for green projects or enjoy a strong environmental reputation can also benefit from higher liquidity in the secondary market. … the liquidity of ECB-eligible green bonds improves relative to similar conventional bonds, possibly because they become more attractive to banks with access to ECB funding. Finally, we find that the liquidity of conventional bonds issued by green bond issuers improves significantly in the one-year period following the green announcement“ (p. 18/19).

Impact investment and shareholder engagement: Active ESG share

Standard overload: Penalty Zones in International Sustainability Standards: Where Improved Sustainability Doesn’t Pay by Nicole Darnall, Konstantinos Iatridis, Effie Kesidou, and Annie Snelson-Powell as of June 19th, 2023 (#17): “International sustainability standards (ISSs), such as the ISO standards, the United Nations Global Compact, and the Global Reporting Initiative framework, are externally certified process requirements or specifications that are designed to improve firms’ sustainability” (p. 1). “Adopting an International Sustainability Standard (ISS) helps firms improve their sustainability performance. It also acts as a credible market “signal” that legitimizes firms’ latent sustainability practices while improving their market value. … However, beyond a tipping point of 2 ISSs, firms’ market gains decline, even though their sustainability performance continues to improve until a tipping point of 3 ISSs“ (abstract).

Good ESG disclosure (1): Mandatory ESG Disclosure, Information Asymmetry, and Litigation Risk: Evidence from Initial Public Offerings by Thomas J. Boulton as of April 7th, 2023 (#168): “If ESG disclosure improves the information environment or reduces litigation risk for IPO firms, IPOs should be underpriced less when ESG disclosure is mandatory. I test this prediction in a sample of 15,456 IPOs issued in 36 countries between 1998 and 2018. … I find underpricing is lower for IPOs issued in countries that mandate ESG disclosure. From an economic perspective, my baseline results indicate that first-day returns are 15.9 percentage points lower in the presence of an ESG disclosure mandate. The typical IPO firm raises approximately 105.93 million USD in their IPO. Thus, the implied impact of an ESG disclosure mandate is an additional 16.8 million in proceeds. … I find that their impact on underpricing is stronger in countries with lower-quality disclosure environments. … a significant benefit of ESG disclosure mandates is that they lower the cost of capital for the young, high-growth firms that issue IPOs” (p. 27-29).

Good ESG disclosure (2): Environmental, Social and Governance Disclosure and Value Generation: Is the Financial Industry Different? by Amir Gholami, John Sands, and Habib Ur Rahman as of July 18th, 2023 (#24): “The results show that the overall association between corporate ESG performance disclosure and companies’ profitability is strong and positive across all industry sectors. … All corporate ESG performance disclosure elements (ENV, SOC and GOV) are positively associated with corporate profitability for companies that operate in the financial industry. Remarkably, for companies operating in non-financial sectors, except for corporate governance, there is no significant association between corporate environmental and social elements and a company’s profitability“ (p. 12).

Climate pay effects: Climate Regulatory Risks and Executive Compensation: Evidence from U.S. State-Level SCAP Finalization by Qiyang He, Justin Hung Nguyen, Buhui Qiu, and Bohui Zhang as of April 13th, 2023 (#131): “Different state governments in the U.S. have begun to adopt climate action plans, policies, and regulations to prepare for and combat the significant threats of climate change. The finalization of these climate action plans, policies, and regulations in a state results in an adaptation plan— the SCAP. … we find that SCAP finalization leads residents in that state to pay more attention to climate-related topics. Also, it leads firms headquartered in that state to have higher perceived climate regulatory risks … Further analyses show a reduction of total CEO pay of about 5% for treated firms headquartered in the SCAP-adopting state relative to control firms headquartered in non-adopting states. The negative treatment effect also holds for non-CEO executive compensation. … the shareholders of treated firms reduce their CEO’s profit-chasing and risk-taking incentives, probably because these activities will likely incur more future environmental compliance costs. Instead, CEO pay is more likely to be linked to corporate environmental performance, that is, the treated firms adopt environmental contracting to redirect CEO incentives from financial gains to environmental responsibility” (p. 27/28).

Stakeholder issues: Corporate Tax Disclosure by Jeffrey L. Hoopes, Leslie Robinson, and Joel Slemrod as of July 17th, 2023 (#47): “Policies that require, or recommend, disclosure of corporate tax information are becoming more common throughout the world, as are examples of tax-related information increasingly influencing public policy and perceptions. In addition, companies are increasing the voluntary provision of tax-related information. We describe those trends and place them within a taxonomy of public and private tax disclosure. We then review the academic literature on corporate tax disclosures and discuss what is known about their effects. One key takeaway is the paucity of evidence that many tax disclosures mandated with the aim of increasing tax revenue have produced additional revenue. We highlight many crucial unanswered questions …” (abstract). My comment: Nevertheless I suggest to focus on tax disclosure/payment regarding community/government stakeholder engagement see Shareholder engagement: 21 science based theses and an action plan – ( rather than on donations or other indicators.

Impact investment status quo: Impact Investing by Ayako Yasuda as of July 23rd, 2023 (#62): “Impact investing is a class of investments that are designed to meet the non-pecuniary preferences of investors (or beneficiaries) and aim to generate a positive externality actively and causally through their ownership and/or governance of the companies they invest in. Impact investing emerged as a new branch of responsible, sustainable or ESG (environmental, social, and governance) investment universe in the last few decades. In this article, we provide a definition of impact investing, review the extant literature, and discuss suggestions for future research” (abstract).

Political engagement: Collaborative investor engagement with policymakers: Changing the rules of the game? by Camila Yamahaki and Catherine Marchewitz as of June 25th, 2023 (#44): “A growing number of investors are engaging with policymakers on environmental, social and governance (ESG) issues, but little academic research exists on investor policy engagement. … We identify a trend that investors engage with sovereigns to fulfil their fiduciary duty, improve investment risk management, and create an enabling environment for sustainable investments. We encourage future research to further investigate these research propositions and to analyze potential conflicts of interest arising from policy engagement in emerging market jurisdictions” (abstract).

General investment research

Good diversity: Institutional Investors and Echo Chambers: Evidence from Social Media Connections and Political Ideologies by Nicholas Guest, Brady Twedt, and Melina Murren Vosse as of June 26th, 2023 (#62): “… we measure the ideological diversity of institutional investors’ surroundings using the social media connections and political beliefs of the communities where they reside” (p. 24/25). “Finally, firms whose investors have more likeminded networks exhibit substantially lower future returns. Overall, our results suggest that connections to people with diverse beliefs and information sets can improve the financial decision making of more sophisticated investors, leading to more efficient markets (abstract).

Good education: The education premium in returns to wealth by Elisa Castagno, Raffaele Corvino, and Francesco Ruggiero as of July 6th, 2023 (#17): “… we define as education premium the extra-returns to wealth earned by college-graduated individuals compared to their non-college graduated peers. We find that the education premium is sizeable … We find that an important fraction of the premium is due to the higher propensity for risk-taking and investing in the stock market of better educated individuals … we document a significantly higher propensity for well-diversified portfolios as well as a higher persistence in stock market participation over time of better educated individuals, and we show that both mechanisms positively and significantly contribute to the education premium” (p. 25).

Finance-Machines? Financial Machine Learning by Bryan T. Kelly and Dacheng Xiu as of July 26th, 2023 (#12): “We emphasize the areas that have received the most research attention to date, including return prediction, factor models of risk and return, stochastic discount factors, and portfolio choice. Unfortunately, the scope of this survey has forced us to limit or omit coverage of some important financial machine learning topics. One such omitted topic that benefits from machine learning methods is risk modeling. … Closely related to risk modeling is the topic of derivatives pricing. … machine learning is making inroads in other fields such as corporate finance, entrepreneurship, household finance, and real estate“ (p. 132/133). My comment: I do not expect too much from financial maschine learning. Simple approaches to investing often work better than pseudo-optimised ones, see e.g. Pseudo-optimierte besser durch robuste Geldanlagen ersetzen – Responsible Investment Research Blog (


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ESG Beliefs: Picture from

ESG beliefs: Researchpost #124

Picture from (Home – Eco Life Zone)

ESG beliefs: 10x new research on biodiversity, subsidies, governance, greenium, ESG beliefs, divestments, taxonomy reporting, fund commissions, SVB, private asset platforms etc. by Theresa Kuchler, Johannes Stroebel, Christian Klein and many more (# indicates the number of SSRN downloads on April 19th, 2023)

Ecologial and social research

Quantified biodiversity risks: Biodiversity Risk by Stefano Giglio, Theresa Kuchler, Johannes Stroebel, and Xuran Zeng as of April 4th, 2023 (#8): “The goal of this paper is to introduce measures of aggregate biodiversity risk as well as measures of firms’ and industries’ exposures to these risks; to connect and validate the two; to study the pricing of this risk in financial markets; and to publicly release our biodiversity exposure measures at to facilitate more research on this important topic“ (p. 28).

Dubious subsidies: Green Technology Adoption, Complexity, and the Role of Public Policy: A Simple Theoretical Model by Sanjit Dhami as of April 13th (#9): “We present a simple model of technology choice by heterogeneous firms … We illustrate the extreme unpredictability of the final outcome, and consider the role of public policy in the form of taxes and subsidies in influencing the long-run expected outcome. Our model … highlights the challenges and limitations of public policy in such scenarios“ (p. 24).

Good governance competition: Boosting Foreign Investment: The Role of Certification of Corporate Governance by Pietro Bonetti and Gaizka Ormazabal as of Jan. 31st, 2023 (#42): “… we exploit a recent cross-country initiative by a coalition of key institutions in Southeast Asia; the periodic publication of a “Top List” containing the top 50 firms for each participating Southeast Asian country based on an independent assessment of corporate governance practices. Our tests reveal that the inclusion in the list is associated with increases in foreign institutional ownership and equity issuance. We also find evidence suggestive that firms change their governance practices to be included in the list“ (p. 33).

Responsible investment research: ESG beliefs

Policy success: An empirical analysis of climate and environmental policy risk, the cost of debt and financial institutions‘ risk preferences by Xiaoyan Zhou, Ben Caldecott, and Gireesh Shrimali as of April 13th, 2023 (#9): “… we analyse the loan spreads variance using a large sample of syndicated loan data across 40 countries from 2000- 2019. … we observe that a higher level of CE (Sö: climate and environmental policy stringency) (such as carbon trading schemes) can lower the capital cost for loans issued to renewables, leading to an increase in renewable energy investments. We also find that the more stringent CE policies in a country, the lower likelihood of capital flow into oil & gas or coal. In the electricity sector, while no evidence supports that CE policies (solar & wind support policies) decrease the cost of debt for renewable electric utilities compared to fossil fuel and mixed electric utilities, they are still successful in attracting more capital to renewable firms” (abstract).

Performance trumps beliefs: Four Facts About ESG Beliefs and Investor Portfolios by Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Zhenhao Tan, Stephen Utkus, and  Xiao Xu as of  April 13th, 2023 (#26): “We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. … First, investors generally expected ESG investments to underperform the market. Between mid-2021 and late-2022, the average expected 10-year annualized return of ESG investments relative to the overall stock market was −1.4%. Second, there is substantial heterogeneity across investors in their ESG return expectations and their motives for ESG investing: 45% of survey respondents do not see any reason to invest in ESG, 25% are primarily motivated by ethical considerations, 22% are driven by climate hedging motives, and 7% are motivated by return expectations. Third, there is a link between individuals’ reported ESG investment motives and their actual investment behaviors, with the highest ESG portfolio holdings among individuals who report ethics-driven investment motives. Fourth, financial considerations matter independently of other investment motives: we find meaningful ESG holdings only for investors who expect these investments to outperform the market, even among those investors who reported that their most important ESG investment motives were ethical or hedging reasons” (abstract).

Inefficient markets? Private Sanctions by Oliver D. Hart, David Thesmar, and Luigi Zingales as of Jan. 19th, 2023 (#338): “Neoclassical economics is based on the assumption that firms maximize profits. We provide survey evidence that a majority of Americans do not want the firms they invest in, shop from, and work for, to behave in this way. Limited deviations from value maximization are desired when firms can have a unique impact, as in the case of the sanctions against Russia for the purpose of ending the war. We show that a very simple model … can explain 24% of the cross-sectional variations in the willingness to boycott“ (p. 28). My comment see Impact Investing mit Voting und Engagement? (Opinionpost #194) – Responsible Investment Research Blog (

Good taxonomy reporting: Portfolio benefits of taxonomy orientated and renewable European electric utilities by Thomas Cauthorn, Christian Klein, Leonard Remme, and Bernhard Zwergel as of Jan. 12th, 2023 (#65): “We find a positive low-carbon premium (confirming H1) for portfolios of taxonomy orientated and renewable energy EEU. … We can confirm H2, i.e., the level of renewables in the energy mix positively affects the returns of the taxonomy orientated and renewable energy portfolios while negatively affecting the non-orientated, non-reporting and conventional energy portfolios. The taxonomy orientated and renewable energy portfolios outperformed their counterparts confirming H3. … Next, we find that a taxonomy orientated portfolio outperforms a non-reporting portfolio” (p. 18/19). My comment see Taxonomy reporting: Can companies boost their share-prices? – (

Traditional and alternative investment research (ESG beliefs)

Bad commissions: The Effect of Commission Bans on Household Wealth: Evidence from OECD Countries by Steffen Sebastian, Lukas Noth, and Albert Grafe as of April 5th, 2023: “Although misaligned incentives of financial advisors created by commission-based systems have been shown to have a negative impact on the quality of financial advice, many countries decided not to introduce commission bans. In the European Union, only five including the UK countries followed the recommendation of the Commission to ban commission-based financial advice. … Countries with commission-bans in place have seen an outperformance of their wealth between 1.7 percent and 2 percent annually. … We find that a household in a commission-ban country achieves wealth levels double the amount of a household in a non-commission-ban country over the period of 40 years with the most conservative estimate (typical timespan for retirement provision). … countries that have implemented commission bans realized ~900 billion USD access wealth formation compared to countries without commission bans” (p. 19).

Crash herding: Public attention, sentiment and the default of Silicon Valley Bank? by Stephan Bales and Hans-Peter Burghof as of April 7th, 2023 (#123): “We assess the interplay between public attention and trading of the Silicon Valley Bank stock around its default on March 10, 2023. Based on tweets and Google searches, we demonstrate that public attention considerably fueled the crash dynamics … the attention dynamics fueled and accelerated the downward spiral, but are not fully responsible for the outcome” (p. 11/12).

Private Equity Fintechs: The Amplify private-asset platforms study by Selin Bucak from Citywire Amplify as of April 13th, 2023: “There has been a proliferation of private-asset platforms in recent years. Specialist investment firms want to reach into the wealth management space, while many mainstream asset managers have pushed hard into private markets. So what does the landscape look like now? Citywire Amplify will examine how many platforms there are, what they offer and how they differ. We have collated the key data on the major players: how much they have raised, who their backers and partners are and, crucially, what they charge” (p. 2). My comment see Über 70 interessante Fintechs für institutionelle Anleger – Responsible Investment Research Blog (


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