Climate misbelieves: Illustration by mmadilkvp from Pixabay

Climate misbelieves: Researchpost 204

Climate misbelieves illustration by mmadilkvp vonn Pixabay

9x new practical research on nature in cities, climate misbelieves, lukewarm glow investments, Trump investment and IRA effects, short-lived controversy effects, impact fund criticism, climate VC benefits and thematic direct indexing (# shows SSRN full paper downloads as of Nov. 28th, 2024).

Social and ecological research

Nature in cities-effects: How do nature-based solutions contribute to biodiversity in cities by Meng Li, Roy P. Remme, Peter M. van Bodegom, and Alexander P.E. van Oudenhoven as of Nov. 13th, 2024 (#34): “… We analyzed the outcomes of 185 urban NbS (Sö: Nature-based solutions) cases in 87 cities across 33 countries, based on data collected in a systematic literature review. Our results show that 78% of NbS cases contribute positively to improving biodiversity when compared to non-NbS and, in some cases, their performance was comparable to that of natural reference sites. Moreover, NbS cases consistently showed positive additional effects on non-biodiversity outcomes, leading to predominantly ‘win-win’ solutions benefiting both biodiversity and human well-being“ (abstract).

Climate misbelieves? Who Bears Climate-Related Physical Risk? by David Wylie, Natee Amornsiripanitch, John Heilbron, and Kevin Zhao from the Federal Reserve Bank of Philadelphia as of Dec. 1st, 2023 (#215): “This paper combines data on current and future property-level physical risk from major climate-related perils (severe convective storm, inland floods, hurricane storm surge, hurricane wind, winter storms, and wildfires) that single-family residences (SFRs) face with … in the contiguous United States. … Higher current physical risk is associated with lower household incomes, lower labor market participation rates, lower education attainment, higher in-migration, higher increase in expected physical risk by 2050, and lower belief in climate change“ (abstract). My comment: Social disadvantages are associated with higher climate risks but – contrary to public opinion – climate change beliefs may diminish.

ESG investment research (in: Climate misbelieves)

Lukewarm glow? Revisiting the ESG-Performance Association in Light of the Theory of Warm-Glow Investing by Mirel Tatomir, Johannes K. Dreyer, and Kristian J. Sund as of Nov. 23rd, 2024 (#6): “Firstly, there are recent indications that the (Sö: warm glow: investors have a higher willingness to pay for sustainable assets) effect is limited to the signal value of sustainable investing, not to the actual level of impact … Secondly, there are indications that the warm glow disappears in periods of high uncertainty … Thirdly, our results indicate that the warm-glow effect may vary significantly by industry. … Fourthly, our results confirm that once ESG is broken into pillars, the effect becomes less prominent“ (p. 20/21). My comment: Sustainable investment should not be more expensive than traditional investments, see ESG Fund Fees Myth busting: ESG funds aren’t more expensive than non-ESG funds by Morningstar Sustainalytics as of June 24th, 2024

Anti-green Trump effects: Political elections and market reactions: the ‘Trump effect’ on green stocks by Simona Cosma, Stefano Cosma, Luca Gambarelli, Daniela Pennetta and Giuseppe Rimo as of Nov. 22nd, 2024 (#33): “.. we use the event study methodology with a sample of 498 firms that are part of the S&P 500 index. Our results reveal strong investor reactions and re-adjustments in anticipation of and following Trump’s election, with heterogeneous sensitivity among sectors. Energy, Financials, and Industrials sectors show more pronounced positive CARs (Sö: Cumulative abnormal returns), likely reflecting expectations of favourable policies. In contrast, sectors such as Materials, Real Estate, Utilities, and Consumer Staples display negative and significant CARs. The most important result is that firms performing better on environmental issues were characterized by a worse performance within the event windows …“ (p. 8). My comment: Let’s see how long such effects last: My ESG SDG fund had a negative performance in October but an almost equal positive performance this month.

Sustainable fund risks ahead? Greening thy Neighbor: How the US Inflation Reduction Act Drives Climate Finance Globally by Daniel Marcel te Kaat, Alexander Raabe, and Yuanjie Tian as of Oct. 15th, 2024 (#30): “This paper studies international spillovers of the IRA announcement in September 2021 through investment fund flows … The IRA is the most forceful climate policy action in US history, combining tax credits, grants, and loans worth at least $370 billion to accelerate the transition to net-zero in the US by stimulating private sector investments in clean energy. We document … that the IRA triggered significantly increased investor flows into sustainable investment funds, notably those domiciled outside of the US. … the IRA … improved the realized returns of sustainable funds in expectation of higher future cash flows of sustainable relative to conventional assets. In turn, sustainable funds increased their cross-border portfolio investments worldwide. Non-US domiciled funds investing in the US or US-domiciled funds with a global portfolio do not mechanically account for this result. … Moreover, we show that countries with more effective climate policies … not only attract higher inflows from sustainable funds, but also from conventional funds … “ (p. 37). My comment: The new political leaders of the US want to reduce the IRA effects which may be bad for sustainable funds and their investors worldwide (but this maybe is already priced-in)

Short-lived controversy effects: Resilience of Market Returns around ESG Controversies: Insights from the S&P 100 by Tomaso Aste, Emilio Baruccib Maxime L.D. Nicolas, and Davide Stocco as of Nov. 23rd, 2024 (#41): “We examine the impact of ESG–controversial events on the stock prices of companies belonging to the S&P 100 index, … companies with stronger (Sö: social media) reputation experience a shorter, non statistically significant impact, while those with lower reputation face statistically significant negative effects, lasting up to four days“ (abstract).

Impact investment research

Unsustainable impact funds? Exploring the Essence of the EU Sustainable Finance Disclosure Regulation: defining Sustainability by what it is or what it is not? Danny R. Dekker, Suzana Grubnic, Andreas G.F. Hoepner, and Andrew Vivian as of Oct. 8th, 2024 (#54): “Sustainable Finance Disclosure Regulation (SFDR) requires funds to classify themselves as disclosing at pre-specified sustainability transparency levels. Since the implementation of the regulation, there has been a tension between two perspectives on how financial market participants view and utilise the SFDR … In the first view, sustainability in the SFDR is defined by ‘what it is’, i.e. doing good (e.g. renewable energy). In the second view, sustainability is defined by ‘what it is not’, specifically by avoiding adverse impacts. … We find that the sustainability strategies, in particular, provide support for the view that the SFDR is defined by ‘what it is not’. … Supporting evidence for the alternative view is limited to some fund managers employing more nuanced strategies like engagement to classify their funds highest on sustainability. Notably, only funds employing the exclusion strategy consistently have better sustainability outcomes, suggesting that funds employing supposedly more sophisticated strategies run the risk of not delivering on their sustainability commitments“ (abstract). My comment: The authors use ESG ratings and “severe E/S issues” as measure for sustainability outcomes. My fund (and potentially some others as well) use both negative and positive sustainability criteria. For my fund these are many strict exclusions, high ESG-rating requirements including ESG issues and thus resulting in very few severe issues, high SDG-revenues and shareholder engagement activities. Such negative+positive funds ideally should have been analysed as well.

Climate VC signaling: Catalysts for Climate Solutions: Corporate Responses to Venture Capital Financing of Climate-tech Startups by Shirley Lu, George Serafeim, and Simon Xu as of Nov. 21st, 2024 (#26): “… we find that incumbents in similar product markets as VC-backed startups increase their product focus on climate solutions. … the increase is more pronounced when the VC investment demonstrates more promising financial prospects and has higher visibility. Additionally, incumbents with a pre-existing focus on climate solutions are more likely to respond, and their stock prices respond positively in anticipation of future benefits from the commercial potential of climate solutions …” (abstract). My comment: Investments in exchange-listed climate-focused incumbents should to be (more) attractive in the future than recently.

Other investment research (in: Climate misbelieves)

Custom thematic portfolios: AI-Powered Direct Indexing: Exploring Thematic Universes for Enhanced Risk-Adjusted Returns by Moritz Schroeder and Christian Kronseder as of November 14th, 2024 (#24): “This paper explores direct indexing (DI) in the stock market using FINDALL. FINDALL is our self-engineered Transformers-based search engine which detects thematically relevant stock tickers in websites and PDFs. We demonstrate creating thematic indices in minutes … We study thematic indices such as Bionic, Defense, Energy, and Luxury. … our key finding is that the rule-based FINDALL approach is more accurate in selecting thematically relevant stocks compared to portfolio manager curated ETF stock selection. … Secondly, the Sharpe ratio indicators for all indices are higher than the ETF benchmarks showing enhanced risk-adjusted returns”. My disclaimer: I am an ESG-Advisor to Allindex, the company run by Christian Kronseder, and I offer SDG ETF-Portfolios and SDG direct equity portfolios.

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

Werbung

Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T) investieren und/oder ihn empfehlen. Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich außerordentlich hohen 95% SDG-vereinbaren Umsätzen der Portfoliounternehmen und verwendet separate E-, S- und G-Best-in-Universe-Mindestratings sowie Aktionärsengagement bei derzeit 29 von 30 Unternehmen (siehe auch My fund).