Archiv der Kategorie: Regulierung

Biodiversity finance illustration from ecolife zone

Biodiversity finance and more: Researchpost #186

Biodiversity finance illustration from ecolife zone (https://www.ecolife.zone/)

18x new research on climate regulation, green millionaires, donations, fintechs, ESG ratings, climate analysts, ESG funds, social funds, smart beta, asset allocation, research risks, green hedge funds, biodiversity, impact funds, proxy voting, sustainable engagement, and timberland investing

Social and ecological research

Non-negative climate regulation? Firms’ Response to Climate Regulations: Empirical Investigations Based on the European Emissions Trading System by Fotios Kalantzis, Salma Khalid, Alexandra Solovyeva, and Marcin Wolski from the International Monetary Fund as of July 15th, 2024 (#13): “Using a novel cross-country dataset … We find that more stringent policies do not have a strong negative impact on the profitability of ETS-regulated or non-ETS firms. While firms report an increase in their input costs during periods of high carbon prices, their reported turnover is also higher. Among ETS-regulated firms which must purchase emission certificates under the EU ETS, tightening of climate policies in periods of high carbon prices results in increased investment, particularly in intangible assets” (abstract).

Greening millionaires? Wealth transfer intentions, family decision-making style and sustainable investing: the case of millionaires by Ylva Baeckström and Jeanette Carlsson Hauff as of June 21st, 2024 (#13): “… little is known about how the wealthy make sustainable investment decisions. Using unique survey data from 402 millionaires … Our results show that funds are more likely to be channeled towards sustainable causes in families that are society-oriented and adopt democratic decision-making styles compared to families whose decision-making style is autocratic and intend for future generations to inherit their wealth” (abstract).

Selfish donations? Donations in the Dark by Ionela Andreicovici, Nava Cohen, Alessandro Ghio, and Luc Paugam as of March 13th, 2024 (#103): “We examine the impact of the 2013 shift from mandatory to voluntary disclosure of corporate philanthropy in the United Kingdom (UK). … we find that, relative to a sample of United States firms, UK firms (i) reduce corporate philanthropy disclosure and (ii) increase corporate philanthropic donations in the voluntary period. … Overall, our results point towards the idea that the shift to voluntary disclosure (i) reduces managerial incentives to transparently report corporate philanthropic activities and (ii) exacerbates managers’ incentives to engage in self-serving corporate donations“ (abstract).

Limited fintech-inclusion: Promise (Un)kept? Fintech and Financial Inclusion by Serhan Cevik from the International Monetary Fund as of July 15th, 2024 (#12): „The ownership of accounts in formal financial institutions increased from 51 percent of the world’s adult population in 2011 to 76 percent in 2021, but there is still significant variation across countries. … While digital lending has a significant negative effect on financial inclusion, digital capital raising is statistically insignificant. … the overall impact of fintech is also statistically insignificant for the full sample, but becomes positive and statistically highly significant in developing countries” (abstract).

ESG investment research (in: Biodiversity finance)

Positive High-ESG effects: The Effects of ESG Ratings on Firms’ Financial Decisions by Sahand Davani as of July 12th, 2024 (#27): “I show that firms with higher ESG ratings (high-ESG firms) have higher ownership by ESG institutional investors, have lower perceived cost of capital, and issue more net equity than net debt compared to similar firms with lower ESG ratings (low-ESG firms). Consistently, I find that high-ESG firms try to maintain their high ESG ratings at the current levels, while the ESG ratings of similar low-ESG firms decline” (abstract).

Analysts climate ignorance: Analysts’ Perspectives on Climate Change: An Examination of Analyst Reports by Jesse Chan as of July 12th, 2024 (#30):  “Despite focusing on firms operating in industries most exposed to climate change, I find a minority of analysts (<11%) discuss climate topics in their analyst reports … analysts are concentrating their discussion among electric utilities and other electronic equipment manufacturers, and typically discuss climate change related business opportunities and regulatory issues related to climate change. Climate related discussions, and particularly discussion of regulatory issues, are associated with more pessimistic long-term growth forecasts and revisions, implying analysts expect these issues to affect firms‘ financial performance in the long run” (abstract).

Easy ESG sell? ESG and Mutual Fund Competition? by Ariadna Dumitrescua and Javier Gil-Bazo as of July 12th, 2024 (#37): “Investors have heterogenous preferences for ESG. Not all investors care for sustainability, and among those who do, they value different ESG objectives differently. The model predicts that in equilibrium the market is segmented: neutral investors (those with no preference for ESG) invest only in conventional funds and ESG investors invest only in ESG funds. While competition is fierce in the conventional segment of the market and only the best funds survive, it is relaxed by investors’ ESG preferences in the ESG segment of the market. If the intensity of ESG investors’ preferences is sufficiently high, ESG funds of lower quality will be able to survive“ (p. 18/19).

ESG steering? Smarter Beta Investing: Forget Exclusions, add Steering towards lower Emissions by Heiko Bailer and Jonathan Miller as of July 17th, 2024 (#28): “Steering strategically tilts portfolios towards sustainable factors such as lower emissions … This research investigates the effectiveness of steering compared to exclusion-based strategies. … The analysis, spanning September 2019 to May 2024, reveals that steering maintains or improves risk-adjusted returns compared to exclusions. Additionally, steering portfolios exhibit lower risk and avoid unintended biases toward smaller companies, often observed with exclusions“ (abstract). My comment: The resulting steering strategies appear to have rather limited SDG-revenue alignments. My experience shows attractive risk/return characteristics for strategies using many strict exclusions and demanding ESG- and SDG-Revenue requirements. It would be interesting to compare the results with steering approaches (which may be driven by significant Tech allocations).

Risk reducing ESG: Can Environmental and Social Stocks Weather Market Turbulence? A risk premia analysis by Giovanni Cardillo, Cristian Foroni and Murad Harasheh as of July 23rd, 2024 (#28): “Analyzing all listed firms in the EU and UK and exploiting COVID-19 as an exogenous shock, our findings challenge prior literature by demonstrating that firm sustainability does not necessarily reduce the cost of equity in adverse states of the economy. … Nevertheless, our results indicate that riskier yet more sustainable firms experience a relatively smaller increase in their cost of equity, suggesting a moderating rather than a first-order effect of sustainability. Second, investors positively value firms that reduce CO2 emissions and offer green and more ethical products, as evidenced by lower risk premia assigned to such firms. Lastly, we provide robust evidence that more sustainable firms exhibit less uncertain and higher cash flows during the pandemic than their less sustainable counterparts“ (abstract).

Green optimization limits: Portfolio Alignment and Net Zero Investing by Thierry Roncalli from Amundi as of July 12th, 2024 (#28): “First, the solution is parameter and data sensitive. In particular, we need to be careful in choosing the carbon scope metric … Scope 3 and consumption-based emissions need to be taken into account to align a portfolio with a net-zero scenario. The problem is that we see a lack of data reliability on these indirect emissions today. Similarly, the solution is highly dependent on the green intensity target and the level of self-decarbonization we want to achieve. … The second key finding is that portfolio decarbonization and net-zero construction lead to different solutions. … These results are amplified when we add the transition dimension to the optimization program. … it is quite impossible to achieve net zero alignment without allowing the algorithm to exclude companies (or countries) from the benchmark. … As a result, some key players in the transition, such as energy and utility companies, unfortunately disappear. … The final lesson is that it is easier to implement net zero in bonds than in equities. … there is another important point that is missing from our analysis. This is the issue of engagement. … The reason is that engagement is difficult to model quantitatively” (p. 20-22). My comment: Given the many discretionary decisions for “optimizations”, I usually call them “pseudo-optimizations”.

No green outperformance? Do sustainable companies have better financial performance? Revisiting a seminal study by Andrew King as of July 24th, 2024 (#2180): “Do high-sustainability companies have better financial performance than their low-sustainability counterparts? An extremely influential publication, “The Impact of Corporate Sustainability on Organizational Processes and Performance”, claims that they do. Its 2014 publication preceded a boom in sustainable investing …Yet I report here that I cannot replicate the original study’s methods or results, and I show that a close reading of the original report reveals its evidence is too weak to justify its claims concerning financial performance” (abstract). My comment: It is very important to clearly write, understand and also to replicate scientific studies. But as long as the performance of sustainable investments is similar as the performance of traditional investments, I clearly prefer sustainable investments.

Green hedge funds: Are the Hedges of Funds Green? by Huan Kuang, Bing Liang, Tianyi Qu, and Mila Getmansky Sherman as of April 15th, 2024 (#59): “… we … find that funds with higher green beta not only outperform other funds but also exhibit lower risk. This outperformance is driven by fund managers’ superior investment skill in both green stock picking and green factor timing. Furthermore, we document that investors reward green funds with higher inflows after the 2015 Paris Agreement, but only within high-performance funds. Finally, we show that political beliefs, climate news sentiment, and participation in the United Nations Principles for Responsible Investment (PRI) all influence hedge funds’ exposure to sustainable investing and investor flows” (abstract).

Biodiversity finance and bond risks: Biodiversity Risk in the Corporate Bond Market by Sevgi Soylemezgil and Cihan Uzmanoglu as of July 14th, 2024 (#165): “We investigate how risks associated with biodiversity loss influence borrowing costs in the US corporate bond market. … we find that higher biodiversity risk exposure is associated with higher yield spreads among long-term bonds, indicating biodiversity as a long-run risk. This effect is stronger among riskier firms and firms that mention biodiversity, particularly biodiversity regulation, in their financial statements. … we find that the impact of biodiversity risk on yield spreads is more pronounced when biodiversity-related awareness and regulatory risks rise” (abstract).

Impact investment research

RI market segmentation: Styles of responsible investing: Attributes and performance of different RI fund varieties by Stuart Jarvis from PGIM as of July 2nd, 2024 (#18): “Paris-aligned funds … achieve a low level of portfolio emissions, not just through a combination of significant divestment from sectors but also by selecting companies with low emissions levels. The resulting companies have decarbonised significantly in recent years … Impact funds … have demonstrated willingness to invest in sectors with currently-high emissions … Performance for these funds has been the most challenged in recent years …” (p. 12). My comments see Orientierung im Dschungel der nachhaltigen Fonds | CAPinside

Biodiversity finance overview: Biodiversity Finance: A review and bibliometric analysis by Helena Naffaa and Xinglin Li as of June 26th, 2024 (#31): “Using bibliometric analysis tools, key features of the literature are revealed, influential works are recognized, and major research focuses are identified. This systematic mapping of the field makes contribution to the existing research by providing historical evolution of the literature, identifying the influential works, and current research interests and future research direction“ (abstract).

Empowering small investors? Open Proxy by Caleb N. Griffin as of July 12th, 2024 (#27): “This Article has explored how the world’s largest asset managers have voluntarily implemented programs for “voting choice,” agreeing to pass through a measure of voting authority to selected investors. Unfortunately, the current instantiation of voting choice offers only a narrow set of artificially constrained options, which, in effect, merely transfer a fraction of the Big Three’s voting power to another oligopoly. In order to amplify the choices available to investors, this Article proposes that large asset managers shift from the current closed proxy system to an open proxy system wherein any bona fide proxy advisor could compete for the right to represent investors’ interests. Such a policy change would infuse intermediated voting programs with essential competitive pressure and allow for truly meaningful voting choice” (p. 41).

Depreciation-aligned sustainability: Timing Sustainable Engagement in Real Asset Investments by Bram van der Kroft, Juan Palacios, Roberto Rigobon, and Siqi Zheng as of July 3rd, 2024 (#151): “This paper provides evidence that sustainable engagement improves firms’ sustainable investments only when its timing aligns with the (“real” not “book”) depreciation of their physical assets. … Further, our results appear unexplained by a selection in REITs and are generalized to the US heavy manufacturing industry, heavily relying on real assets. Therefore, this paper argues that sustainable engagement poses an effective tool to improve firms’ sustainable investments when accurately aligned with the depreciation cycles of their physical assets” (p. 35/36).

Other investment research (in: Biodiversity finance)

Attractive timberland: Investing in US Timberland Companies by Jack Clark Francis and Ge Zhang as of June 27th, 2024 (#11): “Over a 20-year sample period it turns out that the US timberland corporations, on average, perform about as well as the highly diversified US stock market index. It is surprising that the timberland companies do not outperform the stock market indexes because, in order to encourage tree planting, the US Congress has almost completely exempted timberland companies from paying federal income taxes. Furthermore, it is scientifically impossible to assess the value of the large amounts of photosynthesis that the timberland companies produce” (abstract). My comment: In my opinion, similar returns clearly speak for the more responsible investments.

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Werbehinweis (in: biodiversity finance)

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

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

Tiny houses: ai generated by GrumpyBeere from Pixabay

Tiny houses and more: Researchpost 184

Tiny houses: Illustration AI generated by GrumpyBeere from Pixabay

7x new studies on tiny and shared housing, climate-induced stock volatility, sustainability-led bonds, ESG-ETF divestment effects, hedge fund corporate governance effects, SFDR analysis, female SDG fintech power (# shows SSRN full paper downloads as of July 11th, 2024)

Social and ecological research (Tiny houses and more)

Tiny houses and & shared living:  Living smaller: acceptance, effects and structural factors in the EU by Matthias Lehner, Jessika Luth Richter, Halliki Kreinin, Pia Mamut, Edina Vadovics, Josefine Henman, Oksana Mont, Doris Fuchs as of June 27th, 2024: “This article … studies the acceptance, motivation and side-effects of voluntarily reducing living space in five European Union countries: Germany, Hungary, Latvia, Spain and Sweden. … Overall, the data reveal an initial reluctance among citizens to reduce living space voluntarily. They also point to some major structural barriers: the housing market and its regulatory framework, social inequality, or dominant societal norms regarding ‘the ideal home’. Enhanced community amenities can compensate for reduced private living space, though contingent upon a clear allocation of rights and responsibilities. Participants also reported positive effects to living smaller, including increased time for leisure activities and proximity to services. This was often coupled with urbanization, which may also be part of living smaller in the future” (Abstract). My comment: See Wohnteilen: Viel Wohnraum-Impact mit wenig Aufwand

Responsible investment research

Climate vola: Do Climate Risks Increase Stock Volatility? By Mengjie Shi from the Deutsche Bundesbank Research Center as of July 1st, 2024 (#23): “This paper finds that stocks in firms with high climate risk exposure tend to exhibit increased volatility, a trend that has intensified in recent years, especially following the signing of the Paris Agreement in 2015. … Institutional investors and climate policies help counterbalance the impact of climate risks on stock stability, whereas public concerns amplify it. My baseline findings are robust across alternative climate risk and stock volatility measures, as well as diverse country samples. Subsample analysis reveals that these effects are more pronounced in firms with carbon reduction targets, those in carbon-intensive industries, and those with reported emissions” (p. 23).

Bondwashing? Picking out “ESG-debt Lemons”: Institutional Investors and the Pricing of Sustainability-linked Bonds by Aleksander A. Aleszczyk and Maria Loumioti as of July 2nd, 2024 (#20): “… classifying SLBs into impact-oriented (i.e., ESG performance-enhancement and transition bonds) and values-oriented (i.e., bonds not written on ambitious and material sustainability outcomes or those issued by firms with less significant sustainability footprint). We find that investors equally price various degrees of sustainability impact in SLBs and likely pay too much for buying an ESG-label attached to SLBs that are unlikely to yield strong sustainability impact. We show that demand for sustainability impact is positively influenced by investors’ ESG commitment and strategy implementation and SLB investment preferences. Heavyweight ESG-active asset managers are more likely to purchase values-aligned SLBs. Focusing on investor pricing decisions, we find that new entrants and investors likely to benefit from adding impact-oriented SLBs to their portfolios are more willing to pay for impact. In contrast, investors with a preference for values-oriented SLBs are less willing to pay a sustainability impact premium“ (p. 31/32). My comment: I focus on bond-ETFs with already good ESG-ratings for my ETF-portfolios not on (“sustainable”) bond labels

Divestments work: The effects of Divestment from ESG Exchange Traded Funds by Sebastian A. Gehricke, Pakorn Aschakulporn, Tahir Suleman, and Ben Wilkinson as of June 25th, 2024 (#5): “We find that divestment by predominantly passive ESG ETFs has a significant negative effect on the stock returns of firms, especially when a higher number of ESG ETFs divest in a firm in the same quarter …. Such coordinated divestment results in initial negative effects on stock returns, increases in the firms’ equity and debt cost of capital and a delayed decrease in carbon emission intensities. There also seems to be a positive effect on ESG ratings, but only after 8 quarters” (p. 16/17). My comment: my experience with divestments is positive, see Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds. Since then, I reinvested  in a few stocks which improved their ESG-ratings.

Good hedge funds: Corporate Governance and Hedge Fund Activism by Shane Goodwin as of Feb. 12th, 2024 (#159): “My novel approach to inside ownership and short-interest positions as instrumented variables that predict a Target Firm’s vulnerability to hedge fund activism contributes to the literature on the determinants of shareholder activism. … My findings suggest that Hedge Fund Activists generate substantial long-term value for Target Firms and their long-term shareholders when those hedge funds function as a shareholder advocate to monitor management through active board engagement“ (p. 155/156).

SFDR clarity? Sustainability-related materiality in the SFDR by Nathan de Arriba-Sellier and Arnaud Van Caenegem as of July 1st, 2024 (#19): “… we should think about the SFDR as a layered system of sustainability-related disclosures, which combine the concepts of “single-materiality” and the “double-materiality”. …  it is not the definition of “sustainable investment” which is relevant, but the additional disclosure requirements that apply as soon as a financial market participant deems its financial product to be in line with the definition. The SFDR encourages robust internal assessments over blind reliance on opaque ESG rating agencies and provides financial market participants with the freedom to justify what a contribution to an environmental or social objective means. This freedom sets it apart from a labeling mechanism with a clearly defined threshold of what a contribution should entail. The … proposed guidelines by ESMA for regulating the names of investment funds that involve sustainable investment … do not create a clear labelling regime” (abstract).

Other investment research (in: Tiny houses and more)

Female SDG power: Measuring Fintech’s Commitment to Sustainable Development Goals by Víctor Giménez García, Isabel Narbón-Perpiñá, Diego Prior Jiménez and Josep Rialp as of May 31st, 2024 (#8): “This study investigates the performance of Fintech companies in achieving Sustainable Development Goals (SDGs) … Our results show that female founders enhance Fintech sector’s alignment with the SDGs, specially in smaller companies, indicating that gender diversity in leadership promotes sustainable practices. Additionally, companies with more experienced founders and higher funding tend to prioritize growth and financial performance over sustainability” (abstract).

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Werbehinweis (in: Tiny houses and more)

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

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

Brown banks: clker free vector images from Pixabay

Brown banks? Researchpost 180

Brown banks picture from clker free vector images from Pixabay

Brown banks: 9x new research on CO2-costs, climate policy effects, Mittelstand climate, stock prices, ESG, CSR, gender diversity, green projects, and listed real estate (# shows the number of SSRN full research paper downloads as of June 13th, 2024)

Social and ecological research

Correct CO2 costs? Synthesis of evidence yields high social cost of carbon due to structural model variation and uncertainties by Frances C. Moore, Moritz A. Drupp, James Rising, Simon Dietz, Ivan Rudik, Gernot Wagner as of June 10th, 2024 (#9): “Estimating the cost to society from a ton of CO2 – termed the social cost of carbon (SCC) – requires connecting a model of the climate system with a representation of the economic and social effects of changes in climate, and the aggregation of diverse, uncertain impacts across both time and space. … we perform a comprehensive synthesis of the evidence on the SCC, combining 1823 estimates of the SCC from 147 studies with a survey of authors of these studies. The distribution of published 2020 SCC values is wide and substantially right-skewed, showing evidence of a heavy right tail (truncated mean of $132). … we train a random forest model on variation in the literature and use it to generate a synthetic SCC distribution that more closely matches expert assessments of appropriate model structure and discounting. This synthetic distribution has a mean of $284 per ton CO2, respectively, for a 2020 pulse year (5%–95% range: $32–$874), higher than all official government estimates … “ (abstract).

Strict policy effects: Climate and Environmental Policy Risk and Debt by Karol Kempa and Ulf Moslener as of April 25th, 2024 (#95): “… we find that policy determines how firms’ externalities, such as CO2 emissions and different types of environmental pollution, translate into credit risks and corporate bond pricing. The size as well as direction of the effect of externalities on credit risk and bond spreads depends on the stringency of policy. Ambitious policy increases the credit risk and costs of debt for dirty firms and decreases both for clean firms. Lenient regulation can have the opposite effect. … Finally, we find that a higher likelihood of stringent climate policies in the future increases the impact of CO2 emissions on credit risk“ (abstract).

Mittelstandsklima: Die unternehmerische Akzeptanz von Klimaschutzregulierung von Markus Rieger-Fels, Susanne Schlepphorst, Christian Dienes, Rodi Akalan, Annette Icks und Hans-Jürgen Wolter vom 3. Juni 2024: „Nur eine starke Volkswirtschaft kann die für den Klimaschutz erforderlichen Ressourcen aufbringen. Die Unternehmen sind dabei in der Mehrzahl bereit, diesen Weg mitzugehen. Speziell die mittelständischen Unternehmerinnen und Unternehmer weisen tendenziell eine hohe intrinsische Motivation auf, zum Schutz der Umwelt und des Klimas beizutragen. Das ist wichtig, da den Unternehmen stets ein strategischer Spielraum in der Umsetzung bleibt. Das Spektrum reicht dabei von einer Standortverlagerung über eine Produktionseinstellung und dem bewussten Ignorieren von Vorgaben bis hin zur freiwilligen Übererfüllung von Regulierungen …“ (p. 26/27). My comment: The reaction of global “Mittelstand” companies regarding my shareholder engagement activities (see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)) is more open than I thought

ESG investment research (in: Brown banks)

Brown banks? Banking on climate chaos – Fossil fuel finance report 2024 by Urgewald as of May 13th, 2024: “The 60 biggest banks globally committed $705 B USD to companies conducting business in fossil fuels in 2023, bringing the total since the Paris agreement to $6.9 T. These banks committed $347 billion in 2023 and $3.3 trillion total since 2016 to expansion companies – those companies that the Global Oil & Gas Exit List and the Global Coal Exit List report having expansion plans. … Total financing committed for companies with methane gas (LNG) import and export capacity under development, increased from $116.0 billion in 2022 to $121.0 billion in 2023. … 15.4 % of the financing by dollar value issued in 2023 matures after 2030; 3.7 % matures after 2050. Financing for fossil fuel extraction or infrastructure that matures after 2030 faces a risk of becoming stranded … several banks, including Bank of America and PNC, rolled back their previous exclusions in 2023 (see p. 32). Banks continue to prioritize net zero targets, though early research suggests that these targets, like other bank policies, leave loopholes for ongoing fossil fuel finance (see p. 35)” (p. 4). My comment: Check out you bank based on the detailed data: Banking on Climate Chaos 2024 – Banking on Climate Chaos

Climate correlations: The Cold Hard Cash Effect: Temperature’s Role in Shaping Stock Market Outcomes by Yosef Bonaparte as of April 15th, 2024 (#8): “The analysis conducted across 67 countries …highlight that warmer climates are linked to lower stock market returns, with a notable economic significance exceeding 9.12%, and reduced volatility, demonstrating an economic significance of at least 36.9%. Conversely, the Sharpe ratio, serving as a gauge of risk-adjusted returns, displays a positive co-movement with temperature change, indicating an economic significance surpassing 1.63%. Furthermore, cold countries earn greater stock market returns but are more negatively affected by temperature changes” (p. 16).

ESG or CSR? Combining CSR and ESG for Sustainable Business Transformation: When Corporate Purpose Gets a Reality Check by David Risi, Eva Schlindwein and Christopher Wickert as of June 7th, 2024 (#135): “ESG is a compliance-driven and metrics-oriented idea for stimulating sustainable business transformation. It focuses on reducing negative impacts and improving performance in specific areas. Moreover, it provides a reality check on how a firm is doing in light of increasing societal expectations for greater sustainability. By contrast, CSR is often viewed as a more values-based and internally driven approach to sustainability. It provides a strategy for developing a sense of meaning and purpose for responsible business conduct that reflects a firm’s values and identity… In their mutual integration, CSR and ESG create synergy since they can compensate for their respective weaknesses” (p. 12/13).

Good diversity: Board Gender Diversity and Investment Efficiency: Global Evidence from 83 Country-Level Interventions by Dave (Young Il) Baik, Clara Xiaoling Chen, and David Godsell as of May 4th, 2024 (#177): “We document increases in firms’ investment efficiency after the adoption of BGD interventions relative to firms in countries that do not concurrently adopt BGD interventions. Our results are economically significant, suggesting that treatment firms reduce inefficient investment by 0.6 percent of total assets or 6.5 percent of total investment and are 4 percentage points more likely to have above-median investment efficiency after interventions relative to firms in countries not concurrently adopting interventions“ (p. 33). My comment: I recently divested from a company because the social rating declined which was mainly due to low gender worker and board diversity

Impact investment research

Small climate steps: Inside the Blackbox of Firm Environmental Efforts: Evidence from Emissions Reduction Initiatives by Catrina Achilles, Peter Limbach, Michael Wolff and Aaron Yoon as of June 7th, 2024 (#35): “This study uses granular data at the firm’s project level, provided by the Carbon Disclosure Project, to present primary evidence on what large U.S. firms actually do to reduce greenhouse gas emissions. … the majority of emissions reduction projects require small investments – the median investment per project is $127,000, with the median of firms’ total annual investment in such projects amounting to only 0.2% of net income. Second, 63% of all projects have payback periods of at most three years, while just about 10% of all projects pay off after more than ten years. These short-term projects mostly target energy efficiency in buildings or production, and typically do not involve new transformative technology and low-carbon energy. … our results suggest that short-term emissions reduction projects generate more CO2e and monetary savings per year, yield greater NPVs, and predict higher environment-related ESG ratings in the near future. However, total CO2e savings over the projects’ lifetime are at least 25% lower for short-term payback projects. Firms that exhibit the most CO2e savings have a mix of short- and longer-term projects, while firms exclusively implementing only short-term or longer-term projects save significantly less CO2e. We also study how characteristics of firms’ emissions reduction projects, such as their payback period and efficiency in saving CO2e, evolve over time and show which firms implement more short-term projects …. the evidence presented in this paper suggests that the majority of large U.S. firms do not act … long-term oriented” (p. 31/32).  

Other investment research (in: Brown banks)

Real estate hedge: U.S. and European Listed Real Estate as an Inflation Hedge by Jan Muckenhaupt, Martin Hoesli and Bing Zhu as of May 28th, 2024 (#27): “This paper investigates the inflation-hedging capability of an important asset class, i.e., listed real estate (LRE), using data from 1990 to the end of 2023 … Listed real estate provides an effective hedge against inflation in the long run, both in crisis and non-crisis periods. In the short term, listed real estate only hedges against inflation in stable periods. LRE effectively serves as a hedge against inflation shocks, particularly protecting against unexpected inflation from the first month and against energy inflation during stable periods. While stocks surpass LRE in long-term inflation protection and LRE has short-term benefits, gold distinguishes itself from LRE by offering reliable long-run protection, but only in economic downturns” (abstract). My comment: My “most-passive” multi-asset ETF portfolios have a target allocation of 10-12% Listed Real Estate, 5 to 6 % Listed Infrastructure and 5% US Treasury Inflation-Protected Securities

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Werbehinweis

Unterstützen Sie meinen Researchblog, indem Sie in meinen globalen Small-Cap-Anlagefonds (SFDR Art. 9) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die Ziele für nachhaltige Entwicklung (SDG: Investment impact) und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie ein breites Aktionärsengagement (Investor impact) bei derzeit 29 von 30 Unternehmen:  My fund – Responsible Investment Research Blog (prof-soehnholz.com). Zur jetzt wieder guten Performance siehe zum Beispiel Fonds-Portfolio: Mein Fonds | CAPinside

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 (prof-soehnholz.com) 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 (prof-soehnholz.com)

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 – (prof-soehnholz.com) 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 (prof-soehnholz.com)

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 (prof-soehnholz.com)

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

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

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

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

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

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

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

Impact investing research (in: SDG performance)

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

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

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

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

Other investment research (in: SDG performance)

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

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

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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 (prof-soehnholz.com)

SDG and impact investment research (in: Healthcare IT)

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

Engagement returns: Value of Shareholder Environmental Activism: Case Engine No. 1 by Jennifer Brodmann, Ashrafee T Hossain, Abdullah-Al Masum, and Meghna Singhvi as of Feb. 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 www.futurevest.fund

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 (prof-soehnholz.com)

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 (prof-soehnholz.com)).

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 (prof-soehnholz.com)

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

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

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

ESG investment research (Skilled fund managers)

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

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

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

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

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

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

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

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

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

Impact investment research (Skilled fund managers)

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

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

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

Other investment research

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

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

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

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

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

Skilled fund managers (?) advert for German investors

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

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 – (prof-soehnholz.com)

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 (prof-soehnholz.com)

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 (prof-soehnholz.com)). 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 (prof-soehnholz.com)

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 (prof-soehnholz.com)

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 companies: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

Supplier ESG illustrated with delivery man by 28819275 from Pixabay

Supplier ESG – Researchpost #144

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

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

Ecological research (corporate perspective)

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

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

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

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

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

Generic ESG Research (investor perspective)

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

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

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

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

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

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

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

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

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

Impact investment research (supplier ESG)

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

Other investment research

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

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

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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 companies: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T; also see Active or impact investing? – (prof-soehnholz.com)

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