ESG-DNA illustration from Pixabay by Elias Schäferle
11x new research on digital aid, cheap housing, ESG-DNA, climate returns, climate education, greenwashing, ESG scores, brown loans, alpha illusion, skew return, hedgefund illusion (# shows the number of SSRN full paper downloads as of Feb. 20th, 2025)
Social and ecological research
Effective digital aid: Can Digital Aid Deliver During Humanitarian Crises? By Michael Callen, Miguel Fajardo-Steinhäuser, Michael Findley, and Tarek Ghani as of January 31st, 2025 (#26): “… partnering directly with governments is often neither feasible nor desirable … We experimentally evaluated digital payments to extremely poor, female-headed households in Afghanistan, as part of a partnership between community, nonprofit, and private organizations. The payments led to substantial improvements in food security and mental well-being. Despite beneficiaries’ limited tech literacy, 99.75% used the payments, and stringent checks revealed no evidence of diversion. … Delivery costs are under 7 cents per dollar, which is 10 cents per dollar less than the World Food Programme’s global figure for cash-based transfers. These savings can help reduce hunger without additional resources …” (abstract).
Profitable cheap housing: An Alpha in Affordable Housing? by Sven Damen, Matthijs Korevaar, and Stijn Van Nieuwerburgh as of Jan. 31st, 2025 (#175): “Residential properties with the lowest rent levels provide the highest investment returns to their owners. Using detailed rent, cost, and price data from the United States, Belgium, and The Netherlands, we show that this phenomenon holds across housing markets and time. If anything, low-rent units hedge business cycle risk. We also find no evidence for differential regulatory risk exposure. We document segmentation of investors, with large corporate landlords shying away from the low-tier segment possibly for reputational reasons. Financial constraints prevent renters from purchasing their property and medium-sized landlords from scaling up, sustaining excess risk-adjusted returns. Low-income tenants ultimately pay the price for this segmentation in the form of a high rent burden”. My comment: Highly regulated and transparent residential affordable housing REITs with high new building activities could be attractive for investors and hopefully low-income tenants as well.
ESG investment research (in: ESG-DNA)
Little ESG-DNA? Responsible Investment Funds and their Management Companies’ Emphasis on ESG Performance: First Priority or Icing on the Cake? by Huiqiong Tang, Bart Frijns, Aaron Gilbert, and Ayesha Scott as of Sept. 29th, 2024 (#37): “… Using a comprehensive dataset of US domestic equity Responsible Investment Funds (RIFs) over the period 2005 to 2020, we find that improvements in fund-level ESG scores is … promptly sacrificed if the fund suffers outflows. We also find that RIFs managed by FMCs with either the lowest (≤20%) or the highest (>80%) ESG exposure levels are more likely to put extra effort toward enhancing funds’ ESG scores. Additionally, we observe that investors who choose FMCs with the highest ESG exposure level are less sensitive to financial returns when considering ESG performance” (abstract). My comment: My analysis of thousands of mutual funds show that my fund has one of the highest ESG-scores in addition to the highest SDG-aligned revenues based on Clarity.ai data from January 2025 (see SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Responsible Investment Research Blog)
Climate risk returns: Do investors price physical climate risk? An analysis of weather-related power outages across the United States by Mert Demir, Cem O. Karatas, and Terrence F. Martell as of Feb. 13th, 2025 (#30): “…public attention to climate change in creases significantly after weather-related power outages, and this heightened awareness is mirrored by investors, as these risks are considered material and reflected in stock returns. Specifically, our findings show that firms in states with greater exposure to physical climate risks experience higher stock returns … We also show that the impact of physical climate risk on stock returns can be mitigated through proactive climate risk assessment models and effective response strategies. … We also observe a higher return premium compensating investors for the physical climate risk in states where climate change may be perceived as a lower priority on the agenda“ (p. 41/42).
Climate-education deficit: The Role of Information Provision for Sustainable Investing by Jennifer Brunne as of Oct. 2nd, 2024 (#30): “In a sequential discrete choice experiment, potential investors need to decide between a sustainable and unsustainable investment with either low, medium or high returns. Individuals … receive either additional unspecific or specific information on the climate consequences of investment decisions. … The main study was conducted for a representative US sample …” (N=1003; abstract). “… The results suggest that specific information exerts a bigger impact on the investment decision, especially when provided in webpage or text format with the latter requiring some initiative to gather information. … the impact is larger the higher climate values and climate concerns. Providing accompanying information to those already interested in sustainable investment might thus be most effective in achieving climate policy goals via an increased demand for sustainable investments” (p. 38/39). My comment: I provide detailed information with my monthly reports see FutureVest Equity Sustainable Development Goals
Greenwashing damages: When green turns red: Is the perception of greenwashing a barrier to individual green investment? By Syrine Gacem, Fabrice Hervé, and Sylvain Marsat as of Feb. 14th, 2025 (#14): “… Based on a survey of 2,215 French investors … Our findings reveal that greenwashing perception acts as a significant barrier to green investing, discouraging conventional investors from considering green funds as attractive options, and dissuading existing green investors from increasing their green investments. … we also find an asymmetrical effect … whereas low perceptions have no positive impact“ (abstract).
ESG score differences: Do ESG Scores Explain ESG Controversies? By Robert Stewart as of Feb. 19th, 2025 (#6): “… The study uses ESG ratings from Bloomberg, Refinitiv, and Sustainalytics, and ESG controversy scores from Refinitiv and Sustainalytics on a sample of S&P 500 companies between 2018 and 2022. Sustainalytics’ ESG scores demonstrate consistent statistical significance in explaining ESG controversies while Bloomberg’s and Refinitiv’s ESG scores show weak explanatory power with some unintuitive association. The ESG methodology of the three raters are examined to determine potential sources of the differences in efficacy with the intent that ESG ratings that better explain ESG controversies may be used to inform better ESG rating design“ (abstract). … “Sustainalytics measures a risk score (unmanaged ESG risk) while Bloomberg and Refintiv measure a more generalized metric. Bloomberg’s ESG scores measure ESG management, and Refinitiv’s ESG scores measure ESG performance, commitment, and effectiveness” (p. 21).
SDG investment research
Hot loans: Financing the Transition? Taking the Temperature of European Banks’ Corporate Loan Books from the European Banking Authority by Raffaele Passaro, Benno Schumacher, Jacopo Pellegrino, Hannah Helmke and Elnaz Roshan as of Dec. 2nd, 2024 (#48): “… the average implied temperature rise of banks’ (non-SME) corporate loan portfolios ranges between 3.7°C and 4.1°C …. While we observe some heterogeneity across banks, none of them is on a pathway compatible with the agreed target. Additionally, we show that the implied temperature rise as per our methodology can also serve as proxy for transition risk, thereby combining the twofold objective from a double materiality perspective in a single metric” (abstract). My comment: I do not invest in bank stocks, my only direct financial services investment is HASI. My more detailed comment see Neues Research: Banken mit sehr hohen Klimarisiken | CAPinside
Other investment research (in: ESG-DNA)
Alpha-illusion? Out-of-Sample Alphas Post-Publication by Andrei S. Gocalves, Johnathan A. Loudis, and Richard E. Ogden as of Feb. 12th, 2025 (#141): “Anomaly strategies generate positive and significant CAPM alphas post-publication. Existing explanations include non-market risks, trading costs, and investment frictions. This paper introduces a complementary and novel channel: when a new anomaly strategy is published, investors face uncertainty in identifying the optimal weight to allocate to the anomaly in order to achieve a positive alpha post-publication, making the strategy less appealing. Empirically, we find that the average post-publication alpha of anomaly strategies is close to zero when optimal weights are estimated out-of-sample using pre-publication data. … Conceptually, this suggests investors have little incentive to add a new anomaly strategy to their portfolios.” (abstract).
Skew return: A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings by Jo Drienko, Chao Gao, and Yifei Liu as of Sept.28th, 2024 (#268): “The return cross-section of a mutual fund’s portfolio holdings is positively skewed on average. At the fund level, portfolio skewness varies substantially across funds yet is highly persistent over time. We show that actively managed mutual funds with high portfolio skewness outperform funds with low portfolio skewness by 2.88% ($7.35 million) on an annualized basis. This association becomes stronger amid more investment opportunities in the market. Further stock-level analyses reveal that shares added or tilted to by high skewness funds relative to low skewness funds significantly outperform their counterparts, pointing to stock selection skill as an explanation for both the portfolio skewness and its predictability of fund performance” (abstract).
Hedgefund underperformance: Active versus passive investment strategy and market outperformance: Are hedge funds overrated? by Julius Felix Thomas Pauli and Agnieszka Gehringer as of Feb. 11th, 2025 (#48): “Our results show evidence of a missing outperformance of the analyzed sample of over 3,000 hedge funds. Accordingly, and given the low observed market risk coefficient of these funds, their primary use should be to optimize the risk-return structure of a portfolio rather than relying on their individual returns”. My comment: The article argues in favor of funds of hedge fund investments without sufficiently addressing the volatility smoothing and significant direct and indirect costs and illiquidity risks.
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Werbung (in: ESG-DNA)
Unterstützen Sie meinen Researchblog, indem Sie in den von mir beratenen globalen Small-/Mid-Cap-Investmentfonds (siehe FutureVest Equity Sustainable Development Goals R) investieren und/oder ihn empfehlen.
Der Fonds konzentriert sich auf die UN-Ziele für nachhaltige Entwicklung mit durchschnittlich einzigartig hohen 99% SDG-vereinbaren Umsätzen der Portfoliounternehmen und sehr hohen E-, S- und G-Best-in-Universe-Scores sowie einem besonders umfangreichen Aktionärsengagement bei derzeit 28 von 30 Unternehmen (siehe auch My fund).
Zum Vergleich: Ein traditionelle globaler Small-Cap-ETF hat eine SDG-Umsatzvereinbarkeit von 20%, für einen Gesundheits-ETF beträgt diese 7% und für einen ETF für erneuerbare Energien 43%.
Insgesamt hat der von mir beratene Fonds seit der Auflage im August 2021 eine ähnliche Performance wie durchschnittliche globale Small- und Midcapfonds (vgl. z.B. Fonds-Portfolio: Mein Fonds | CAPinside und Globale Small-Caps: Faire Benchmark für meinen Artikel 9 Fonds?).
Ein Fondsinvestment war also bisher ein „Free Lunch“ in Bezug auf Nachhaltigkeit: Ein besonders konsequent nachhaltiges Portfolio mit marktüblichen Renditen und (eher niedrigeren) Risiken. Vergangene Performance ist allerdings kein guter Indikator für künftige Performance.