Archiv der Kategorie: Responsible Investment

Noch eine Fondsboutique?

(„Noch eine Fondsboutique“ ist am 15. August 2023 zuerst auf LinkedIn veröffentlicht worden).

Es gibt schon so viele Fonds und Fondsboutiquen. Noch eine Fondsboutique zu gründen, scheint wenig Sinn zu machen. Trotzdem habe ich das im August 2021 auf Wunsch eines Geschäftspartners gemacht, nachdem ich ursprünglich nur Modellportfolios anbieten wollte. Ziel war es einen Fonds zu starten, der sowohl besonders gut auf ökologische aber auch auf soziale Entwicklungsziele der Vereinten Nationen (SDG) ausgerichtet ist und der zudem besonders geringe Umwelt-, Sozial- und Unternehmensführungsrisiken aufweist.

Nachhaltigkeit wichtiger als Überrendite

Ich habe viele Jahre als Fondsselekteur gearbeitet und weiß, wie schwer es ist, passive Benchmarks zu schlagen. Ich werbe auch bewusst nicht damit, Outperformance liefern zu können. Mein Ziel ist es, so nachhaltig wie möglich zu investieren. Damit strebe ich eine aktienmarkttypische Performance an. Das Modellportfolio, auf dem der Fonds basiert, hat das seit dem Start Ende 2017 weitgehend erreicht. Im Vergleich zu aktiv gemanagten Fonds funktioniert das trotz einer relativ schlechten Rendite im ersten Halbjahr 2023 durch das gute Jahr 2022 bisher auch für den Fonds.

Mein Ansatz ist sehr untypisch: Ich selektiere meine Aktien fast nur anhand von Nachhaltigkeitsinformationen. Die Diversifikation beschränke ich bewusst auf 30 Aktien, weil eine höhere Diversifikation meine Nachhaltigkeitsanforderungen verwässern würde. Trotzdem sind die Risikokennzahlen des Fonds gut.

Konsequente Nachhaltigkeit ist leichter von Small- und Midcaps erfüllbar (noch eine Fondsboutique)

Mein Fonds ist auf Unternehmen fokussiert, deren Produkte und Services möglichst gut mit mindestens einem SDG vereinbar sind. Das trifft eher auf kleinere als auf größere Unternehmen zu. Auch meine zahlreichen konsequenten Ausschüsse sind eher von spezialisierteren als von diversifizierten Unternehmen erfüllbar, so dass der Fonds überwiegend Small- und Midcaps enthält.

Unternehmen mit Hauptsitz in Ländern, die meinen Anforderungen an Gesetzmäßigkeit nicht entsprechen, bleiben unberücksichtigt. In meinem Fonds haben die USA aktuell einen Anteil von leicht über 50%. Der Eurolandanteil liegt ebenso wie der Australien-Anteil derzeit bei etwa 10%. Gesundheits- und Industrieunternehmen machen den Hauptbestandteil aus und auch (Sozial-) Immobilien und (nachhaltige) Infrastruktur sind überdurchschnittlich vertreten. Technologieunternehmen sind dagegen unterrepräsentiert im Vergleich zu traditionellen Aktienbenchmarks.

Große Unterschiede zu anderen Fonds

In Deutschland werden nur wenige global investierende Fonds mit Small- und/oder Midcap-Fokus angeboten. Im Juni habe ich mir die Portfolios potenzieller Wettbewerber angesehen und maximal vier Aktien Überscheidung gefunden.

Unterschiede zu anderen Fonds gibt es vor allem in Bezug auf das Nachhaltigkeitskonzept. Ich kenne keinen anderen Fonds mit so strengen und so vielen Ausschlüssen. Ich kenne auch keinen anderen branchendiversifizierten Fonds, der strenge Best-in-Universe ESG-Ratings nutzt. Dabei werden nur Unternehmen mit besonders geringen absoluten ESG-Risiken ausgewählt. Fast alle anderen Fonds nutzen einen laxeren Best-in-Class ESG-Ratingansatz, bei dem – abhängig vom jeweiligen Marktsegment – relativ gute ESG-Risiken ausreichen.

Viele Fonds haben zudem nur Mindestanforderungen an aggregierte ESG-Ratings und nicht explizit separate Mindestanforderungen an Umwelt-, Sozial- und Unternehmensführungsratings, wie es bei meinem Fonds der Fall ist. Auf Basis eines detaillierten Nachhaltigkeits-Engagementkonzeptes, das auch auf andere Stakeholder wie Mitarbeiter einbezieht, bin ich zudem aktuell mit 28 von 30 Unternehmen in einem aktiven Dialog.

Für die meisten Fondsselekteure ist mein Fonds aber noch zu jung und mit knapp über 10 Millionen Fondsvermögen noch zu klein. Durch meinen regelbasieren Ansatz kann ich aber auch als Ein-Personen Fondsboutique gemeinsam mit meinen Fondspartnern Deutsche Wertpapiertreuhand und Monega sowie mit meinem Beratungs- und IT-Partner QAP Analytic Solutions und meinem Datenlieferanten Clarity.ai alle Anforderungen gut erfüllen.

Ich bin sehr zuversichtlich, dass mein Fonds eine gute Zukunft hat und möchte dauerhaft in großem Umfang im Fonds investiert bleiben.

Weiterführende Informationen siehe www.futurevest.fund und z.B. Active or impact investing? – (prof-soehnholz.com)

Disclaimer zu „Noch eine Fondsboutique)

Dieser Beitrag ist von der Soehnholz ESG GmbH erstellt worden. Die Erstellerin übernimmt keine Gewähr für die Richtigkeit, Vollständigkeit und/oder Aktualität der zur Verfügung gestellten Inhalte. Die Informationen unterliegen deutschem Recht und richten sich ausschließlich an Investoren, die ihren Wohnsitz in Deutschland haben. Sie sind nicht als Verkaufsangebot oder Aufforderung zur Abgabe eines Kauf- oder Zeichnungsangebots für Anteile des in dieser Unterlage dargestellten Fonds zu verstehen und ersetzen nicht eine anleger- und anlagegerechte Beratung. Anlageentscheidungen sollten nur auf der Grundlage der aktuellen gesetzlichen Verkaufsunterlagen (Wesentliche Anlegerinformationen, Verkaufsprospekt und – sofern verfügbar – Jahres- und Halbjahresbericht) getroffen werden, die auch die allein maßgeblichen Anlagebedingungen enthalten. Die Verkaufsunterlagen werden bei der Kapitalverwaltungsgesellschaft (Monega Kapitalanlagegesellschaft mbH), der Verwahrstelle (Kreissparkasse Köln) und den Vertriebspartnern zur kostenlosen Ausgabe bereitgehalten. Die Verkaufsunterlagen sind zudem im Internet unter www.monega.de erhältlich. Die in dieser Unterlage zur Verfügung gestellten Inhalte dienen lediglich der allgemeinen Information und stellen keine Beratung oder sonstige Empfehlung dar. Die Kapitalanlage ist stets mit Risiken verbunden und kann zum Verlust des eingesetzten Kapitals führen. Vor einer etwaigen Anlageentscheidung sollten Sie eingehend prüfen, ob die Anlage für Ihre individuelle Situation und Ihre persönlichen Ziele geeignet ist. Diese Unterlage enthält ggf. Informationen, die aus öffentlichen Quellen stammen, die die Erstellerin für verlässlich hält. Die dargestellten Inhalte, insbesondere die Darstellung von Strategien sowie deren Chancen und Risiken, können sich im Zeitverlauf ändern. Einschätzungen und Bewertungen reflektieren die Meinung der Erstellerin zum Zeitpunkt der Erstellung und können sich jederzeit ändern. Es ist nicht beabsichtigt, diese Unterlage laufend oder überhaupt zu aktualisieren. Sie stellt nur eine unverbindliche Momentaufnahme dar. Die Unterlage ist ausschließlich zur Information und zum persönlichen Gebrauch bestimmt. Jegliche nicht autorisierte Vervielfältigung und Weiterverbreitung ist untersagt.

Active ESG share: Researchpost #136

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

Ecological and social research: Active ESG share

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

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

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

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

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

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

ESG Ratings Reearch: Active ESG Share

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

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

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

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

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

Responsible investment research: Active ESG share

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

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

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

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

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

Impact investment and shareholder engagement: Active ESG share

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

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

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

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

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

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

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

General investment research

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

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

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

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ESG sales impact: Researchpost #135

ESG sales impact: 11x new research on ESG sales effects, governance knowledge deficits and policies, corporate purpose measurement, CSR returns, impact frameworks, bad asset managers, financial advice AI and Bitcoin by Christina Bannier, Lars Hornuf, Judith Stroehle and many more (#: SSRN downloads on July 19th, 2023)

Social and ecological research: ESG sales impact

ESG sales impact (1): Do Consumers Care About ESG? Evidence from Barcode-Level Sales Data by Jean-Marie Meier, Henri Servaes, Jiaying Wei, and Steven Chong Xiao as of July 11^th, 2023 (#266): “… we find that higher E&S ratings positively affect subsequent local product sales. The positive effect of E&S ratings on local product sales is stronger in markets with more Democratic voters and with a higher average income. … revenue also declines after the release of negative E&S news. … we find a significant increase in the sensitivity of local retail sales to firm E&S performance after (Sö: natural and environmental) … disaster events for counties located closer to the events“ (p. 23).

ESG sales impact (2): How Does ESG Shape Consumption? by Joel F. Houston, Chen Lin, Hongyu Shan, and Mo Shen as of June 21^st, 2023 (#280): “Our study explores the effects of more than 1600 negative events captured from the RepRisk database, on 150 million point-of-sale consumption observations … Our baseline findings show that the average negative event generates a 5 – 10 % decrease in sales for the affected product in the six months following the event. … we find that there is considerable heterogeneity in consumer responses, and that the average response varies considerably depending on consumer demographics and the nature of the ESG-related reputation shock“ (p. 23/24).

Governance doubts: Seven Gaping Holes in Our Knowledge of Corporate Governance by David F. Larcker and Brian Tayan as of May 3^rd, 2023 (741): “… we highlight significant “holes” in our knowledge of corporate governance. … While the concepts we review are not exhaustive, each is critical to our understanding of the proper functioning of governance, including board oversight, the recruitment of CEO talent, the size and structure of CEO pay, and the advancement of shareholder and stakeholder welfare” (abstract).

Purpose first: Sustainable Corporate Governance. An Overview and an Assessment by Steen Thomsen as of June 8^th, 2023 (#144): “This paper outlines what could be some of the key elements of sustainable corporate governance 2.0 including company law (director liability), long-term ownership, ESG investment, company purpose, sustainability committees, sustainability competencies, ESG incentives, climate plans, climate risk management, sustainability reporting, and internal carbon pricing. … the current fixation on regulation and ESG is counterproductive and suggest that a better way forward is to start with company purpose and to adjust corporate governance accordingly. Using this approach, I outline a tentative roadmap for sustainable corporate governance 2.0“ (abstract). My comment: I suggest a Roadmap for corporate and stakeholder engagement here Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Responsible investment research: ESG sales impact

Purpose measurement: Through the looking glass: tying performance and materiality to corporate purpose by Judith C. Stroehle, Kazbi Soonawalla, and Marcel Metzner as of June 7^th, 2023 (#18): “The performance principles of corporate purpose suggest that measurement needs to reflect whether companies take into account the growing significance of workers, societies and natural assets both inside and outside a company’s legal boundaries … Purpose without measurement runs the risk of being merely a mirage …. we show that it is not impossible to establish measurement of purpose, in particular when performance in relation to purpose is linked to existing frameworks of measurement and notions of single and double materiality“ (p. 30/31).

Irresponsible returns? The risk‑return tradeoff: are sustainable investors compensated adequately? by Christina E. Bannier, Yannik Bofinger, and Björn Rock as of April 27^th, 2023: “… our results show that low CSR (Sö: Corporate Social Responsibility) is … associated with higher portfolio returns. Interestingly, these higher returns even overcompensate the investor for the amount of risk she has to bear. … from an investor’s perspective, the ‘optimal’ return-to-risk ratio is achieved for a portfolio that invests in the lowest CSR-rated firms” (p. 169/170). My comment see ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com)

Impact frames: How impact investing firms use reference frameworks to manage their impact performance: An industry-level study by Syrus M. Islam and Ahsan Habib as of July 10^th, 2023 (#8): “… we show how impact investing firms use various reference frameworks (e.g., IFC Performance Standards, Impact Management Project framework, UN Sustainable Development Goals) to manage their impact performance throughout the investment lifecycle. … We also discuss … how reference frameworks used in performance management in the impact investing industry differ from those used in some other industries” (abstract). My comment: I use the SDG-Framework see Active or impact investing? – (prof-soehnholz.com)

Bad asset managers? Who’s managing your future? An assessment of asset managers’ climate action by Lara Cuvelier at al. from Reclaim Finance as of June 28^th, 2023: “At the parent (or group) level, the 30 asset managers included in this report invested at least $3.5 billion in 74 newly issued bond securities from companies actively engaged in fossil fuel expansion. … The 30 asset managers analyzed held US$597 bn in bonds and shares in the biggest fossil fuel developers as of January 2023. … the majority of these 30 major asset managers do not currently sanction polluting companies for failing to take the right steps for the climate …After five years of intensive dialogue by investors from the CA100+ initiative, only 20% of the companies from the coal mining and oil and gas sectors that have been engaged have even set an ambition to achieve net zero emissions by 2050. … only two of the companies are working to decarbonize their capital expenditures” (p. 7).

General investment research

AI & investments: Executives vs. Chatbots: Unmasking Insights through Human-AI Differences in Earnings Conference Q&A by John (Jianqiu) Bai, Nicole Boyson, Yi Cao, Miao Liu, and Chi Wan as of June 22th, 2023 (#125): “… we use earnings conference calls as a setting and introduce a novel measure of information content (Human Machine Differences, HAID) by exploiting the discrepancy between answers to questions at earnings conference calls provided by actual corporate CFOs and CEOs and those given by several context-preserving Large Language Models (LLM) including ChatGPT. … HAID has significant predictive power for the absolute cumulative abnormal return around earnings call, stock liquidity, earnings growth, analyst forecast accuracy, as well as management’s propensity to provide guidance. … Overall, we find that HAID provides a unique and previously unidentified source and methodology to help investors uncover new information content” (p. 26).

LLM Advice: Using GPT-4 for Financial Advice by Christian Fieberg, Lars Hornuf, David J. Streich as of July 6^th, 2023 (#250): “GPT-4 can provide financial advice which is on par with the advice provided by professional low-cost automated financial advisory services. While the portfolios suggested by GPT-4 displayed considerable home bias, its historical risk-return profiles are at least on par with … benchmark portfolios. … To investigate GPT-4’s ability to serve clients’ sustainability preferences (ESMA, 2018), we added sustainability preferences to some of our investor profiles. The portfolios suggested for those profiles included ESG-focused versions of the portfolio components such as the iShares ESG Aware MSCI USA ETF. … risk profiling … can currently not be handled by GPT-4. … GPT-4 cannot offer assistance in implementing the portfolio (opening an account, purchasing and rebalancing portfolio components)“ (p. 11/12).

Bitcoin infects: Is Bitcoin Exciting? A Study of Bitcoin’s Spillover Effects by Minhao Leong and Simon Kwok as of July 13^th, 2023 (#16): “… we detect the presence of positive jump spillovers from Bitcoin to risk assets (U.S. equities, developed market equities and emerging market equities) and negative jump spillovers from Bitcoin to defensive assets (gold and emerging market bonds) after COVID-19. … we also find evidence of jump and diffusion spillovers from Bitcoin to U.S. equity sectors, particularly to the financials, technology, consumer discretionary and communication services sectors. … We show that over time, the proportion of blockchain and cryptocurrency exposed U.S. companies (BCEs) has increased in recent years, from 19% during the pre-pandemic period to 28.8%. Specifically, the adoption of blockchain and cryptocurrency related technologies by mega-cap names such as Microsoft (Technology), Amazon (Consumer Discretionary), Alphabet (Communication Services) and Tesla (Consumer Discretionary) has increased the Bitcoin exposures of equity market and sector indices“ (p. 41/42).

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Advert for German investors:

No engagement-washing! Opinion-Post #207

Engagement-washing as a term, according to my research, was first used by Kunal Desai in an interesting study in early 2022 (see Active-Engagement-thought-piece-final-2.pdf (gibam.com)). Engagement-washing means pretending that shareholder engagement can create a significant positive real-world impact when it probably can’t. That is different from impact-washing which typically is used to describe overambitious product marketing claims to make the world better.

Impact investing and engagement-washing

Impact investing is clearly on the rise. With impact investing, investors want to improve the world through their investments in equity capital or through credits. Impact investing with secondary-market listed equities or bonds is especially difficult. With those products, one security holder buys the security from another one. With such a transaction, issuers of the securities do not receive any additional funds. Therefore, providers of listed products which want to create impact typically use shareholder voting and shareholder engagement to change the issuers of the securities they are invested in.

Limitation of shareholder voting

Shareholder voting is typically only possible at annual shareholder meetings. Votes can only be used regarding the proposals on the agenda. In most cases, corporate management proposals are supported by the majority of votes. Investors can try to put own proposals on the agenda, but even the largest shareholders alone typically do not have enough votes to get them through.

Shareholder (or bondholder) engagement can be exercised at any time and regarding every topic. If investors can convince the top management of companies to adopt their proposals, they may have impact.

So far, so good. But the reality may not be that simple (data see Kunal Desais paper which refers to ESG Shareholder Engagement and Downside Risk by Andreas G. F. Hoepner, Ioannis Oikonomou, Zacharias Sautner, Laura T. Starks, Xiaoyan Zhou :: SSRN):

7 limitations of ecological and social shareholder engagement

Although engagement becomes more popular, the majority of investors most likely does not engage at all.
Even if investor engage, engagements typically are undertaken only for a minority of investments. That is not surprising, because most institutional investors own very many securities and only have limited resources for engagement.
The majority of engagements involves only one interaction with the targeted companies. Since changes at companies typically take some time, one interaction does not seem enough to change much.
Governance topics typically dominate engagements whereas impact-relevant environmental and social topics are the minority of topics addressed during engagements.
ESG-ratings cover dozens if not hundreds of topics. Engagement typically only focus on one or very few topics. Even very well managed companies have many and sometimes also huge improvement potential in several social and ecological issues. The typical share of actual shareholder engagement topics compared to potentially relevant social and ecological engagement topics therefore is very low.
It is very unclear how many engagements are successful since so far there is no good system to measure engagement success. If anything, shareholders measure engagement activity and not success. Often, marketing only repeats the same case study of a successful corporate engagement over and over. Shareholders for Change (see SfC-ENGAGEMENT-Report2022-1.pdf (shareholdersforchange.eu) page 6) proposes an evaluation scheme but it does not allow to quantity the aggregate success of shareholder engagements.
Mostly, companies do not state clearly what the consequences are, when their engagements are not successful. I assume that there are no divestments or even reductions in investments after most unsuccessful engagements. The reason is the low openness to divestments and benchmark deviations of institutional investors. Most try to stay very close to their selected benchmarks, even though divestments typically would reduce their portfolio diversification only marginally.

Conclusion: No engagement-washing but investing as good as you can

Conclusion: Social and ecological shareholder engagement is the most important tool to create impact with listed companies. But investors should not pretend to be able to significantly change the engaged target companies. Calling listed equity or bond funds “impact” funds does not sound right to me (impact-aligned is somewhat better, though). And reliance on investors to change listed companies is insufficient.

Engagement-washing seems to be a real risk which, if revealed, would hurt the “washer” but also potentially the whole segment of responsible investments. Investors nevertheless should invest as responsibly as possible. They should also try to engage as much as they can afford to. And that should include engagements with industry associations, NGOs, politicians etc. to advance responsible investing in general.

ESG Transition Bullshit?

No impact on secondary markets?

ESG transition approaches suggest making companies more sustainable. Many providers of so-called responsible investments promote ESG transition investments. Typically, the argumentation is: You have to put money into brown companies so that they can finance the transition to become a greener company. That sounds plausible but may be misleading.

In the case of listed investments, securities are bought from other investors. No capital flows to the companies themselves. This is different with capital increases, new bond issues or private equity and credit investments. Not every such investor investment is truly additional because of an often high investor demand (“capital overhang”). In any case, issuers receive additional capital which they could use to finance a green transition. Unfortunately, even in the case of some so-called green, social or sustainability bonds, it cannot be guaranteed that the proceeds are used to finance greener or more social transitions (compare The Economics of Sustainability Linked Bonds by Tony Berrada, Leonie Engelhardt, Rajna Gibson, and Philipp Krueger as of September 14^th, 2022).

ESG Transition? Big Oil throws cash at shareholders, not renewables

According to Nathaniel Bullard from BNN Bloomberg (“Big Oil’s pullback from clean energy matters less than you might think” as of June 25^th, 2023) “The world’s five biggest publicly listed oil and gas companies posted just under $200 billion in total profits last year. Faced with three strategic possibilities for how to use their cash piles — extract oil and gas apace, move their businesses into renewable power and energy transition assets or return money to shareholders — the supermajors have largely sprung for the third option in recent weeks”. They invested in transition in the past, but their overall energy-transition investment share is low with about 3% according to Bullard. “And there is no shortage of capital at the moment — according to the International Energy Agency, more has been invested in clean energy than fossil fuels every year since 2016”.

It seems to make little sense to promote investments in Big Oil stocks or bonds as transition investments. Blackrock, one of the largest asset managers with very large holdings in Big Oil companies, probably disagrees with me. Exxon, Chevron and ConocoPhilipps are among the holding of its U.S. Carbon Transition Readiness ETF. According to Blackrock, the ETF provides a “broad exposure to large- and mid-capitalization U.S. companies tilting towards those that BlackRock believes are better positioned to benefit from the transition to a low-carbon economy” and “harness BlackRock’s thinking in sustainable investing through a strategy utilizing research-driven insights” (BlackRock U.S. Carbon Transition Readiness ETF | LCTU (ishares.com)).

I would rather invest in companies specialized in renewable energies. And even with listed investments, investments could have some positive impact.

Shareholder engagement with the bad or the good companies?

In theory, share- and bondholder engagement can have a positive impact on companies. For Big Oil, that did not work well so far: “Resolutions that would have forced the companies to align with Paris Agreement climate targets failed. BP and Shell have also pulled back on their strategies to cut fossil fuel production” (Bullard).

Shareholder engagement seems to be more fruitful when targeted at already somewhat responsible companies (compare Shareholder Engagement on ESG Performance by Barko et al. (2022)). That is also my experience (see Active or impact investing? – (prof-soehnholz.com)).

ESG Transition: But we still need oil and gas!

Certainly, we still need oil and gas for our economy for a long time. But Big Oil will certainly sell us oil and gas as long as we adequately pay for it. I do not expect that they decide to sell oil and gas only to stock- and bondholders.

Maybe, responsible investors should not invest at all in brown companies or companies with social deficits which distribute dividends instead of investing the available capital in a greener or more social future (see Transitionierer: Dividendenverbot für ESG Sünder? – Responsible Investment Research Blog (prof-soehnholz.com)).

Underdiversification and return risks?

Many investment advisors (and promotors of diversified products) argue, that investors should not deviate much from diversified indices. This would mean to also invest in brown and not very social companies. These advisors and promotors rarely mention the – mostly very low – marginal utility of additional diversification. Also, most likely, you will not hear the argument that if you start with very responsible investments and then diversify, the average responsibility score of the portfolio will shrink. There are very few convincing arguments why investors should invest in all the same countries, industries and companies as broad indices. Focusing investments on few of the most responsible investments can generate attractive returns and risk adjusted performances (see 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (prof-soehnholz.com)).

Some argue that theory proves that brown investment should have high returns in the future. According to them, brown companies have to pay higher interest rates to creditors and higher returns to stockholders than responsible companies. Thus, shareholders of brown companies should have higher returns than shareholders of green companies.

Lower brown risks

There are other arguments, though. Brown companies certainly have more ecological risk than green companies. Therefore, the risk adjusted returns of brown companies may not be so attractive. And if brown companies have to invest instead of distributing dividends, higher returns for stockholders mean that in the future, someone has to pay a relatively high price for the (formerly?) brown stock. Instead, investors can invest in already green companies. Those companies have lower capital investment requirements for transitions. But they can still improve their greenness and/or distribute dividends. That seems to be the more attractive investment case. And given the low current share of truly green and social investments, I expect responsible investments to continue to grow for many years to come.

Since 2017 I try to invest in a limited number of most responsible companies. Since even these companies can still improve significantly in terms of responsibility, I also try to engage with all of them (see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)). So far, that approach works well.

Active or impact investing?

Active or impact investing is a valid question, since it often requires a long time to reach shareholder impact. Passive or impact investing is an equally valid question, because passive investors do not want or do not have the resources to impact their investments.

With impact investments, investors try to improve the world. Investing in listed securities does not add capital for the issuers. Therefore, responsible investors typically use voting and engagement to try to improve issuers of securities.

I advise a rules-based mutual fund with a very high active share. Here are some of my shareholder engagement experiences and learnings:

My goal: 100% Engagement

With my mutual fund, I invest in only 30 stocks (see 30 stocks, if responsible, are all I need). According to my definition, they are issued by the most responsible listed companies worldwide (see Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen?). In 2022, I was positively surprised by my first shareholder engagement test (see Engagement test (Blogposting #300)). Since I try to invest as responsibly as possible, I decided to try to engage with all 30 companies in my portfolio.

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Good immigrants and bad bankers: Researchpost #131

Good immigrants: 16x new research on inequality, hate, decarbonization, electric cars, carbon reporting, ESG ratings, CEOs, bankers, impact investments and venture capital by Jens Dammann, Moritz Drupp and many more (# shows SSRN downloads on June 15th, 2023)

Social and ecological research: Good immigrants

Good immigrants: Inequality and Immigration by Christian Dustmann, Yannis Kastis, and Ian Preston as of June 9^th, 2023 (#17): “… we investigate the relationship between immigration and inequality in the UK over the past forty years. Over this period, the share of foreign-born individuals in the UK rose from 5.3% in 1975 to 13.4% in 2015 … Work and family reunification have been the most common reasons behind immigration of EU nationals, while inflows of non-EU nationals have been largely driven by study purposes. We document that immigrants have been systematically better educated than natives in the UK throughout the forty years of our observation period. Nevertheless, in line with DFP (2013), we find that immigrants downgrade upon their arrival in the UK by working in jobs that are in substantially lower earnings categories than where they would be allocated based on their education alone. We provide evidence that as immigrants spend more time in the UK and acquire complementary skills or transfer their existing skill sets to the particularities of the UK, they move to jobs higher up in the earnings distribution. … wage inequality among immigrants was systematically higher than wage inequality within the group of natives throughout the period 1994-2016 … However, the overall effects of immigration on inequality in the UK were very small. Finally, we report that wage inequality in the UK significantly decreased from 2000 onwards both within the native and within the immigrant group. … immigrants are large net fiscal contributors” (p. 46-48). My comment: In some of my other blogpost I have documented more research regarding good immigration effects e.g here Positive immigration and more little known research (Researchposting 110) – Responsible Investment Research Blog (prof-soehnholz.com)

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Greenwashing banks? Researchpost #129

Greenwashing banks? 12x new research on immigration, suppliers, greenwashing, banks, ESG ratings, AI voting, green bonds, climate inflation, (climate) VCs and crowdinvesting by Christian Klein et al. (# shows the number of SSRN-downloads on May 31^st, 2023):

Social and ecogical research

Positive immigration: Firm-Level Prices, Quality, and Markups: The Role of Immigrant Workers by Giulia Sabbadin as of March 17^th, 2023 (#16):“… I study … French manufacturing traders. I find that the share of immigrant workers in a local labor market is positively associated with firm-level export prices and quality and that this quality advantage translates to higher markups. I present evidence for the mechanism accounting for these relationships and find that the presence of immigrant workers is positively associated with firms importing higher-price (higher-quality) intermediate inputs, which are key to producing higher-price (higher-quality) exports. The hypothesized economic mechanism is that immigrant workers help firms overcome informational barriers to sourcing higher-price (higher-quality) inputs from abroad. I provide evidence consistent with immigrant workers having specialized knowledge of the upstream market” (abstract).

Climate inaction? Climate Policies in Supply Chains by Swarnodeep Homroy and Asad Rauf as of May 15^th, 2023 (#33): “… we show that suppliers are more likely to adopt climate action and climate governance practices following the adoption of emission targets by their customers. The effects are economically meaningful and increase with the relative bargaining power of the customer firm over its suppliers …. However, we find no evidence that adopting climate policies following customer pressure, on average, changes supplier firms’ climate outcomes (emissions and energy expenses) and leading indicators of emission abatement (capital investments and R&D expenses)“ (p. 24). My comment: ESG-evaluation and engaging suppliers is one of my top shareholder engagement priorities, compare Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Sustainable investment research: Greenwashing banks?

Greenwashing Corporates: Show & Tell: An Analysis of Corporate Climate Messaging and its Financial Impacts by Joseph E. Aldy, Patrick Bolton, Zachery M. Halem, Marcin T. Kacperczyk, and Peter R. Orszag as of Aril 22^nd, 2023 (#288): “… investors are increasingly scrutinizing a patchwork of voluntary climate-related communications–namely public disclosures, emission reduction commitments, and soft information from earnings calls and other public announcements. We observe, for large-cap U.S. firms, a rise in the usage of all forms of climate communication from 2010-2020. We also find evidence that a majority of firms are not decarbonizing on a sufficient trajectory to meet committed emission reduction targets. In regard to financial effects, we show that increased transparency from disclosure can offset a significant portion of the price-to-earnings discount associated with carbon emissions, especially for firms in the energy and industrial sectors. … “ (abstract). My comment: Disclosure of Scope 3 emissions is another of my most important engagement topics.

Greenwashing banks? “Glossy Green” Banks: The Disconnect Between Environmental Disclosures and Lending Activities by Mariassunta Giannetti, Martina Jasova, Maria Loumioti, and Caterina Mendicino as of May 24^th, 2023 (#250): “… we show that banks with extensive environmental disclosures lend more to brown borrowers and do not provide more credit to firms in green industries. These results are not driven by banks’ financing of brown borrowers’ transition to greener technologies. Instead, banks lend to the weakest borrowers in brown industries, especially if they have low capital adequacy. Our results suggest that banks overemphasize their climate goals and credentials while continuing their relationships with polluting borrowers“ (abstract). My comment: I do not consider banks in my most sustainable investment portfolios such as my mutual fund

Bank ESG factors: Bank and ESG score by Belinda Laura Del Gaudio, Serena Gallo, Daniele Previtali, and Vincenzo Verdoliva as of April 26^th, 2023 (#79): “This paper analyses factors affecting international banks‘ Environmental, Social and Governance (ESG ) performance from 2008-2018. Using data for all listed banks in the U.S., E.U. and U.K., we show that the characteristics of banks‘ boards influence their ESG performance. In particular, banks with a higher female presence, a larger board size, high networking and more qualified directors are more likely to show better ESG performance. Furthermore, we find that banks with a propensity to pursue a fintech innovation strategy are more likely to have a better ESG performance …. also banks‘ financial factors influence their sustainability profile” (abstract).

Better big? Size bias in refinitiv ESG data by Juris Dobrick, Christian Klein, and Bernhard Zwergel as of May 19^th, 2023: “Even though Refinitiv claims to have minimized the well-known size bias present in ASSET4 ESG data, we find that it is still there and has even become … A one unit increase in company size corresponds to an increase in the ESG (E) score of around 5.8 (6.7) compared with previous 3.5 (4) in Drempetic et al.(2020). For G and S it is 3.7 and 6.3, respectively” …. My comment: There are still enough well ESG-rted small and midsize companies available for investment, see e.g. Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)

ESG factor: ESG as risk factor by Juris Dobrick, Christian Klein, and Bernhard Zwergel as of May 26^th, 2023 (#14): “… we address the question of whether factors constructed using ESG (Environmental, Social, Governance) scores could potentially meet the necessary requirements for risk factors in multi-factor models. … We pay particular attention to the problem of divergent scores across different rating providers and investigate whether the regression results of 4- and 5-factor models converge. … We find that there are ESG factors across all investigated rating providers that capture common-variation in stock returns over time, indicating that ESG should be considered in common asset pricing models” (abstract).

AI Voting? Outsourcing Voting to AI: Can ChatGPT Personalize Index Funds’ Voting Decisions? by Chen Wang as of April 25^th, 2023 (#184): “Asset Management giants like Vanguard have already been utilizing AI to “create customized financial plans that help clients meet their short-term and long-term financial goals.” … By fine-tuning ChatGPT, its ability of generalization can be enhanced by training with curated datasets. Thus, investment funds can employ customized ChatGPT to make self-informed and personalized proxy voting more in line with their shareholders’ interests and preferences. … The cost of hiring experts to fine-tune the model, as well as the cost of acquiring high-quality data, could be a significant obstacle for small funds. … there were also limitations such as token limitations and long-range dependencies. … AI models trained on biased data could lead to biased voting decisions …” (p. 41/42).

Green demand: The Demand for Green Bonds by Hari Gopal Risal, Chandra Thapa, Andrew P. Marshall, Biwesh Neupane, and Arthur Krebbers as of April 22^nd, 2023 (#314): “… we find that the demand for corporate GB is about 32 to 42% points higher than comparable conventional non-GB issued by similar firms. Further, the demand for debut GB is stronger than seasoned GB offerings and higher for those issued by financial firms compared to non-financial firms. Finally, our results also show that the demand is higher for GB issued by firms with higher environmental commitments and issued in countries with better environmental performance“ (abstract).

Traditional and alternative investment research: Greenwashing banks?

Heated inflation: The impact of global warming on inflation: averages, seasonality and extremes by Maximilian Kotz, Friderike Kuik, Eliza Lis, and Christiane Nickel as of April 24^th, 2023 (#31): “… in the absence of historically un-precedented adaptation, future warming will cause global increases in annual food and headline inflation of 0.92-3.23 and 0.32-1.18 percentage-points per year respectively, under 2035 projected climate … Moreover, we estimate that the 2022 summer heat extreme increased food inflation in Europe by 0.67 (0.43-0.93) percentage-points and that future warming projected for 2035 would amplify the impacts of such extremes by 50%“ (abstract).

Outcrowded VC? Crowdfunding vs. Venture Capital: Complements or Substitutes? A Theoretical Assessment by Guillaume Andrieu and Alexander Peter Groh as of April 25^th, 2023 (#39): “Entrepreneurs need to weigh campaign cost as well as lower profit requirements of the crowd against the support of VCs. In addition, VCs make efficient abandonment decision and thus improve resource allocation which benefits the relationship. A passive crowd cannot detect lemons and thus creates model frictions. The model also predicts that the emergence of CF has created a shock for the VC industry. It has increased competition, and thus reduced VCs’ deal flow, and their profits. The model suggests that CF forces VCs to strengthen their own expertise and to specialize. CF may have reduced the number of VC actors, or makes them shift towards later financing stages“ (p. 24).

Tech-Defizite: Wagniskapital für Net Zero: Potenziale und Herausforderungen von Steffen Viete und Milena Schwarz von der KfW vom 17. Mai 2023: “Im Jahr 2022 wurden in Deutschland über 1,5 Mrd. EUR in 118 Finanzierungsrunden in Climate-Tech-Start-ups investiert. Dabei haben Investoren ihr Engagement bei Climate-Tech-Start-ups über die Jahre sogar deutlich stärker ausgebaut als im Rest des gesamten VC-Marktes. … Zwischen den Jahren 2019 und 2022 machten sie über 13 % des gesamten Investitionsvolumens im Markt aus. … in den USA …. wurde … zwischen 2019 und 2022 das 4,7-fache des Volumens in Deutschland investiert. … Aufgrund des hohen Kapitalbedarfs sind für die Weiterentwicklung des Finanzierungsumfeldes für Climate-Tech-Start-ups vor allem Fonds von Bedeutung, die auch größere Runden finanzieren können. … Die Forschung legt nahe, dass insbesondere im Industriesektor noch großes Potenzial zur Emissionsminderung durch technische Innovation besteht“ (S. 1).

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Climate reporting: Researchpost #128

Climate reporting: 13x new research regarding inequality, climate reporting, biodiversity, green bonds, external costs, private equity real estate, gold, equal weighting, correlations, tail risks, robo advisors and AI (# indicates the number of SSRN downloads on May 22nd, 2023)

Ecological and social research

Inequality: Climate Inequality Report 2023 by Lucas Chancel, Philipp Bothe, and Tancrède Voituriez from the World Inequality Lab as of Jan. 30^th, 2023: “The accelerating climate crisis is largely fuelled by the polluting activities of a fraction of the world population. The global top 10% are responsible for almost half of global carbon emissions and the global top 1% of emitters are responsible for more emissions than the entire bottom half of the world’s population. … within-country carbon inequality now makes up the bulk of global emissions inequality, i.e. about two thirds of the total, an almost complete reversal as compared to 1990. The carbon budgets needed to eradicate poverty below the US$ 5.50/day poverty line are equal to roughly one third of the current emissions attributable to the top 10% of global emitters. … Many countries in the Global South are significantly poorer today than they would have been in the absence of climate change. This trend is set to continue and result in income losses of more than 80% for many tropical and subtropical countries by the end of the century. Within countries, the poor suffer stronger losses from climate impacts than more affluent population groups. The income losses from climate hazards of the bottom 40% are estimated to be 70% larger than the average in low- and middle-income countries” (p. 9).

Responsible investment research: Climate reporting

Climate reporting (1): The MSCI Net-Zero Tracker by MSCI Research as of May 2023: “35% of listed companies have disclosed at least some of their Scope 3 emissions … 44% of listed companies have set a decarbonization target … 17% of listed companies have published a climate target that, if achieved, would align carbon emissions across the company’s total value chain with the ambitious 1.5°C goal of the Paris Agreement … Listed companies are on a path to warm the planet by 2.7° above preindustrial levels this century … Just over half (51%) of listed companies align with warming equal to or below 2°C, placing them at the high end of the Paris Agreement’s uppermost temperature threshold … Unlisted companies in four of the five most emissions-intensive industry groups were less carbon-intensive than their listed counterparts on aggregate …Real-assets funds held the most emissions-intensive industries per dollar of financing, followed by mezzanine- and distressed-debt funds … The carbon intensity of all three fund types was more than triple the carbon intensity of buyout funds” (p. 4/5). My comment: I try to engage with all my fund portfolio companies to report broad Scope 3 data, see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Climate reporting (2): The Climate Transition Is Increasingly about Opportunity by Chris Cote and Guido Giese of MSCI Research as of May 15^th, 2023: “We have found that in the most emissions-intensive sectors, for example, companies that had a higher share of revenue from alternative energy, energy efficiency and green buildings had significantly faster earnings growth than their sector peers over a period of roughly seven-and-a-half years that ended on March 31, 2023” (p. 3). … only 155 companies (1.7% of the listed universe), with a total market cap of USD 1.6 trillion, earned more than half of their revenues from such (SÖ: alternative energy or energy efficiency) activities, our analysis finds. … We found in our data that many of the more than 3,800 listed companies (42% of that universe) that have published a decarbonization target, for example, do not explain how they plan to meet their climate-related goals” (p. 6).

Biodiversity risks: Nature positive: How the world’s largest companies depend on nature and biodiversity by Esther Whieldon, Shirley Yap, Lokesh Raikwar, and Gautier Desme of S&P Global as of May 10th, 2023: “85% of the world’s largest companies that make up the S&P Global 1200 have a significant dependence onn nature across their direct operations … 46% of companies in this universe … have at least one asset located in a Key Biodiversity Area …”.

Control advantage: Corporate Green Bonds: The role of external reviews for investment greenness and disclosure quality by Tami Dinh, Florian Eugster, and Anna Husmann as of May 19^th, 2023 (#69): „Our results indicate that although companies with worse environmental performance are more likely to obtain at-issuance external reviews for their green bonds, their certified investments are more likely to be greener than companies that did not obtain a review at issuance. … Additionally, we develop a disclosure index for green bond reports and exhibit how post-issuance report assurance is associated with increased transparency” (abstract).

External costs: Auf dem netto-positiven Weg? Wie Unternehmen Wert schaffen – Messung und Integration von Nachhaltigkeit in die strategische Planung von Martin G. Viehöver at al von Positive Impacts vom 2. September 2022: „Im Allgemeinen erzeugen alle Industriesektoren im Durchschnitt einen positiven Gesellschaftlichen Wert, aber auch Gesellschaftliche Verluste aufgrund der entstehenden gesellschaftlichen Kosten (externe Effekte). Es wurde jedoch bestätigt, dass Unternehmen gesellschaftliche Erträge erzielen können, indem die von ihnen gezahlten Steuern höher als die gesellschaftlichen Kosten waren, wie es bei 20 Unternehmen in der Stichprobe der Fall war“ (S. 61).

General investment research

Bad PERE: Persistently Poor Performance in Private Equity Real Estate by Da Li and Timothy J. Riddiough as of May 14^th, 2023 (#629): “We compare Buyout (BO), Venture Capital (VC), and Private Equity Real Estate (RE) funds. RE funds underperform BO and VC, as well as the public market alternative. In RE, worse-performing fund managers survive at a high rate. They are also susceptible to diseconomies of fund scale, with no skill-based persistence to offset the negative scale effects. Analysis of noisy fund manager selection indicates that RE investors are not disadvantaged relative to BO and VC. LP investors in RE funds seem to be optimizing something other than, or in addition to, investment return when selecting fund managers” (abstract).

Good gold? The Safe Asset Shortage Conundrum and Why Gold is a Safe Asset by Dirk G. Baur as of April 19^th, 2023 (#29): “This paper demonstrates that gold is a safe asset based on existing definitions, central bank holdings, history, and risk characteristics such as default risk and currency risk. Changes in the safe asset pool during the 2008 financial crisis and its aftermath led to a safe asset triage that potentially led to the inclusion of gold in the safe asset pool. This is evident in the weakly symmetric opposite movements of gold and US government bond prices since 2008 and also in an increasing correlation especially since 2008. A simple safe asset test that analyzes whether a supposedly “safe asset” can be sold without a loss over different investment horizons or holding periods shows that gold is indeed relatively safe when compared with US government bonds. Finally, we also argue that the “safe asset shortage” is not a “natural” shortage but caused by central bank “QE” asset purchasing programs rendering this shortage rather narrow“ (p. 8).

Easy outperformance: Beating the S&P 500 at Its Own Game – The triumph of the equally weighted index by John Rekenthaler from Morningstar as of May 15^th, 2023: “… only 19 equally weighted U.S. equity funds of any flavor currently exist, and none except for Invesco’s funds possess significant assets … Since summer 1998 … a costless version of the equally weighted S&P 500 portfolio has thrashed the conventional index … Half the equally weighted portfolio is invested in firms with market caps exceeding $30 billion. But the comparable figure for the customary S&P 500 is $150 billion”. My comment: I use equal weight for all my direct equity model portfolios and my fund since many yearsm see e.g. Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)

Correlation criticism: Co-Occurrence: A New Perspective on Portfolio Diversification by William Kinlaw, Mark Kritzman, and David Turkington as of May17th, 2023 (#25): “Investors typically measure an asset’s potential to diversify a portfolio by its correlations with the portfolio’s other assets, but correlation is useful only if it provides a good estimate of how an asset’s returns co-occur cumulatively with the other asset returns over the investor’s prospective horizon. And because correlation is an average of sub-period co-occurrences, it only serves as a good estimate of prospective co-occurrence if the assets’ returns are multi-variate normal, which requires them to be independent and identically distributed. The authors provide evidence that correlations differ depending on the return interval used to estimate them, which indicates they are not serially independent. Moreover, the authors show that asset co-movement differs between regimes of high and low interest rates and between turbulent and quiescent markets, and that they are asymmetric around return thresholds, which indicates that returns are not identically distributed. These departures from multi-variate normality cast serious doubt on the usefulness of full-sample correlations to measure an asset’s potential to diversify a portfolio. The authors propose an alternative technique for diversifying a portfolio that explicitly considers the empirical prevalence of co-occurrences and thus the non-normality of returns“ (abstract).

Tail risks: Equity Tail Protection Strategies Before, During, and After COVID by Roni Israelov and David Nze Ndong as of May 10^th, 2023 (#124): “We investigate three common, yet different approaches to hedging equity drawdowns and a few themes emerge. First, hedging is expensive. … Second, the variable equity exposure embedded in option strategies is a source of risk and path dependence. … Third (and related to the previous point), a hedger’s decision on whether to delta-hedge their option exposure to isolate the option convexity or to maintain an unhedged position materially impacts performance in non-forecastable ways. …. Finally, there is enormous dispersion in the performance of tail risk hedging strategies. Well-reasoned arguments can be made in favor or against any number of decisions on how to implement a tail risk hedge. We only considered a few strategies (long options hedged or unhedged, long put protection, and long VIX futures) and the dispersion in outcomes is notable … those who implement hedging solutions should plan for the possibility – as remote as it might be – that their hedges make things worse in times of stress“ (p. 11/12).

Invest-Tech research (Climate reporting)

Robo-risks: Demystifying Consumer-Facing Fintech: Accountability for Automated Advice Tools by Jeannie Paterson, Tim Miller, and Henrietta Lyons as of May 10^th, 2023 (#12): “Currently, the most prominent forms of fintech available to consumers are automated advice tools for investing and budgeting. These tools offer advantages of low cost, convenient and consistent advice on matters consumers often find difficult. … the oft-stated aspiration … should not distract attention from their potential to provide only a marginally useful service, while extracting consumer data and perpetuating the exclusion of some consumer cohorts from adequate access to credit and banking. … Fintech tools that hold out to consumers a promise of expertise and assistance should genuinely be fit for purpose. Consumers are unlikely to be able to monitor this quality themselves …“ (p. 15/16).

AI Advantage? Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models by Alejandro Lopez-Lira and Yuehua Tang as of May 12^th, 2023 (#32759): “We use ChatGPT to indicate whether a given headline is good, bad, or irrelevant news for firms’ stock prices. We then compute a numerical score and document a positive correlation between these “ChatGPT scores” and subsequent daily stock market returns. Further, ChatGPT outperforms traditional sentiment analysis methods. … Our results suggest that incorporating advanced language models into the investment decision-making process can yield more accurate predictions and enhance the performance of quantitative trading strategies. Predictability is concentrated on smaller stocks and more prominent on firms with bad news, consistent with limits-to-arbitrage arguments rather than market inefficiencies“ (abstract).

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Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. The fund focuses on social SDGs and midcaps, uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement (current engagement with 24 of 30 companies). The fund typically scores very well in sustainability rankings, e.g. see this free tool, and the risk-adjusted performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Banning dividends? Researchpost #127

Banning dividends: 10x new research on gender wealth, activists, dividends, greenium, correlations, diversification, ChatGPT and investment committees by Charlotte Bartels, Eva Sierminska, Carsten Schroeder, Marcos López de Prado, Bernd Scherer et al. (# indicates the number of SSRN downloads on May 17th, 2023)

Social and ecological research

Gender wealth: Wealth creators or inheritors? Unpacking the gender wealth gap from bottom to top and young to old by Charlotte Bartels, Eva Sierminska and Carsten Schroeder as of April 28^th, 2023 (#19): “Our analysis of gender-specific age-wealth profiles revealed that the average gender wealth gap is small up to age 40, then widens, and shrinks after retirement. … men tend to inherit larger sums than women during working life. Women often outlive their male partners and therefore receive large inheritances in old age. But these transfers come too late to be used productively, for instance, to start a business. Against this backdrop, the average gender wealth gap underestimates the inequality of opportunity that men and women have during the active, wealth-creating phase of the life course” (p. 11/12).

Sustainable investment research: Banning dividends?

ESG preferred: ESG Spillovers by Shangchen Li, Hongxun Ruan, Sheridan Titman, and Haotian Xiang as of May 10^th (#537): “We study ESG and non-ESG mutual funds managed by overlapping teams. We find that non-ESG mutual funds include more high ESG stocks after the creation of an ESG sibling, and the high ESG stocks they select exhibit superior performance. The low ESG stocks selected by ESG funds also exhibit superior performance and despite being more constrained, the ESG funds outperform their non-ESG siblings. The latter result is consistent with fund families making choices that favor ESG funds. Specifically, ESG funds tend to trade illiquid stocks prior to their non-ESG siblings and get preferential IPO allocations” (abstract).

Good action, bad result? Activist Pressure and Firm Compliance with ESG Disclosure Policy: Experimental Evidence from the U.K. Modern Slavery Act by Matthew Lee and Jasjit Singh as of May 10^th, 2023 (#55): “Many corporate ESG disclosure regulations rely on private activist pressure to enforce compliance, but relatively little is known about its effectiveness. We present results from a field experiment testing the effect of various types of pressure from a leading human rights NGO on subsequent corporate compliance with the U.K. Modern Slavery Act of 2015, a law requiring disclosure of actions taken to address human rights issues. Sending firms a letter describing their legal ESG disclosure obligations had an unexpected effect of reducing rather than increasing compliance. This effect was partly mitigated for firms whose letter additionally included a list of already compliant firms, the mitigating effect being greatest when this list of peers was drawn from the same geographic location as the targeted firm” (abstract). My comment: Together with my engagement proposals, I send best-practice examples e.g. regarding supplier ESG evaluation to the companies I am invested in see Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)

Banning dividends? Power Struggle: How Shareholder Primacy in the Electrical Utility Sector Is Holding Back an Affordable and Just Energy Transition by Nicholas Lusiani as of April 17^th, 2023 (#10): “Instead of reinvesting earnings into more efficient, zero-carbon energy systems for consumers and future generations, this brief details how US investor-owned utilities have instead distributed over $250 billion—or 86 percent of net earnings—to shareholders over the past decade, at tremendous cost to a just transition. … policy recommendations to head off creeping shareholder primacy in the electricity sector, including: Creating a ban or very low bright-line limits on share buybacks; Implementing an annual shareholder payout cap, prioritizing reinvestment in efficiency and resiliency; Instituting a new set of binding fiduciary duties, toward alignment with the public interest; and establishing clear guardrails to protect against utility lobbying efforts currently undermining a just transition” (abstract). My comment: Divesting from such companies would most likely not stop their energy production because they still will be able to sell their energy (self-financing), although some investors seem to suggest such effects

Greenium problems: Who benefits from the bond greenium? by Daniel Kim and Sebastien Pouget as of May 3^rd, 2023 (#56): “Using a sample of 354 US firms active in the bond market from 2005 to 2022, we establish our main result: there is a greenium that appears larger on the secondary than on the primary market. … Our evidence suggests that two economic forces underlie our main result. The part of the greenium pocketed in by financial intermediaries appears related i) to uncertainty regarding investors’ future climate concerns and ii) to a lack of competition among underwriting dealers. … green investors should try and participate more directly in primary bond markets if they want to increase their impact on firms’ financial incentives to become green” (p. 31).

Traditional investment research: Banning dividends

Misleading correlations: The Hierarchy of Empirical Evidence in Finance by Marcos López de Prado as of May 14^th, 2023 (#190): “… the majority of journal articles in the investment literature make associational claims, and propose investment strategies designed to profit from those associations. For instance, authors may find that observation X often precedes the occurrence of event Y, determine that the correlation between X and Y is statistically significant, and propose a trading rule that presumably monetizes such correlation. A caveat of this reasoning is that the probabilistic statement “X often precedes Y” provides no evidence that Y is a function of X, thus the relationship between X and Y may be coincidental or unreliable … misspecification errors make it likely that the correlation between X and Y will change over time, and even reverse sign, exposing the investor to systematic losses. … The hierarchy of empirical evidence proposed in this article can help readers assess the strength and scientific rigor of the claims made by financial researchers (p. 18). My comment: For good reasons my rules-based investment strategies do not rely spurious correlations

Bad diversification? Which is Worse: Heavy Tails or Volatility Clusters? by Joshua Traut and Wolfgang Schadner as of April 28^th, 2023 (#152): “Asset returns are known to be neither normally distributed nor of perfect random order. In contrast, they appear to exhibit a heavy-tailed distribution and are ordered in a complex, non-random way that causes large (small) fluctuations to be followed by large (small) fluctuations, a phenomenon that is known as volatility clustering“ (p. 2). … “We find that financial markets across various asset classes are clearly more destabilized from volatility clusters than from heavy-tailed distributions per se. We also observe that the effect gets more pronounced with an increasing degree of portfolio diversification” (p. 33). My comment: Good add-on argument to 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (prof-soehnholz.com)

Large beats small: Is Information Production for the U.S. Stock Market Becoming More Concentrated? Yang Cao, Miao Liu, and Xi Zhang as of April 18^th, 2023 (#40): “The US stock market has experienced dramatic shifts in structure in the past two decades. While small firms have disappeared, large ones have increasingly gained market share. … we find consistent and robust evidence that as large firms take a more significant market share, they attract market attention away from smaller ones, even when small firms’ business fundamentals remain unchanged. … If the market produces more and better information for large firms relative to small firms, capital would be allocated away from small firms to large ones, further deepening market concentration” (p. 25).

To ChatGPT or not? Unleashing the Power of ChatGPT in Finance Research: Opportunities and Challenges by Zifeng Feng, Gangqing Hu, and Bingxin Li as of pril 25^th, 2023 (#183): “This article explores the multifaceted potential of ChatGPT as a transformative tool for finance researchers, highlighting the benefits, challenges, and novel insights it can offer to facilitate the research. We demonstrate applications in coding support, theoretical derivation, research idea assistance, and professional editing. A comparison of ChatGPT-3.5, ChatGPT-4, and Microsoft Bing reveals unique features and applicability. By discussing pitfalls and ethical concerns, we encourage responsible AI adoption and a comprehensive understanding of advanced NLP’s impact on finance research and practice“ (abstract).

Inefficient Expert Groups? Optimal Design of Investment Committees by Bernd Scherer as of May 1^st, 2023 (#93): “… traditional investment committees are riddled with challenges. This results in biases (group shift bias), incentive problems (free rider), and aggregation problems (how to ensure that all member views enter the IC portfolio equally). I argue that these challenges will likely become considerably smaller once an investment committee moves towards creating an algorithmic consensus by averaging anonymous member portfolios instead of relying on qualitative group discussions. While investment committees based on these principles always performed well in my previous CIO positions, communication is one weakness in this design choice. Finding a coherent ex-post narrative that builds on a consistent top-down view is problematic because consistency across positions is neither enforced nor desired” (p. 13/14). My comment: Better use rules-based investment strategies (such as mine, see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com) where committees may discuss the rules, although I do not believe much in superior “committee expertise”

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Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. The fund focuses on social SDGs and midcaps, uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement (currently 22 of 30 companies engaged). The fund typically scores very well in sustainability rankings, e.g. see this free tool, and the risk-adjusted performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Nachhaltigkeit wichtiger als Überrendite

Konsequente Nachhaltigkeit ist leichter von Small- und Midcaps erfüllbar (noch eine Fondsboutique)

Große Unterschiede zu anderen Fonds

Disclaimer zu „Noch eine Fondsboutique)

Ecological and social research: Active ESG share

ESG Ratings Reearch: Active ESG Share

Responsible investment research: Active ESG share

Impact investment and shareholder engagement: Active ESG share

General investment research

Advert for German investors:

Social and ecological research: ESG sales impact

Responsible investment research: ESG sales impact

General investment research

Advert for German investors:

Impact investing and engagement-washing

Limitation of shareholder voting

7 limitations of ecological and social shareholder engagement

Conclusion: No engagement-washing but investing as good as you can

Further reading regarding engagement-washing

No impact on secondary markets?

ESG Transition? Big Oil throws cash at shareholders, not renewables

Shareholder engagement with the bad or the good companies?

ESG Transition: But we still need oil and gas!

Underdiversification and return risks?

Lower brown risks

My goal: 100% Engagement

Social and ecological research: Good immigrants

Social and ecogical research

Sustainable investment research: Greenwashing banks?

Traditional and alternative investment research: Greenwashing banks?

Ecological and social research

Responsible investment research: Climate reporting

General investment research

Invest-Tech research (Climate reporting)

Social and ecological research

Sustainable investment research: Banning dividends?

Traditional investment research: Banning dividends