ESG sales impact: 11x new research on ESG sales effects, governance knowledge deficits and policies, corporate purpose measurement, CSR returns, impact frameworks, bad asset managers, financial advice AI and Bitcoin by Christina Bannier, Lars Hornuf, Judith Stroehle and many more (#: SSRN downloads on July 19th, 2023)
Social and ecological research: ESG sales impact
ESG sales impact (1): Do Consumers Care About ESG? Evidence from Barcode-Level Sales Data by Jean-Marie Meier, Henri Servaes, Jiaying Wei, and Steven Chong Xiao as of July 11th, 2023 (#266): “… we find that higher E&S ratings positively affect subsequent local product sales. The positive effect of E&S ratings on local product sales is stronger in markets with more Democratic voters and with a higher average income. … revenue also declines after the release of negative E&S news. … we find a significant increase in the sensitivity of local retail sales to firm E&S performance after (Sö: natural and environmental) … disaster events for counties located closer to the events“ (p. 23).
ESG sales impact (2): How Does ESG Shape Consumption? by Joel F. Houston, Chen Lin, Hongyu Shan, and Mo Shen as of June 21st, 2023 (#280): “Our study explores the effects of more than 1600 negative events captured from the RepRisk database, on 150 million point-of-sale consumption observations … Our baseline findings show that the average negative event generates a 5 – 10 % decrease in sales for the affected product in the six months following the event. … we find that there is considerable heterogeneity in consumer responses, and that the average response varies considerably depending on consumer demographics and the nature of the ESG-related reputation shock“ (p. 23/24).
Governance doubts: Seven Gaping Holes in Our Knowledge of Corporate Governance by David F. Larcker and Brian Tayan as of May 3rd, 2023 (741): “… we highlight significant “holes” in our knowledge of corporate governance. … While the concepts we review are not exhaustive, each is critical to our understanding of the proper functioning of governance, including board oversight, the recruitment of CEO talent, the size and structure of CEO pay, and the advancement of shareholder and stakeholder welfare” (abstract).
Purpose first: Sustainable Corporate Governance. An Overview and an Assessment by Steen Thomsen as of June 8th, 2023 (#144): “This paper outlines what could be some of the key elements of sustainable corporate governance 2.0 including company law (director liability), long-term ownership, ESG investment, company purpose, sustainability committees, sustainability competencies, ESG incentives, climate plans, climate risk management, sustainability reporting, and internal carbon pricing. … the current fixation on regulation and ESG is counterproductive and suggest that a better way forward is to start with company purpose and to adjust corporate governance accordingly. Using this approach, I outline a tentative roadmap for sustainable corporate governance 2.0“ (abstract). My comment: I suggest a Roadmap for corporate and stakeholder engagement here Shareholder engagement: 21 science based theses and an action plan – (prof-soehnholz.com)
Responsible investment research: ESG sales impact
Purpose measurement: Through the looking glass: tying performance and materiality to corporate purpose by Judith C. Stroehle, Kazbi Soonawalla, and Marcel Metzner as of June 7th, 2023 (#18): “The performance principles of corporate purpose suggest that measurement needs to reflect whether companies take into account the growing significance of workers, societies and natural assets both inside and outside a company’s legal boundaries … Purpose without measurement runs the risk of being merely a mirage …. we show that it is not impossible to establish measurement of purpose, in particular when performance in relation to purpose is linked to existing frameworks of measurement and notions of single and double materiality“ (p. 30/31).
Irresponsible returns? The risk‑return tradeoff: are sustainable investors compensated adequately? by Christina E. Bannier, Yannik Bofinger, and Björn Rock as of April 27th, 2023: “… our results show that low CSR (Sö: Corporate Social Responsibility) is … associated with higher portfolio returns. Interestingly, these higher returns even overcompensate the investor for the amount of risk she has to bear. … from an investor’s perspective, the ‘optimal’ return-to-risk ratio is achieved for a portfolio that invests in the lowest CSR-rated firms” (p. 169/170). My comment see ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com)
Impact frames: How impact investing firms use reference frameworks to manage their impact performance: An industry-level study by Syrus M. Islam and Ahsan Habib as of July 10th, 2023 (#8): “… we show how impact investing firms use various reference frameworks (e.g., IFC Performance Standards, Impact Management Project framework, UN Sustainable Development Goals) to manage their impact performance throughout the investment lifecycle. … We also discuss … how reference frameworks used in performance management in the impact investing industry differ from those used in some other industries” (abstract). My comment: I use the SDG-Framework see Active or impact investing? – (prof-soehnholz.com)
Bad asset managers? Who’s managing your future? An assessment of asset managers’ climate action by Lara Cuvelier at al. from Reclaim Finance as of June 28th, 2023: “At the parent (or group) level, the 30 asset managers included in this report invested at least $3.5 billion in 74 newly issued bond securities from companies actively engaged in fossil fuel expansion. … The 30 asset managers analyzed held US$597 bn in bonds and shares in the biggest fossil fuel developers as of January 2023. … the majority of these 30 major asset managers do not currently sanction polluting companies for failing to take the right steps for the climate …After five years of intensive dialogue by investors from the CA100+ initiative, only 20% of the companies from the coal mining and oil and gas sectors that have been engaged have even set an ambition to achieve net zero emissions by 2050. … only two of the companies are working to decarbonize their capital expenditures” (p. 7).
General investment research
AI & investments: Executives vs. Chatbots: Unmasking Insights through Human-AI Differences in Earnings Conference Q&A by John (Jianqiu) Bai, Nicole Boyson, Yi Cao, Miao Liu, and Chi Wan as of June 22th, 2023 (#125): “… we use earnings conference calls as a setting and introduce a novel measure of information content (Human Machine Differences, HAID) by exploiting the discrepancy between answers to questions at earnings conference calls provided by actual corporate CFOs and CEOs and those given by several context-preserving Large Language Models (LLM) including ChatGPT. … HAID has significant predictive power for the absolute cumulative abnormal return around earnings call, stock liquidity, earnings growth, analyst forecast accuracy, as well as management’s propensity to provide guidance. … Overall, we find that HAID provides a unique and previously unidentified source and methodology to help investors uncover new information content” (p. 26).
LLM Advice: Using GPT-4 for Financial Advice by Christian Fieberg, Lars Hornuf, David J. Streich as of July 6th, 2023 (#250): “GPT-4 can provide financial advice which is on par with the advice provided by professional low-cost automated financial advisory services. While the portfolios suggested by GPT-4 displayed considerable home bias, its historical risk-return profiles are at least on par with … benchmark portfolios. … To investigate GPT-4’s ability to serve clients’ sustainability preferences (ESMA, 2018), we added sustainability preferences to some of our investor profiles. The portfolios suggested for those profiles included ESG-focused versions of the portfolio components such as the iShares ESG Aware MSCI USA ETF. … risk profiling … can currently not be handled by GPT-4. … GPT-4 cannot offer assistance in implementing the portfolio (opening an account, purchasing and rebalancing portfolio components)“ (p. 11/12).
Bitcoin infects: Is Bitcoin Exciting? A Study of Bitcoin’s Spillover Effects by Minhao Leong and Simon Kwok as of July 13th, 2023 (#16): “… we detect the presence of positive jump spillovers from Bitcoin to risk assets (U.S. equities, developed market equities and emerging market equities) and negative jump spillovers from Bitcoin to defensive assets (gold and emerging market bonds) after COVID-19. … we also find evidence of jump and diffusion spillovers from Bitcoin to U.S. equity sectors, particularly to the financials, technology, consumer discretionary and communication services sectors. … We show that over time, the proportion of blockchain and cryptocurrency exposed U.S. companies (BCEs) has increased in recent years, from 19% during the pre-pandemic period to 28.8%. Specifically, the adoption of blockchain and cryptocurrency related technologies by mega-cap names such as Microsoft (Technology), Amazon (Consumer Discretionary), Alphabet (Communication Services) and Tesla (Consumer Discretionary) has increased the Bitcoin exposures of equity market and sector indices“ (p. 41/42).
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