Archiv der Kategorie: SDG

SDG rating confusion illustration with picture from GoranH from pixabay

SDG rating confusion: Researchpost #152

SDG rating confusion: 13x new research on emissions, life expectancy, green bonds, physical risks and transition, environmental information, private equity ESG, SDG ratings, bond and equity factors, fraud, health-wealth relations, LLM financial analysts (# shows the number of full paper SSRN downloads as of Nov. 16th, 2023)

Ecological and social research (SDG rating confusion)

Too hot: The State of Climate Action: Major Course Correction Needed from +1.5% to −7% Annual Emissions by the World Economic Forum and The Boston Consulting Group as of November 2023: “As 1.5°C is slipping out of reach, achieving it now calls for a 7% annual emissions reduction, more than the climate reduction impact from COVID-19 and against the current trend of a 1.5% annual increase. … Only 35% of emissions are covered by a national net-zero commitment by 2050, and only 7% by countries that complement bold targets with ambitious policies. Fewer than 20% of the world’s top 1,000 companies have set 1.5°C science-based targets, and, based on the Net Zero Tracker, fewer than 10% also have comprehensive public transition plans. Technologies that are economically attractive now or will be in the near future can only achieve just over half of the emissions reductions needed to reach 1.5°C. … More than half of climate funding needs are still unmet, with critical gaps in early technologies and infrastructure particularly acute, and the climate funding gap twice as large in developing economies as in developed ones” (p. 4).

Longer lifes: The Long-run Effect of Air Pollution on Survival by Tatyana Deryugina and Julian Reif as of Nov. 13th, 2023 (#8): “We show that the short-run mortality effects of acute SO2 exposure can be decomposed into two distinct phenomena: mortality displacement, where exposure kills frail individuals with short counterfactual life expectancies, and accelerated aging, where mortality continues to increase after exposure has ceased. … we calculate that a permanent, ten percent decrease in air pollution exposure would improve life expectancy by 1.2–1.3 years … our estimates imply that value of reducing pollution exposure may be substantially larger than has previously been recognized“ (p. 37).

Responsible investing research (SDG rating confusion)

Green bond limits: Decoding Corporate Green Bonds: What Issuers Do With the Money and Their Real Impact by Yufeng Mao as of Nov. 8th, 2023 (#157): “This paper reveals a distinct motivation for issuing green bonds compared to conventional bonds. Proceeds from green bonds remain as cash for longer periods, largely owing to the time required to identify eligible projects. Contrary to the notion of fungibility, my results indicate that they neither lead to more new investments than conventional bonds nor are used in apparent green-washing. … firms issuing green bonds show improved environmental performance, particularly in the reduction of GHG intensity. However, this improvement appears not to stem from incremental green investments facilitated by green bonds but rather from issuers that would have pursued green initiatives regardless” (p. 44).

Physical risk costs: The cost of maladapted capital: Stock returns, physical climate risk and adaptation by Chiara Colesanti Senni and Skand Goel as of July 23rd, 2023 (#48): “Using S&P Global Sustainable data on Physical Risk and measures of adaptability to physical risk from S&P Global Corporate Sustainability Assessment, we find evidence that higher physical risk is associated with higher expected returns. However, this risk premium diminishes with increased adaptability, signifying that risk management through adaptation reduces a company’s cost of capital. Notably, this adaptability-driven risk discount is more pronounced for high levels of physical risk, reflecting market incentives for efficient adaptation” (abstract).

Carbon-free distance: Carbon-Transition Risk and Net-Zero Portfolios by Gino Cenedese, Shangqi Han, and Marcin Kacperczyk as of Oct. 5th, 2023 (#493): “…. using a novel measure of distance-to-exit (DT E) … we show that companies that are more exposed to exit from net-zero portfolios have lower values and require higher returns from investors holding them. This result is economically large and is consistent with the view that DT E are useful measures of transition risk. Notably, we show that DT E capture distinct variation to that captured by previously used measures based on corporate carbon emissions. Distinct from these, they capture information that is forward-looking and is grounded in climate science“ (p. 29)

Attention, outsiders: Do Insiders Profit from Public Environmental Information? Evidence from Insider Trading by Sadok El Ghoul, Zhengwei Fu, Omrane Guedhami, and Yongwon Kim as of Oct. 19th, 2023 (#26): “We provide evidence that insiders sell their stocks profitably based on publicly available information on environmental costs. Further analysis indicates that these results become more pronounced when the search frequency for environmental information in Google is low, in countries governed by left-leaning governments, and in countries where investor protection is weak. These results … suggest that investor inattention and investor protection are key drivers of insider trading performance“ (abstract).

PE ESG boost: ESG Footprints in Private Equity Portfolios: Unpacking Management Instruments and Financial Performance by Noah Bani-Harounia, Ulrich Hommel, and Falko Paetzold as of Nr. 8th, 2023 (#13): “Based on data covering 206 buyout funds for the time period 2010-2022, … Improving fund-level ESG footprints by 50% explains a statistically and economically significant net IRR increase of up to 12.4% over a fund’s life cycle. The outcome is linked to specific ESG-management instruments of private equity investors, such as centralised ESG management and ESG value enhancement plans, while no significant effect is recorded for other measures, such as ESG reporting frequencies and ESG impact controlling” (abstract).

SDG rating confusion: “In partnership for the goals”? The (dis)agreement of SDG ratings by Tobias Bauckloh, Juris Dobrick, André Höck, Sebastian Utz, and Marcus Wagner as of May 31st, 2023 (#59): „This paper analyzes the (dis)agreement of Sustainable Development Goals (SDGs) ratings across different rating providers and implications for portfolio management. It documents a considerable level of disagreement that is particularly high for large companies and for companies from the Healthcare and the Basic Materials sector. In general, the sector in which the companies are mainly active explains a large part of the variation in disagreement measures of the SDG ratings. Moreover, we document different return characteristics and risk factor exposures of portfolios sorted according to SDG ratings of different rating providers” (abstract). My comment: I expect SDG-Risk-Ratings to have little additional value to ESG-Ratings. I prefer to use SDG-related revenues or Capex in addition to ESG-Ratings to avoid SDG rating confusion (see e.g. Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds – Responsible Investment Research Blog (

Other investment research

Equity factors: Factor Zoo (.zip) by Alexander Swade, Matthias X. Hanauer, Harald Lohre and David Blitz from Robeco as of Nov. 15th, 2023 (#2546): “Using a comprehensive set of 153 U.S. equity factors, we find that a set of 10 to 20 factors spans the entire factor zoo, depending on the selected statistical significance level. This implies that most candidate factors are redundant but also that academic factor models, which typically contain just three to six factors, are too narrowly defined. When repeating the factor selection to factors as they become available over an expanding window, we find that newly published factors sometimes supersede older factor definitions, emphasizing the relevance of continuous factor innovation based on new insights or newly available data. However, the identified factor style clusters are quite persistent, emphasizing the relevance of diversification across factor styles” (p. 20/21). My comment: Without good (almost impossible) forecasts which factors will outperform, outperforming factor investing is difficult.

Bond factors: Corporate Bond Factors: Replication Failures and a New Framework by Jens Dick-Nielsen, Peter Feldhütter, Lasse Heje Pedersen, and Christian Stolborg as of Oct. 26th, 2023 (#1257): “Many corporate bond factors cannot be reproduced even when attempting to use the methodology of the corresponding paper. More broadly, even factors that can be reproduced should be questioned, since the corporate bond literature is based on data full of errors. … we show that the majority of corporate bond factors from the literature fail to replicate, but a minority of factors remain significant. Further, analyzing corporate bond factors based on equity signals, we find a number of significant new factors“ (p. 27/28). My comment: Same as above: Without good (almost impossible) forecasts which factors will outperform, outperforming factor investing is difficult.

Big fraud? How pervasive is corporate fraud? by Alexander Dyck, Adair Morse, and Luigi Zingales as of Oct. 2nd, 2023 (#120): “… we use the natural experiment provided by the sudden demise of a major auditing firm, Arthur Andersen, to infer the fraction of corporate fraud that goes undetected. This detection likelihood is essential to quantify the pervasiveness of corporate fraud in the United States and to assess the costs that this fraud imposes on investors. We find that two out of three corporate frauds go undetected, implying that, pre Sox, 41% of large public firms were misreporting their financial accounts in a material way and 10% of the firms were committing securities fraud, imposing an annual cost of $254 billion on investors“ (p. 31). My comment: It would be interesting to see the relationship between governance-ratings and fraud.

Health-Wealth-Gap: Health Heterogeneity, Portfolio Choice and Wealth Inequality by Juergen Jung and Chung Tran as of Oct. 18th, 2023 (#28): “… the early exposure to health shocks has strong and long-lasting impacts on the portfolio choice of households and the observed wealth gap among households at retirement age. … as sicker individuals often forgo investing in risky assets that pay higher returns in the long-run. This health-wealth portfolio channel amplifies wealth concentration across groups and over the lifecycle. … In the absence of the health-wealth portfolio channel, the observed wealth gap at retirement is 40–50 percent smaller. In addition, we provide new insights into the social benefit of health insurance. The expansion of public or private health insurance in the US can reduce wealth inequality via mitigating exposure to health expenditure shocks and thereby allow households to make riskier investment choices with higher long-term returns” (p. 27/28).

LLM financial analysts: Large Language Models and Financial Market Sentiment by Shaun A. Bond, Hayden Klok, and Min Zhu as of Oct. 23rd, 2023 (#257): “… we use ChatGPT and BARD to recall daily news summaries related to the S&P 500 Index, classify sentiments from these texts, and use these sentiments to forecast future index returns. … we demonstrate ChatGPT and BARD can recall and classify summary market-level financial text from the perspective of a financial analyst. … we show these sentiments proxy for aggregate investor sentiment and forecast future return reversals of the S&P 500 Index … we provide evidence that incorporating ChatGPT-derived sentiments leads to superior economic performance compared to portfolios that incorporate sentiments from BARD, simpler transformer models, and traditional dictionary approaches. LLMs have superior potential to process contextual information around specific topics or themes beyond that of simpler transformer models and context-indifferent word frequency methods. This greater context awareness leads to better identification of aggregate market sentiment, and superior short-term economic performance when taken into account. Further, results suggest LLMs can identify different aspects of sentiment from text, such as information on different frequencies, and the presence of persistent effects“ (p. 45). My comment see AI: Wie können nachhaltige AnlegerInnen profitieren? – Responsible Investment Research Blog ( or How can sustainable investors benefit from artificial intelligence? – GITEX Impact – Leading ESG Event 2023


Liquid impact advert for German investors

Sponsor my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 24 of 30 companiesFutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T or Noch eine Fondsboutique? – Responsible Investment Research Blog (

Divestment: Arrows by vectyard from Pixabay

Divestments: 49 bei 30 Aktien meines Artikel 9 Fonds

18 Divestments wegen unerwünschter Aktivitäten oder Länder

Divestments erfolgen bei regelbasierten Investments, wenn Regeln nicht mehr eingehalten werden. Mein regelbasieter Artikel 9 Fonds „FutureVest Equities Sustainable Development Goals R“ enthält nur die aus meiner Sicht nachhaltigsten 30 Aktien. Ich prüfe laufend, ob meine Nachhaltigkeitsanforderungen noch erfüllt werden. Einmal pro Jahr analysiere ich zudem anhand aller mir zur Verfügung stehenden (immer mehr) Nachhaltigkeitsdaten aller Aktien, ob ich meine Nachhaltigkeitsanforderungen weiter erhöhen kann.

Seit dem Fondsstart im August 2021 habe ich bis Mitte November 2023 insgesamt 49 Aktien komplett verkauft (Divestments). Das ist mehr, als erwartet. Hier sind die Gründe:

13 der Verkäufe sind auf unerwünschte Aktivitäten der jeweiligen Unternehmen zurückzuführen. Die meisten derartigen Divestments erfolgten zum Jahreswechsel 2022/2023. Grund war, dass ich seitdem nicht nur grausame und kosmetische, sondern auch medizinische Tierversuche und Aktivitäten in Bezug auf Genmanipulierte Organismen (GMO) ausgeschlossen habe. Das war möglich, weil ich auch mit diesen neuen Ausschlüssen genug Aktien identifizieren konnte, die alle meine Selektionskriterien erfüllten. Hinzu kam, dass damit vor allem große Unternehmen der Gesundheitsbranche ausgeschlossen wurden. Das führte zu einer Verringerung des bis dahin besonders hohen Gesundheitsanteils und einer erheblich niedrigeren durchschnittlichen Kapitalisierung der Unternehmen im Fonds.

Durch den zunehmenden Smallcap-Anteil wurde auch die Überlappung mit gängigen Indizes und auch mit anderen konzeptionell grundsätzlich ähnlichen Fonds reduziert (und damit auch die sogenannte Active Share erhöht). Damit wurde der Fonds als Beimischung für Portfolios (noch) interessanter. Eine Mitte des Jahres durchgeführte Analyse ergab eine Active Share von über 99% und nur maximal 4 gleiche Aktien mit anderen Nachhaltigkeitsfonds.

Seit der Fondsauflage konnte auch die Anforderung an zulässige Länder erhöht werden. So werden nur Aktien mit Hauptsitz oder Hauptbörsennotiz in einem Land mit hoher Rechtssicherheit zugelassen. Nachdem ursprünglich noch 50% aller Länder akzeptiert wurden, wurde die Grenze später auf 40% verschärft. Auslöser für die Regeländerung war die für mich überraschende Entwicklung, dass China erstmals zu den Top 50% gezählt wurde. Aufgrund von zunehmend wahrgenommenen direkten Eingriffen chinesischer Behörden, wollte ich chinesische Aktien aber weiterhin ausschließen. Durch die Regelverschärfung mussten insgesamt 5 Aktien aus Südafrika und Italien aus dem Portfolio genommen werden, denn diese Länder gehören nicht zu den Top 40% nach „Rule of Law“.

16 der 17 Verkäufe erfolgten aufgrund von Regeländerungen zum Selektionszeitpunkt und nur ein Aktivitätsausschluss erfolgte unterjährig, weil eine unerwünschte Aktivität erstmals bekannt wurde.

23 Divestments wegen Sozial- bzw. Umweltratings

Von den 23 Verkäufen aufgrund von E, S bzw. G-Ratings erfolgten 17 zum Jahresende und 6 ungeplant unterjährig. Unterjährige Ratings, die unter unsere Mindestanforderungen fallen, werden zunächst geprüft. Dazu erfolgt oft eine Rücksprache mit dem Ratinganbieter und/oder dem Unternehmen selbst. Die Prüfung kann einige Wochen dauern. Zudem erfolgt ein unterjähriger Verkauf typischerweise nur, wenn die Ratingänderung mehr als 10% ausmacht, also zum Beispiel das Sozialrating von 50 auf unter 45 fällt. Für ein Divestment ist zudem normalerweise erforderlich, dass Aktien, die ebenfalls alle Anforderungen erfüllen, mit nennenswert besseren Ratings zur Verfügung stellen. Wenige Monate vor geplanten Jahresselektionen findet ebenfalls kein schneller Verkauf mehr statt, weil zunächst mögliche Regeländerungen abgewartet werden sollen. Bei Jahreselektionen dagegen stehen typischerweise genug Aktien zur Verfügung, die besser geratet sind und die dann auch Aktien ersetzen können, die noch ausreichende Ratings aufweisen.

Normalerweise erwarten wir, dass gerade die von uns selektieren besonders nachhaltigen Unternehmen sich weiterhin anstrengen noch nachhaltiger zu werden. Andererseits bemühen sich immer mehr Unternehmen um Nachhaltigkeit. Datenupdates des Hauptratinganbieters sollten trotzdem insgesamt eher zu besseren als schlechteren Ratings für die von uns selektierten Aktien führen. Das war jedoch 2023 nicht der Fall. Etliche Ratings der von uns selektierten Unternehmen haben sich unterjährig teilweise erheblich verschlechtert, so dass wir keine Nachrücker mehr hatten, die alle unsere Mindestanforderungen erfüllten. Wir haben unsere jährliche Aktienselektion, die normalerweise zu Jahresende stattfindet, deshalb auf Ende September vorgezogen.

Von den 23 ESG-Ratingbedingten Divestments entfielen zwei Drittel auf Sozial- und ein Drittel auf Umweltratings, während Governanceratings nicht zu Divestments geführt haben. Das ist nicht überraschend, denn die meisten Aktien des Fonds sind eher sozial- als ökologieorientiert und weisen damit auch höhere Sozialrisiken aus. Governanceratings sind zudem meist ziemlich stabil. Außerdem wurden sie von uns bis September 2023 zudem zum Ranking der zulässigen Aktien genutzt, so dass die Mindestgovernanceratings der Aktien im Fonds höher waren als die ökologischen oder Sozialmindestratings.

8 Divestments wegen Übernahmen, SDG-Alignment und Kursverlusten

Drei weitere Verkäufe erfolgten, weil die entsprechenden Unternehmen übernommen wurden. Zwei weitere Aktien wurden verkauft, weil sie unsere Anforderungen an die Vereinbarkeit mit den nachhaltigen Entwicklungszielen der Vereinten Nationen nicht mehr erfüllten. Zudem wurden Aufgrund unterjähriger Verluste oberhalb der von uns akzeptierten (relativ hohen) Grenze drei weitere Aktien aus dem Fonds genommen. „Maximaler Verlust“, der einzige „kommerzielle“ beziehungsweise „nicht-nachhaltige“ Regelbestandteil führte also nur zu einem sehr geringen Portfolioturnover.

Zwei dieser sieben Verkäufe erfolgten unterjährig aufgrund von Übernahmen der betreffenden Unternehmen, die sechs anderen im Rahmen der jährlichen Neuselektion. Aufgrund von mangelnder Reaktion auf Engagementversuche wurde bisher noch kein Unternehmen aus dem Fonds ausgeschlossen.

Regeländerungen für 2024 u.a. zur Turnover-Reduktion

Die jährliche Selektion wird vor allem genutzt, um Verschärfungen der Nachhaltigkeitsregeln zu prüfen. Bei der für 2024 etwas vorgezogenen Selektion konnte zum Beispiel das von Ratinganbieter neu zur Verfügung gestellte Kriterium SDG-Umsätze genutzt werden. In der Vergangenheit wurde für das gewünschte möglichst hohe SDG-Alignment nach entsprechenden Branchen bzw. Unternehmensaktivitäten gesucht und zusätzlich Mindestanforderungen an das SDG-Risiko gestellt.

Mit der Festlegung auf mindestens 50% SDG-Umsätze auf Basis der Analyse des Ratinganbieters wurden die Regeln objektiviert. Gewünscht wären 100% SDG-Alignment, wie es auch für die meisten Portfoliounternehmen ausgewiesen wird. Allerdings konnten nicht genug Unternehmen gefunden werden, die 100% SDG-Alignment sowie die Erfüllung aller anderen Selektionskriterien aufwiesen. Außerdem ist für uns nicht nachvollziehbar, warum zum Beispiel für Sozialimmobilien- und einige Infrastrukturanbieter von dem von uns genutzten Ratinganbieter kein ausreichendes SDG-Alignment ausgewiesen wird. Auch für Arbeitsvermittlungsunternehmen gehen wir weiter von einem guten SDG-Alignment aus und auch diese werden vom Ratinganbieter nicht so klassifiziert. Wir haben uns deshalb entschieden, zumindest bis zur nächsten jährlichen Selektion Ende 2024 solche Unternehmen weiter im Portfolio zu behalten, auch wenn die ausgewiesenen SDG-Umsätze unter 50% liegen.

Die Neuselektion wurde auch deshalb vorgezogen, weil das SDG-Risikorating ab Oktober 2023 nicht mehr zur Verfügung gestellt wird, aber noch für die Selektion genutzt werden sollte.  

Andere, kleinere Regeländerungen wurden aus analysetechnischen Gründen gemacht. So werden nicht mehr tausende potenzielle Unternehmen auf maximale Verluste geprüft, sondern nur noch, ob der maximale Kursverlust über 50% liegt. 50% wurde gewählt, weil im Vorjahr ein Viertel der unsere sonstigen Regeln erfüllenden Unternehmen mehr als 50% Kursverlust aufwies und somit ausgeschlossen wurde. Ähnliches erfolgte in Bezug auf die Mindestratinganforderungen an den zweiten Ratinganbieter. In der Vergangenheit durfte Aktien im Portfolio nicht zu den schlechtesten 25% gehören und bei der aktuellen Selektion wurde ein E, S und G Ratings von mindestens 33/100 angesetzt. Auch das entspricht ungefähr den Vorjahres-Cutoffs.   

Insgesamt kam es aufgrund der neuen Selektionskriterien zum Ersatz von 10 Aktien, was etwas unterhalb des hohen vorjährigen Austauschs lag. Weil 2022 erstmals mit dem Shareholder Engagement begonnen wurde und in 2023 auf alle Unternehmen ausgedehnt wurde, soll künftig der Turnover im Fonds idealerweise weiter sinken. Grund dafür ist, dass Shareholder Engagement relativ lange braucht, um zu wirken. Ich strebe zwar an, auch mit Unternehmen, deren Aktien nicht mehr im Portfolio sind, weiter im Dialog zu bleiben, aber der Engagementfokus liegt natürlich auf den Unternehmen im Bestand.

10 Verkäufe im 4. Quartal 2023 und Portfolioauswirkungen

Die Gründe für die zehn oben bereits mitgezählten Divestments im vierten Quartal 2023 sind ebenfalls unterschiedlich. Für sechs Aktien wurde Ersatz mit besseren Sozialratings gefunden und für zwei Aktien welche mit besseren Umweltratings. Bei einem weiteren Unternehmen haben inzwischen vom Ratinganbieter bestätigte unerwünschte Aktivitäten zum Ausschluss geführt und bei einem anderen der maximale Verlust.

Erwähnenswert ist noch, dass zwei Aktien schon früher im Portfolio waren und jetzt wieder re-investiert werden. Eine davon wurde in einer früheren Jahresselektion ausgeschlossen, weil es andere Unternehmen mit aus meiner Sicht besserer Vereinbarkeit mit den SDGs gab. Clarity-Daten zeigen für diese Gesellschaft aber aktuell über 95% Umsatzvereinbarkeit mit den SDG und sehr gute ESG-Ratings. Die andere Aktie wurde verkauft, weil sie in der Vergangenheit einen Kursverlust größer 50% hatte, der jetzt außerhalb der betrachteten 12-Monatsperiode liegt.

Insgesamt führten diese Änderungen dazu, dass sich der USA-Anteil etwas senkt aber immer noch bei knapp 50% liegt. Dafür stieg der vorher relativ geringe Anteil von ökologisch fokussierten Aktien auf über ein Drittel an. Vor allem aber haben inzwischen 2/3 der Aktien eine Marktkapitalisierung von maximal fünf Milliarden Euro und nur noch drei über 20 Milliarden.

Weiterführende Beiträge

30 stocks, if responsible, are all I need (8-2022)

Mein Artikel 9 Fonds: Noch nachhaltigere Regeln (2-2022)    

Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? (3-2023)

Active or impact investing? (6-2023)

Noch eine Fondsboutique? (8-2023)


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Alternatives (green) and SDG (blue) ETF Portfolios

Alternatives: Thematic replace alternative investments

Alternatives: Thematic investments can take up (part) of the allocation which alternative investments should have had in the past. The main reason is a stricter focus on responsible investments. Here I explain, why I support this development:

Extensive alternative and responsible investment experience

I started my financial services career trying to select the best private equity funds worldwide. Soon, I also covered hedge funds, real estate funds and infrastructure funds. In my current multi-asset portfolios, alternatives have a share between a quarter and a third of the portfolios.

In 2015, I developed three innovative ETF-Portfolios. One passively diversified multi-asset portfolio, one pure alternative investment portfolio and one ESG portfolio. The multi-asset ETF-portfolio and the ESG ETF-portfolio will be continued whereas I decided to stop the active offer of my alternatives ETF-Portfolio and will focus on my (multi-theme) SDG ETF-portfolio, instead. I follow a similar approach by replacing my direct listed alternatives ESG-portfolios with SDG-aligend investments.

My traditional multi-asset allocations will not change

My rather large allocation to alternatives is based on scientific studies of aggregated asset allocations of investors worldwide. I use ETFs not only for traditional equity and bond allocations but also for alternative investments. I have documented this most-passive asset allocation approach in detail in my Soehnholz ESG and SDG portfolio book. This approach is and will be applied to my traditional (non-ESG) Weltmarkt ETF-Portfolio and to my multi asset ESG ETF-Portfolio also in the years to come.

Stand-alone alternatives portfolios scrapped from my offering

There are two reasons for my decision to stop offering stand-alone alternatives portfolios: First, I want to focus on even stricter responsible investing and second, I could not find many investors for my “alternatives” portfolios.

The alternatives portfolios were offered to diversify traditional and ESG investment portfolios and I still think that this makes a lot of sense. Unfortunately, the returns of most alternatives market segments lagged the ones of traditional large-cap equities more or less since the start of my portfolios in 2016/2017. And low returns have not been good for sales.

It may well be that the timing of my decision is bad and that market segments such as listed (ESG) infrastructure and (ESG) real estate will perform especially well in the (near) future. But SDG-aligned investments did not perform well, either (see ESG gemischt, SDG schlecht: 9-Monatsperformance 2023 – Responsible Investment Research Blog ( I expect that they may recover soon. Performance, therefore, did not play a role in my decision.

The reason is, that I want to focus even more than in the past on responsible investments. Therefore, stopping the active offer of my „non-ESG“ alternatives ETF-portfolio should be obvious. But I will also stop to actively offer my direct listed real estate ESG and my listed infrastructure ESG portfolio.

I started similar portfolios at my previous employer in 2013 when there were no such products available in Germany. In 2016, with my own company, I began to offer such portfolios with much stricter ESG-criteria. I could find enough REITs and listed real estate stocks. For listed infrastructure, even though I extended my ideal definition from core infrastructure to also include social infrastructure and infrastructure related companies, I struggled to find 30 companies worldwide which fulfilled my responsibility requirements.

Thematic SDG-aligned portfolios can fill the “alternatives” allocation

But I will not give up on allocations to alternative investments. In the future, most of my actively offered portfolios will be SDG-aligned. I also use ESG-selection criteria in addition to SDG-alignment for all of these portfolios. And my SDG-aligned portfolios have significant exposures to “alternative” investment segments including green and social real estate and infrastructure.

My SDG ETF-Portfolio, for example, currently includes 10 Article 9 ETFs (see Drittes SDG ETF-Portfolio: Konform mit Art. 9 SFDR – Responsible Investment Research Blog ( Several of these ETFs invest in  infrastructure (e.g. the Clean Water, Clean Energy and Smart City Infrastructure ETF). Two others are purely real estate focused. In addition, my SDG-ETFs are selected as portfolio-diversifiers and typically include a significant number of small cap investments which often have “private equity like” characteristics. Also, SDG-aligned ETF are only admitted for my portfolios if they have a low country- and company-overlap with traditional indices.

And my direct Global Equities ESG SDG portfolios and my mutual fund include about 20% “responsible” infrastructure and 7% social (healthcare and senior housing) real estate stocks in September 2023. In addition, almost half of the stocks in the portfolio are small cap investments (compare Active or impact investing? – (

Both ETF- and direct SDG-aligned portfolios thus can diversify most traditional (large-cap) portfolios. In addition, I will offer investors the ability to easily create bespoke SDG-aligned ESG-portfolios which may well focus on “alternatives”.  

Even the performance of my Alternatives ETF- (green in the chart above) and the SDG-ETF portfolio (blue) have been similar for quite some time.

Emissions trading: Illustration from Pixaby by AS_Appendorf

Emissions trading and more: Researchblog #146

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

Emissions trading (ecological) research

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

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

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

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

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

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

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

Social research

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

Responsible investment research (Emissions trading)

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

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

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

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

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

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

Other investment research (Emissions trading)

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

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

Advert for German investors:

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

ESG gemischt: Illustriert durch Bild Brain von Roadlight von Pixabay

ESG gemischt, SDG schlecht: 9-Monatsperformance 2023

ESG gemischt: Vereinfacht zusammengefasst haben meine nachhaltigen ESG-Portfolios in den ersten 9 Monaten 2023 ähnlich rentiert wie vergleichbare traditionelle aktiv gemanagte Fonds bzw. traditionelle ETFs. Allerdings liefen die SDG-fokussierte (Multi-Themen) und die Trendfolgeportfolios schlecht. Im Jahr 2022 hatten dagegen besonders meine Trendfolge und SDG-Portfolios gut rentiert (vgl. SDG und Trendfolge: Relativ gut in 2022 – Responsible Investment Research Blog (

Traditionelles passive Allokations-ETF-Portfolios gut

Das nicht-nachhaltige Alternatives ETF-Portfolio hat in 2023 bis September 2023 0,2% gewonnen. Dafür hat das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio mit +3,7% trotz seines hohen Anteils an Alternatives relativ gut abgeschnitten, denn die Performance ist sogar etwas besser als die aktiver Mischfonds (+3,2%).

ESG gemischt: Nachhaltige ETF-Portfolios

Vergleichbares gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +3,5%. Das ESG ETF-Portfolio ex Bonds lag mit +5,4% aufgrund des hohen Alternatives- und geringeren Tech-Anteils  erheblich hinter den +10,6% traditioneller Aktien-ETFs. Das ist aber ganz ähnlich wie die +5,3% aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnete ein etwas geringeres Plus von +4,3%. Das ist etwas schlechter als die +4,8% traditioneller Dividendenfonds.

Mit -1,1% schnitt das ESG ETF-Portfolio Bonds (EUR) im Vergleich zu -2,2% für vergleichbare traditionelle Anleihe-ETFs relativ gut ab. Anders als in 2022 hat meine Trendfolge mit -4,9% für das ESG ETF-Portfolio ex Bonds Trend nicht gut funktioniert.

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit -5,4% stark hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -13.8% eine sehr schlechte Performance.

Direkte pure ESG und SDG-Aktienportfolios

Das aus 30 Aktien bestehende Global Equities ESG Portfolio hat +7,1% gemacht und liegt damit etwa besser als traditionelle aktive Fonds (+5,3%) aber hinter traditionellen Aktien-ETFs, was vor allem an den im Portfolio nicht vorhandenen Mega-Techs lag. Das nur aus 5 Titeln bestehende Global Equities ESG Portfolio war mit +6,6% etwas schlechter, liegt aber seit dem Start in 2017 immer noch vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat -8,7% gemacht und liegt damit erheblich hinter den -5,3% traditioneller Infrastrukturfonds und den -3,8% eines traditionellen Infrastruktur-ETFs. Das Real Estate ESG Portfolio hat dagegen nur -1,5% verloren, während traditionelle globale Immobilienaktien-ETFs -3,6% und aktiv gemanagte Fonds -3,9% verloren haben. Das Deutsche Aktien ESG Portfolio hat bis September +2,5% zugelegt. Das wiederum liegt erheblich hinter aktiv gemanagten traditionellen Fonds mit +6,9% und nennenswert hinter vergleichbaren ETFs mit +4,9%.

Das auf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -8,6% im Vergleich zu allgemeinen Aktienfonds sehr schlecht abgeschnitten. Das Global Equities ESG SDG Trend Portfolio hat mit -14,2% – wie die anderen Trendfolgeportfolios –besonders schlecht abgeschnitten. Das noch stärker auf Gesundheitswerte fokussierte Global Equities ESG SDG Social Portfolio hat dagegen mit +3,8% im Vergleich zum Beispiel zu Gesundheitsfonds (-3,2%) ziemlich gut abgeschnitten.


Mein FutureVest Equity Sustainable Development Goals R Fonds, der am 16. August 2021 gestartet ist, zeigt nach einem sehr guten Jahr 2022 mit -8,1% eine starke Underperformance gegenüber traditionellen Aktienmärkten. Das liegt vor allem an der Branchenzusammensetzung des Portfolios (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T). Mehrere der Portfoliobestandteile sind nach klassischen Kennzahlen teilweise stark unterbewertet.

Anmerkungen: Die Performancedetails siehe und zu allen Regeln und Portfolios siehe Das Soehnholz ESG und SDG Portfoliobuch. Benchmarkdaten: Eigene Berechnungen u.a. auf Basis von

Supplier ESG illustrated with delivery man by 28819275 from Pixabay

Supplier ESG – Researchpost #144

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

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

Ecological research (corporate perspective)

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

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

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

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

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

Generic ESG Research (investor perspective)

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

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

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

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

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

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

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

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

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

Impact investment research (supplier ESG)

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

Other investment research

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

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


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Ungreen banks: red bank in the floods as picture by Hans from Pixabay

Ungreen banks: Researchpost #141

Ungreen banks with 13x new research on gas, smart cities, green innovation, auditors, esg news, greenwashing, dividends, investor education by Markus Leippold, Zacharias Sautner, Matthias Sutter, Sascha Steffen, Alexander F. Wagner and many more (# of SSRN downloads on Sept. 1st, 2023):

Social and ecological research: Ungreen banks

Ungreen banks (1): Climate Transition Risks of Banks by Felix Martini, Zacharias Sautner, Sascha Steffen, and Carola Theunisz as of Aug. 29th, 2023 (#116): “… we propose a new bottom-up approach that utilizes syndicated loan portfolio data to measure banks’ exposures to transition risks through their corporate loan books. … we empirically analyze a sample of 38 prominent U.S. lenders spanning the period from 2004 to 2019. … the average exposure in the U.S. banking system gradually declined after the ratification of the Paris Agreement in 2015. … Transition risk exposure is larger at bigger and more leveraged banks, and at banks with fewer female directors on the board“ (p. 25).

Ungreen banks (2):  The Green Energy Transition and the 2023 Banking Crisis by Francesco D’Ercole and Alexander F. Wagner as of August 28th, 2023 (#91): “In March 2023, several U.S. banks collapsed … Specifically, firms at the forefront of environmental technologies significantly suffered from this banking crisis. Like in most crises, however, firms with lower leverage outperformed. … poor financial management, particularly in banks, can dramatically affect the energy transition …” (p. 8).

Gas risks: European Equity Markets Volatility Spillover: Destabilizing Energy Risk is the New Normal by Zsuzsa R. Huszar, Balazs B. Kotro, and S. K. Tan Ruth as of Aug. 2nd, 2023 (#9): “… we examine oil and natural gas price changes in relation to equity market returns for 24 countries in the European Economic Area (EEA) … We find that during the 2003-2022 sample period, the major sources of market volatility primarily emanated from economic or political uncertainty of a specific country or group of countries, e.g., from Greece during the European sovereign debt crisis, from Central and Eastern European countries (CEEC) after the 2004 EU expansion, and from Norway during the oil rout. Energy risks, measured by large crude oil and natural gas price shocks, have become major volatility providers since 2019, with increasing volatility risk arising from natural gas, a green labelled energy source. Lastly, we also show CEEC markets with weakening currencies are more sensitive to oil and gas price shocks” (abstract).

Unsmart cities? SDG-11 and smart cities: Contradictions and overlaps between social and environmental justice research agendas by Ushnish Sengupta and Ulysses Sengupta as of Jan. 4th, 2023 (#37): “This paper focuses specifically on SDG-11 “Make cities and human settlements inclusive, safe, resilient and sustainable” and how cities are increasingly incorporating ICT (Sö:  Information and Communications Technology) toward this goal. … An increased use of ICT has its own energy and resource impacts that has implications for sustainability beyond the geography of individual cities to global impacts. The lifecycle and supply chain impacts of advanced ICT projects are being identified and documented. The end user of the Smart City projects may benefit significantly from the increased use of ICTs, while the environmental costs are often borne by disparate communities” (abstract). My comment: Currently, I only have one public transportation stock in my SDG-aligned mutual fund ( which can still improve ecologically and I try to promote that via engagement (see Active or impact investing? – ( but should cause little negative impacts on non-users.

Responsible investment research: Ungreen banks

Hot stocks: Temperature Shocks and Industry Earnings News by Jawad M. Addoum, David T. Ng, and Ariel Ortiz-Bobea as of Jan. 9th, 2023 (#1752): “We find that the effects of temperature extremes are relatively widespread, affecting earnings in over 40% (24 out of 59) of industries, and are not confined to only agriculture-related firms. We … find that revenue effects drive the profitability results in about 75% of cases. … temperature shocks are associated with earnings surprises relative to analyst forecasts. Finally, we find that analysts’ earnings forecasts and stock prices do not immediately react to observable intra-quarter temperature shocks …” (p. 33).

Sensitive green: The Green Innovation Premium by Markus Leippold and Tingyu Yu as of Aug. 7th, 2023 (#342): “Using patent abstracts and earnings call transcripts, we construct a firm-level measure to capture firms’ dedication to climate technology development and investors’ attention to green innovation…. A portfolio that is long on firms with low greenness and short on those with high greenness generates an average return of about 6% per year. … This indicates that investors require lower returns from firms demonstrating substantial green innovation endeavors. … Following Trump’s election victory, firms with a higher degree of greenness underperformed, likely due to the expectations of loosening environmental regulations. Conversely, these firms demonstrated positive performance in response to Biden’s election win, the Russia-Ukraine war disruption, and the IRA’s announcement“ (p. 28).

Audit deficits: Do auditors understand the implications of ESG issues for their audits? Evidence from financially material negative ESG incidents by Daniel Aobdia and Aaron Yoon as of Aug. 28th, 2023 (#32): “We find that during the post SASB (Sö: Sustainability Accounting Standards Board) guidance period, auditors are less likely to detect a material weakness after firms experience financially material negative ESG incidents relative to those that do not experience material negative ESG incidents. … we find an increased probability of misstatements in the post SASB-standards period when material ESG issues are reported. … Overall, the evidence suggests that auditors, especially the larger ones, may not yet fully understand the implications of material ESG issues from a financial reporting standpoint …” (p. 37/38)

ESG risks: News is Risky Business by Kari Heimonen, Heikki Lehkonen, and Vance L. Martin as of Aug. 25th, 2023 (#37): “… the empirical results provide evidence that responsible investors hedge ESG risks resulting in relatively lower expected returns than achieved by less responsible investors. This result holds for the broad ESG risk index as well as its E, S and G subcomponents. The empirical results also provide evidence that risk prices can change over time as is the case with the US withdrawal from the Paris Climate Agreement and the 2008-09 GFC, but not necessarily during the more recent COVID-19 pandemic” (abstract). … “The empirical results corroborate the importance of ESG news on stock returns, revealing a negative impact from ESG news shocks which is not captured by traditionally used risk factors and macroeconomy related variables. … the empirical results also show that ESG investments may not completely override the brown companies’ share in investors’ portfolios” (p. 39). My comment: With my own investments I focus only on responsible investments, see 30 stocks, if responsible, are all I need – Responsible Investment Research Blog (

Green expectations: Financing Emissions by Dominique Badoer and Evan Dudley as of Aug. 30th, 2023 (#69): “We examine how investor expectations about the timing of transition risk related to climate change affects the debt financing costs of greenhouse gas emitting firms in the corporate bond market. We find that yield-spreads increase less with maturity for firms that are more exposed to transition risk … Our results imply that investors expect climate related transition risks in some industries to be resolved in the short term” (abstract).

Fund-Greenclean: Do Mutual Funds Greenwash? Evidence from Fund Name Changes by Alexander Cochardt, Stephan Heller, and Vitaly Orlov as of Aug. 24th, 2023 (#192): “We find that small, old, and less attractive funds attempt to regain investor capital flows by changing their names to include ESG terms. Following the name change, funds actively rebalance their holdings, begin to hold more stocks and invest less in each stock, while reducing their exposure to firms with severe and high ESG issues. Consequently, aggregate salient portfolio ESG scores and peer-adjusted ESG ranks increase, attracting significant abnormal flows of over 13% in the 12-month period following the name change toward ESG. … these funds do not change their pre name-change voting patterns, but also become even less supportive of ES proposals when their votes are more likely to be pivotal“ (p. 21). My comment: More holdings can be criticized, too, see Shareholder engagement: 21 science based theses and an action plan – (

Other investment research

Dividend research: Corporate Dividend Policy by Mark Leary, and Vasudha Nukala as of July 29th, 2023 (#134): “We survey the empirical literature on corporate dividend policy, with emphasis on developments over the last two decades. … In the second part, we focus on the unresolved question of why dividends matter … such as the channels through which dividends impact firm value. Payout policy can alter a firm’s market value by affecting its future cash flows or its cost of capital (in which case it impacts intrinsic value) or by signaling value-relevant information to investors (affecting only the timing of when that value is reflected in market prices). We organize the survey around these three possibilities, highlighting relevant empirical evidence and areas of remaining uncertainty” (abstract).

Educational profits: Skills, Education and Wealth Inequality by Elisa Castagno, Raffaele Corvino, and Francesco Ruggiero as of Aug. 13th, 2023 (#15): “We document a positive and sizeable effect of education on both the level and returns to wealth due to the impact of education on stock market participation, after controlling for unobserved, individual ability. Our results suggest that policymakers can exploit the role of education to alleviate wealth inequality by promoting the stock market participation of unskilled individuals“ (abstract).

Good education: Financial literacy, experimental preference measures and field behavior – A randomized educational intervention by Matthias Sutter, Michael Weyland, Anna Untertrifaller, Manuel Froitzheim und Sebastian O. Schneider as of May 9th, 2023 (#67): “We present the results of a randomized intervention to study how teaching financial literacy to 16-year old high-school students affects their behavior in risk and time preference tasks. … we find that teaching financial literacy makes subjects behave more patiently, more time-consistent, and more risk-averse. These effects persist for up to almost 5 years after our intervention. Behavior in the risk and time preference tasks is related to financial behavior outside the lab, in particular spending patterns”(abstract).


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Technology risk illustration with nuclear risk picture from Pixabay by clkr free vector images

Technology risks: Researchpost #139

Technology risks: 17x new research on SDGs, nuclear, blockchain and AI risks, innovation, climate, carbon offsets, ESG ratings, treasuries, backtests and trading, big data, forensic finance, private equity and other alternatives by Patrick Behr, Richard Ennis, Christian von Hirschhausen, Thierry Roncalli, Bernhard Schwetzler and many more (# shows SSRN downloads on August 17th, 2023):

Social and ecological research (Technology risks)

SDG or green? Take a Deep Breath! The Role of Meeting SDGs With Regard to Air Pollution in EU and ASEAN Countries by Huynh Truong Thi Ngoc, Florian Horky, and Chi Le Quoc as of July 10th, 2023 (#26): “First, the results show that in ASEAN countries, Goal 10 (Reduced Inequalities) has a negative correlation with most other SDGs while in the EU it shows a broadly positive correlation. … air pollution, particularly SO2 and CO emissions, is positively connected to most SDGs in ASEAN while the trend in the EU is not clear. This could be due to the rapid economic development in ASEAN nations as well …” (p. 19).

Nuclear risks: The Potential of Nuclear Power in the Context of Climate Change Mitigation -A Techno-Economic Reactor Technology Assessment by Fanny Böse, Alexander Wimmers, Björn Steigerwald, and Christian von Hirschhausen as of July 27th, 2023 (#17): “… we synthesize techno-economic aspects of potential new nuclear power plants differentiating between three different reactor technology types: light-water cooled reactors with high capacities (in the range or above 1,000 MWel), so-called SMRs (“small modular reactor”), i.e., light-water cooled reactors of lower power rating (< 300 MWel) (pursued, e.g., in the US, Canada, and the UK), and non-light water cooled reactors (“so-called new reactor” (SNR) concepts), focusing on sodium-cooled fast neutron reactors as well as high-temperature reactors. … Actual development .. shows an industry in decline and, if commercially available, lacking economic competitiveness in low-carbon energy markets for all reactor types. Literature shows that other reactor technologies are in the coming decades unlikely to be available on a scale that could impact climate change mitigation efforts. The techno-economic feasibility of nuclear power should thus be assessed more critically in future energy system scenarios“ (abstract).

Blockchain risks: On the Security of Optimistic Blockchain Mechanisms by Jiasun Li as of August 15th, 2023 (#68): “Many new blockchain applications … adopt an “optimistic” design, that is, the system proceeds as if all participants are well-behaving … We point out that such protocols cannot be secure if all participants are rational” (abstract). “Given that alternative solutions are still technically immature, … the community either has to deviate from its pursuit of decentralization and accept a system that relies on trusted entities, or accept that fact their systems cannot be 100% secure” (p. 33).

AI chains: Determining Our Future: How Artificial Intelligence Creates a Deterministic World by Yuval Goldfus and Niklas Eder as of Aug. 9th, 2023 (#22): “… we demonstrate that AI relies on a deterministic worldview, which contradicts our most fundamental cultural narratives. AI-based decision making systems turn predictions into self-fulfilling prophecies; not simply revealing the patterns underlying our world, but creating and enforcing them, to the detriment of the underprivileged, the exceptional, the unlikely. The widespread utilisation of AI dramatically aggravates the tension between the constraints of environment, society, and past behavior, and individuals’ ability to alter the course of their lives, and to be masters of their own fate. Exposing hidden costs of the economic exploitation of AI, the article facilitates a philosophical discussion on responsible uses. It provides foundations of an ethical principle which allows us to shape the employment of AI in a way which aligns with our narratives and values” (abstract). My comment: My opinion regarding AI for sustainable investments see How can sustainable investors benefit from artificial intelligence? – GITEX Impact – Leading ESG Event 2023

Musical therapy? The Value of Openness by Joshua Della Vedova, Stephan Siegel, and Mitch Warachka as of July 5th (#48): “We construct a novel proxy for openness using MSA-level data (Sö: US Metropolitan Statistical Areas) from radio station playlists. This proxy is based on the adoption of new music and varies significantly across MSAs. Empirically, we find a robust positive association between openness and proxies of value creation such as the number of new ventures funded by venture capital, the number of successful exits by new ventures, the proportion of growth firms, and Tobin’s q. … An instrumental variables procedure confirms that openness is highly persistent with variation across MSAs being evident more than a century before the start of our sample period. … our results are especially strong for young firms that are more likely to depend on new products“ (p. 26/27).

ESG and impact investing research

Climate stress: From Climate Stress Testing to Climate Value-at-Risk: A Stochastic Approach by Baptiste Desnos, Théo Le Guenedal, Philippe Morais, and Thierry Roncalli from Amundi as of July 5th, 2023 (697): „This paper proposes a comprehensive climate stress testing approach to measure the impact of transition risk on investment portfolios. … our framework considers a bottom-up approach and is mainly relevant for the asset management industry. … we model the distribution function of the carbon tax, provide an explicit specification of indirect carbon emissions in the supply chain, introduce pass-through mechanisms of carbon prices, and compute the probability distribution of potential (economic and financial) impacts in a Monte Carlo setting. Rather than using a single or limited set of scenarios, we use a probabilistic approach to generate thousands of simulated pathways” (abstract).

Disaster flows: Flight to climatic safety: local natural disasters and global portfolio flows by Fabrizio Ferriani,  Andrea Gazzani, and Filippo Natoli from the Bank of Italy as of July 5th, 2023 (#35): “… we find that local natural disasters have significant effects on global portfolio flows. First, when disasters strike, international investors reduce their net flows to equity mutual funds exposed to affected countries. This only happens when disasters occur in the emerging economies that are more exposed to climate risk. Second, natural disasters lead investors to reduce their portfolio flows into unaffected, high-climate-risk countries in the same region as well. Third, disasters in high-climate-risk emerging economies spur investment flows into advanced countries that are relatively safer from a climate risk standpoint“ (abstract).

Carbon offsets: Portfolio Allocation and Optimization with Carbon Offsets: Is it Worth the While? by Patrick Behr, Carsten Mueller, and Papa Orge as of Aug. 10th, 2023: “We explore whether the integration of carbon offsets into investment portfolios improves performance. … our results show that investment strategies that include such offsets broadly achieve higher Sharpe Ratios than the diversified benchmark, with the long-short strategy performing best”.

Useless ratings? ESG Ratings Management by Jess Cornaggia and Kimberly Cornaggia as of July 27th, 2023 (#92): “We use data from an ESG rater that incorporates feedback from firms during the rating process and produces ratings at a monthly frequency. We … find that when the rater changes the weight it applies to certain criteria in the creation of its ESG ratings, firms respond by adjusting their reported ESG behavior in the same month. … we do not observe real changes in the likelihood that firms are embroiled in ESG controversies, or that they reduce their release of toxic chemicals because of these adjustments. Rather, it appears firms “manage” their ESG ratings for the benefit of ESG-conscious investors and customers” (p. 26/27). My comment: I do not use market leading MSCI or ISS or Sustainalytics ratings and also because of my custom rating profile (Best-in-Universe with specific approach to treat missing data) the risk of such ratings management should be low, see Noch eine Fondsboutique? – Responsible Investment Research Blog (

AI and other investment research (Technology risks)

ETFs effect Treasuries: ETF Dividend Cycles by Pekka Honkanen, Yapei Zhang, and Tong Zhou as of Aug. 10th, 2023 (#340): “… in the “ETF dividend cycle,” ETFs accumulate incoming corporate dividends in MMFs (Sö: Money Market Funds)  gradually but withdraw them abruptly in large amounts when they themselves have to pay dividends to investors. … This … leads to large, sudden outflows from MMFs, forcing these funds to liquidate some of their underlying assets. We find that these liquidations are concentrated in short-term Treasury bonds. … in the aggregate time series, an ETF dividend distribution event of average size leads to increases in short-term Treasury yields by approximately 0.38-0.58 basis points. … The total value fluctuation in the Treasury market could be considerable, as ETFs distribute dividends on 205 trading days in 2019, for example” (p. 9/10).

Backtest-problems: Market Returns Are Estimated with Error. How Much Error? by Edward F. McQuarrie as of July 24th, 2023 (#30): “For periods beginning 1926, it is conventional to suppose that historical market returns are known with reasonable accuracy. This paper challenges that comfortable certainty. Multiple indexes of market return are examined to show that return estimates do not closely agree across indexes and are unstable within index over time. The paper concludes that two-decimal precision—to the whole percentage point, with an error band of plus or minus one percentage point—would better reflect the accuracy of historical estimates of annual market return” (abstract).

Easy profits: Intraday Stock Predictability Everywhere by Fred Liu, and Lars Stentoft as of July 5th, 2023 (#1167): “First, we demonstrate that the market and sector portfolios are highly predictable. … we show that portfolio profitability mostly remains high after accounting for transaction costs, and is largely orthogonal to common risk factors. … we further exploit machine learning forecasts of individual stocks by constructing machine learning intraday portfolios, and demonstrate that a long-short portfolio achieves a Sharpe ratio of up to 4 after transaction costs. … demonstrate that less liquid firms are more predictable and firms which are more actively traded and volatile tend to be more profitable … intraday predictability and profitability generally decrease as the time horizon increases” (p. 28/29). My comment: If this is so easy, why do Quant funds typically disappoint? The information is important for stock trading, though (for my trading approach see Artikel 9 Fonds: Sind 50% Turnover ok? – Responsible Investment Research Blog (

Satellite vs. people: Displaced by Big Data: Evidence from Active Fund Managers by Maxime Bonelli and Thierry Foucault as of Aug. 2nd, 2023 (#325): “We test whether the availability of satellite imagery data tracking retailer firms’ parking lots affects the stock picking abilities of active mutual fund managers in stocks covered by this data. … we find that active mutual funds’ stock picking ability declines in covered stocks after the introduction of satellite imagery data for these stocks. This decline is particularly pronounced for funds that heavily rely on traditional sources of expertise, indicating that these managers are at a higher risk of being displaced by new data sources“ (p. 29/30).

AI bubble? Artificial Intelligence in Finance: Valuations and Opportunities by Yosef Bonaparte as of August 15th, 2023 (#65): “First, we display the current and projected AI revenue by sector, technology type, and geography. Second, present valuation model to AI stocks and ETFs that accounts for AI sentiment as well as fundamental analyses. Our findings demonstrate that the AI revenue will pass $2.7 trillion in the next 10 years, where the service AI technology stack will contain 75% of the market share (as of 2023 it is 50% of the market share). As for AI stock valuation, we present two main models to adopt when we value stocks“ (abstract).

Bad finance: What is Forensic Finance? by John M. Griffin and Samuel Kruger as of Aug. 10th, 2023 (#467): “We survey a growing field studying aspects of finance that are potentially illegal, illicit, or immoral. Some of the literature is investigative in nature to uncover malfeasance that is recent and possibly ongoing. … The work spans newer areas such as cryptocurrencies, financial advisor and broker misconduct, and greenwashing; and newer research in established fields that are still developing, such as insider trading, structured finance, market manipulation, political connections, public finance, and corporate fraud. We highlight investigative forensic finance, common economic questions, common empirical methods, industry and political opposition, censoring, and the importance of avoiding publication biases“ (abstract).

Specialist PE: Specialization in Private Equity and Corporate Financial Distress by Benjamin Hammer, Robert Loos, Lukas Andreas Oswald, and Bernhard Schwetzler as of Aug. 7th, 2023 (#384): “We investigate the impact of industry specialization of private equity firms on financial distress risk of portfolio companies … Difference-in-differences estimates suggest an increase in distress risk through private equity backing. The effect is stronger for specialist-backed firms than for generalist-backed firms relative to a carefully matched control group. However, specialist-backed firms can afford the increase in distress risk because they are less risky than generalist-backed firms before the buyout. Overall, our findings are consistent with the idea that greater idiosyncratic risk in specialized PE portfolios induces more risk-averse target selection” (abstract).

Costly diversification: Have Alternative Investments Helped or Hurt? by Richard M. Ennis as of August 3rd, 2023 (#135): “This paper shows that since the GFC (Sö: Global Financial Crisis in 2007/2008), US public-sector pension funds’ exposure to alternative investments is strongly associated with a reduction in alpha of approximately 1.2 percentage points per year relative to passive investment. While exposure to private equity has arguably neither helped nor hurt, both real estate and hedge fund exposures have detracted significantly from performance. Institutional investors should consider whether continuing to invest in alts warrants the time, expense and reduced liquidity associated with them” (p. 11).


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Noch eine Fondsboutique mit Bild von Pixabay von Thomas G.

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 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 und z.B. Active or impact investing? – (

Disclaimer zu „Noch eine Fondsboutique)

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

Active ESG share: Researchpost #136

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

Ecological and social research: Active ESG share

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

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

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

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

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

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

ESG Ratings Reearch: Active ESG Share

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

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

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

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

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

Responsible investment research: Active ESG share

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

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

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

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

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

Impact investment and shareholder engagement: Active ESG share

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

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

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

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

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

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

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

General investment research

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

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

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


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