ESG deficits: Illustration by Nushrulloh Huda from Pixabay
ESG deficits: 8x new research on plastic pollution, electric cars, climate prognostics, purpose, ESG deficits, climate costs, financial education, fund management (#shows SSRN full paper downloads as of May 2nd, 2024)
Ecological and social research
Plastic pollution: Global producer responsibility for plastic pollution by Win Cowger and many more as of April 24, 2024: “We used data from a 5-year (2018–2022) worldwide (84 countries) program to identify brands found on plastic items in the environment through 1576 audit events. We found that 50% of items were unbranded, calling for mandated producer reporting. The top five brands globally were The Coca-Cola Company (11%), PepsiCo (5%), Nestlé (3%), Danone (3%), and Altria (2%), accounting for 24% of the total branded count, and 56 companies accounted for more than 50%. … Phasing out single-use and short-lived plastic products by the largest polluters would greatly reduce global plastic pollution“ (abstract).
Solar car power: Solar Photovoltaics and Battery Electric Vehicles by Johannes Rode as of March 8th, 2024 (#105): “With a large enough PV (Sö: photovoltaic) system, it is financially attractive to charge a BEV (Sö: battery electric vehicle) with self-produced electricity from PV on sunny days. We indeed find that PV adoption spurs the co-adoption of BEV. … According to our baseline specification, PV adoption was responsible for a third of the BEV share in Germany in 2022. This finding only holds true for household PV systems and does not for industrial PV systems. … we can only confirm a causal effect from PV diffusion on the BEV share for PV systems that are large enough to generate enough electricity for normal household consumption and for charging a BEV. … we do not find evidence for reverse effects from adopting a BEV on PV adoption“ (p. 13/14).
Climate prognostic criticism: Klimawandel: Zur Unterscheidung von Fakten, Analysen und Prognosen in Umweltpolitik und Rechtsprechung von Werner Gleißner vom Februar 2024: „Im Ergebnis ist festzuhalten, dass bei wissenschaftlichen und natürlich auch politischen Diskussionen über den Klimawandel und die erforderlichen Klimaschutzmaßnahmen zwischen Aussagen unterschiedlicher Evidenz deutlicher unterschieden werden sollte. Dies sollte auch in der Medienberichterstattung, bei Gesetzesinitiativen und der Rechtsprechung beherzigt werden. Wie im Beitrag erläutert, sollte zwischen Fakten, Analysen und Prognosen aufgrund ihrer unterschiedlichen Evidenz klar abgegrenzt werden. Es sollte insbesondere auch klar ausgedrückt werden, dass es für Prognosen über die Auswirkungen des Klimawandels für in 100 Jahren lebende Menschen kein wissenschaftlich gesichertes Fundament gibt“ (S. 436).
Purpose explained: The Role of Corporate Purpose in Corporate Governance: A Framework for Boards of Directors and Senior Managers by Jordi Canals as of March 9th, 2024 (#54): “… I review the notion of purpose in contemporary management theory and corporate governance …. Corporate purpose has the potential to be an engine for organizational change, improve corporate governance and help reconnect companies with relevant stakeholders and society. Recent empirical studies show a positive relationship between corporate purpose and financial performance. … This paper … is based on some longitudinal real cases of firms that have been using corporate purpose in their governance and management. This paper presents a framework for boards of directors and senior managers for adopting corporate purpose effectively “ (abstract).
ESG investment research (in: ESG deficits)
ESG deficits? Environmental, Social, and Governance (ESG) Transparency and Investment Efficiency by Yifei Lu as of April 25th, 2024 (#39): “Exploiting the staggered coverage of Refinitiv Asset4 ESG ratings as an exogenous shock that increases ESG transparency, I uncover a reduction in investment-q sensitivity, indicating lower investment efficiency after coverage initiation. … I show that greater ESG transparency crowds out fundamental information from the stock price, making it less useful to guide investment decisions. … I find that pressure on ESG performance increases and that firms increase ESG investments but reduce regular investments. … firms with poorer initial ESG performance experience larger reductions in investment efficiency. Overall, I document that more ESG transparency hurts real efficiency by restraining managerial learning and driving firms’ objectives away from maximizing shareholder value“ (abstract). My comment: Firms should consider external effects very seriously and I . more or less successfully – use only responsible investment criteria for ETF and stock selection, see e.g. Regeländerungen: Nachhaltig aktiv oder passiv? – Responsible Investment Research Blog (prof-soehnholz.com)
Low climate-pressure? Climate-triggered institutional price pressure: Does it affect firms’ cost of equity? by George Skiadopoulos and Cheng Xue as of April 26th, 2024 (#30): “We find that institutional portfolio rebalancing triggered by firms’ climate change exposures, affects S&P 500 firms‘ cost of equity during 2005-2021 via the incurred climate change price pressure (CCPP). We estimate stock-level CCPP from physical and transition exposures in a demand-based asset pricing setting. … The average CCPP is sizable up to -8%. A one-standard-deviation decrease of CCPP increases firms‘ cost of equity by up to 6% of its average value, the effect being greater (smaller) from CCPP originating from opportunity and physical (regulatory) exposures. Banks and insurance companies contribute primarily to CCPP by on average underweighting stocks with high climate change exposures. Despite facing a higher cost of equity from more negative CCPP, firms do not reduce future climate change exposures and carbon emissions, except over periods of heightened media attention to climate change“ (abstract).
Other investment research (in: ESG deficits)
Financial knowhow? Financial Literacy and Financial Education: An Overview by Tim Kaiser and Annamaria Lusardi as of April 25th, 2024 (69): “This article provides a concise narrative overview of the rapidly growing empirical literature on financial literacy and financial education“ (abstract). My comment: I try to contribute to financial literacy and education with this free to use blog
Fund signals? When do Investors Care About Fund Performance? by Samia Badidi, Martijn Boons, and Rafael Zambrana as of April 11th, 2024 (#28): “We find that weekly flows strongly respond to daily performance, especially on days with unusually low market returns (bad days).. … we find that flows significantly respond to both poor and good performance on bad days. … we find that outperformance on bad days is persistent and contributes significantly to unconditional fund outperformance. In fact, we find that managers with the skill to outperform on the 5% of worst market return days in the previous year generate about as much unconditional future outperformance (relative to other active US equity mutual funds) as managers with the skill to outperform on the remaining 95% of days. Because we find little overlap between these two sets of managers, we conclude that outperformance on bad days requires specific bad day skill that is distinct from the one-dimensional notion of general skill often entertained in the literature. Indeed, we find no evidence to suggest that that there are many generally skilled fund managers that outperform on bad and other days alike. Finally, we find no evidence that fund managers learn from poor past performance on bad days“ (p. 36/37).
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