Employee survey benefits illustration from Pixabay by Nasim Nadjafi
6x new research on external carbon effects, lower green capital costs, ESG performance, ESG disaggregation, ESG compensation and employee survey benefits (# shows the number of SSRN full paper downloads as of Oct. 31st, 2024).
Carbon future: Carbon Burden by Lubos Pastor, Robert F. Stambaugh, and Lucian A. Taylor as of Oct. 28th, 2024 (#135): “We quantify the U.S. corporate sectors carbon externality by computing the sectors carbon burden the present value of social costs of its future carbon emissions. Our baseline estimate of the carbon burden is 131% of total corporate equity value. Among individual firms, 77% have carbon burdens exceeding their market capitalizations, as do 13% of firms even with indirect emissions omitted. The 30 largest emitters account for all the decarbonization of U.S. corporations predicted by 2050. Predicted emission reductions, and even firms targets, fall short of the Paris Agreement. Firms emissions are predictable by past emissions, investment, climate score, and book-to-market” (abstract). My comment: Negative external effects have to be price more effectively all around the world in my opinion.
Lower green capital costs: Climate Capitalists by Niels Joachim Gormsen, Kilian Huber, and Sangmin S. Oh as of May 17th, 2024 (#1434): “We directly study how firms’ perceptions of their cost of capital have responded to the rise of sustainable investing. We use data from corporate conference calls (meetings between firm managers, financial analysts, and investors). … Our main finding is that the perceived cost of capital has dropped substantially for green firms since the rise of sustainable investing. … On average, the perceived cost of capital of green firms is 1 percentage point lower than that of brown firms between 2016 and 2023. We also find that some of the largest energy and utility firms have started applying a lower perceived cost of capital and discount rate to their greener divisions, such as renewable energy divisions, after 2016. Finally, firms facing a higher spread between the cost of green and brown capital in their sector have pledged to reduce emissions by more, consistent with changes in the cost of capital affecting real outcomes“ (p.3).
Helpful ESG scores: Synergistic Effects of ESG Scores and Market Sentiment on Corporate Financial Performance by Zannatus Saba as of Oct. 29th, 2024 (#25): “… utilizing the MSCI ESG KLD STATS dataset … … Findings indicate that firms previously characterized by low ESG scores experience notable improvements in financial performance following enhancements in their ESG practices. Moreover, a correlation between higher ESG scores and positive sentiment is associated with stronger performance metrics. Further research highlights that firms in strict regulatory environments achieve better ESG scores and financial outcomes than those in less stringent areas. A subsample analysis also indicates that firms with high ESG scores demonstrate superior performance compared to low-ESG firms” (abstract).
Separate E, S and G: The Incoherence of ESG – Why We Should Disaggregate the Environmental, Social, and Governance Label by Paul D. Mueller as of Sept. 26th, 2024: “Conceptually, no reason exists for why the fundamental ideas within the ESG label should correlate with one another. For instance, social criteria regarding diversity, equity, and inclusion often undercut environmental criteria and vice versa. And “good” environmental or social scores can be used to paper over significant governance issues. … Evaluating disaggregated environmental, social, and governance categories independently of each other will help companies and investors allocate capital more efficiently and effectively while encouraging more transparent engagement of societal problems” (p. 1). My comment: That is why I use high (Best-in-Universe) minimum E, S and G requirements separately for my portfolios since many years.
ESG compensation: Beyond ESG: Executive Pay Metrics and Shareholder Support by Nickolay Gantchev, Mariassunta Giannetti, and Marcus Hober as of Oct. 29th, 2024: “We document that executive compensation contracts feature a multitude of market, earnings, operating, and ESG metrics and that the increase in ESG metrics has been accompanied by a higher propensity to use operating metrics. … Compensation metrics do not appear to have a large effect on actual payouts to executives and on the sensitivity of pay to market, earnings, and ESG performance, but rather aim to create consensus among shareholders on the proposed pay and the overall corporate strategy” (abstract). My comment: I am glad to read that ESG goals do not seem to effect actul payouts which I expected, see Wrong ESG bonus math? Content-Post #188
Employee survey benefits: The Wisdom of Electronic Employee Crowds – Employee Reviews as a Data Source in Finance, Accounting, Economics and Management Research: Systematic Literature Review by Nils Gimpl as of Sept. 18th, 2024 (#27): “… A systematic literature review of 74 high-quality articles highlights the diverse insights gleaned from employee reviews: insider perspectives, employee satisfaction, workplace culture insights, and linguistic analyses. Such information from employee insights is pivotal in explaining and predicting firm performance, predicting and understanding the performance and satisfaction of specific employee groups, and CSR- and ESG-related research. Significant findings of this study are the predominant use of Glassdoor as a data source and a focus on US markets …“ (abstract). My comment: I recommend employee surveys with my shareholder engagement and I comment another interesting research paper by the author here: ESG-Mitarbeiterzufriedenheit ist positiv für Renditen | CAPinside
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