Voting picture by Gerd Altmann from Pixabay

ESG voting, climate WTP and more new research: Posting #119

Low WTP: Willingness to Pay for Carbon Mitigation: Field Evidence from the Market for Carbon Offsets by Matthias Rodemeier as of Feb. 14th, 2023 (#58): “What do markets for voluntary climate protection imply about people’s valuations of environmental protection? I study this question in a large-scale field experiment (N=255,000) with a delivery service, where customers are offered carbon offsets that compensate for emissions. … Salient information increases average WTP for carbon mitigation from zero to 16 EUR/tCO2” (abstract).

WTP nudging: Climate Change and Individual Behavior by René Bernard and Panagiota Tzamourani as of Jan. 18th, 2023 (#113): “We implement a randomized information provision experiment on a large, representative sample of German households. Providing information on ways to reduce CO2 emissions causally increases the willingness to pay for voluntary carbon offsetting. Individuals receiving information framed as behavior of peers react economically stronger compared to those receiving information framed as scientific research. … we find about half of the sample is interested in reading and learning more about climate change … our results suggest that informing individuals of ways to combat climate change can be a powerful tool in persuading them to reduce their carbon footprint“ (p. 28).

Sustainable investing research: ESG voting

Profitable disclosure: The effects of mandatory ESG disclosure on price discovery efficiency around the world by Qiyu Zhang, Rong Ding, Ding Chen, and XiaoXiang Zhang as of Dec. 28th, 2022 (#86): “Using data from 40 countries between 2000 and 2019 and a difference-in-difference method, we find that ESG mandatory disclosure increases firm-level stock price nonsynchronicity and timeliness of price discovery suggesting more firm-specific information is incorporated into stock price in a more timely manner. ESG mandatory disclosure improves price discovery efficiency more in countries with strong demands on ESG information and in firms with poor disclosure incentives. It also decreases the cost of equity capital, increases institutional ownership and firm valuation” (abstract).

ESG strategy returns: ESG funds and Eurosif approaches: How sustainable strategies matter by Alessandro Fenili as of Feb. 1st, 2023 (#86): “I analyze 17’695 … funds distributed respectively in Italy for 2020 and 2021 … being an ESG fund leads to an increase in annual performance relative to the average of the total fund sample of 4.067% and 1.909%, for 2020 and 2021, respectively. Being an art. 9 fund leads to an increase in performance relative to the average of the total fund sample of 6.289% in 2020. In contrast, being an ESG fund that implements ESG integration in 2020, Engagement & voting in 2021, and 5 strategies in 2021, when comparing with other sustainable funds, leads to a decrease in performance relative to the sample average of 2.223%, 1.183%, and 2.852%, respectively” (p. 44).

Green surface bonds? Green Bonds, Empty Promises by Quinn Curtis, Mark C. Weidemaier, and Mitu Gulati as of Feb. 16th, 2023 (#582): “We examine the legal terms in the market for green bonds … Utilizing a sample of nearly 1000 bonds over the entire history of the market and supplementing this data with interviews with over 50 market participants and policymakers, we find a concerning lack of enforceability of green promises. Moreover, these promises have been getting weaker over time. Green bonds often make vague commitments, exclude failures to live up to those commitments from default events, and disclaim an obligation to perform in other parts of the document. These shortcomings are known to market participants“ (abstract).

Greenwashing measure: Greenwashing premium by Eric Tham as of Jan. 5th, 2023 (#120): “Greenwashing is a signalling game in which investors identify ex-ante ‘good’ and ‘bad’ firms sending news signals. … Firms greenwash if ex-ante they are in the top decile of a portfolio sorted by ESG news scores, and ex-post not in the top decile for ESG performance scores. The greenwashing premium for ESG in USA is historically not significant but episodic. The premium in 2020 was largely due to consumer at 2.9% and green firms at 4.2%. It was larger for the ‘E’ and ‘G’ than the ‘S’ pillar, except amongst brown firms” (abstract).

Costly doing good? In Search of Inclusive ESG Ratings by Pablo Vilas, Laura Andreu, and José Luis Sarto as of Dec. 17th, 2023 (#43): “… we consider the specific capabilities of companies by creating inclusive ESG ratings which show their virtuous behaviors. … There are no significant abnormal returns when the portfolios are created on the basis of conventional ratings. However, when portfolios are created based on inclusive ratings, significantly negative abnormal returns are observed. … We show that doing good does not lead to doing well” (p. 18/19).

ESG voting issues: Corporate Democracy and the Intermediary Voting Dilemma by Jill E. Fisch and Jeff Schwartz as of Feb. 24th, 2023 (#96): “Increasingly, however, environmental and social issues have risen to the fore. This new focus is arguably more about values than value. … because of this shift, institutional intermediaries—namely, pension and mutual fund managers—can no longer vote and engage on the affairs of their portfolio companies without seeking the input of the pension-plan participants and mutual-fund shareholders who are their beneficiaries. … At the same time, we caution against an approach in which fund managers shirk their intermediary role by implementing pass-through voting or rigidly voting in proportion to the preferences expressed by their beneficiaries. Instead, fund managers should act like elected representatives. They should continue to exercise voting power for the securities in the portfolios that they manage and should have discretion in how to incorporate the input they receive from fund beneficiaries“ (abstract). My comment: I consider shareholder engagement to be more ESG relevant than voting, see Shareholder engagement: 21 science based theses and an action plan – (

More climate stress: Climate Risk Stress Testing: A Conceptual Review by Henk Jan Reinders, Dirk Schoenmaker, and Mathijs van Dijk as of Feb. 23rd, 2023 (#43): “This paper analyzes the conceptual steps in Climate Risk Stress Testing (CRST), which is a tool to assess the impact of climate-related shocks on the stability of the financial system. … We find that existing CRST exercises may underestimate potential system-wide financial losses, due to their limited scope (not including all asset classes), omittance of certain types of climate shocks (such as Green Swan and Minsky-type events), incomplete modeling (lack of feedback effects), and a strong reliance on historically established relations that may not hold in the future” (abstract).

Other investing research

Bad award effects: Unwanted Attention? Negativity Bias in Mutual Fund Awards by Jerry T. Parwada and Eric K. M. Tan as of Feb. 13th, 2023 (#25): “We identify a sample of fund managers who won the Morningstar FMOY award in the domestic stock category and the accompanying fund managers who were nominated as finalists but did not win the accolade. Despite our results showing that past performance has already been considered when shortlisting nominees for the award, we find that non-recipient funds suffer negative fund flows after the announcement of the award. This finding is consistent with the negativity bias phenomenon in which investors focus on negative news and generally interpret information negatively” (p. 20/21).

Mental accounting review: Mental Accounting and Decision Making: a systematic review of the literature by Emmanuel Silva, Rafale Moreira, and Patirica Maria Bortolon as of Feb. 11th, 2023 (#33): “… we performed a bibliometric analysis of the scientific production of the last 10 years (2012-2021) …. Our results reveal that there is a relative concentration of works in developed countries (USA) or countries with strong economies (China); that the “Journal of Marketing Research” is the main source of publication on the subject … research on mental accounting can be distributed into 5 major clusters: (i) Financial Decision Making and Inaction Inertia; (ii) Consumer Behavior, Discounting and Credit Card; (iii) Mental Representation, Categorization and Thinking Style; (iv) Self-Control and Savings Goals; (v) Consumption and Marginal Propensity to Consume” (p. 25/26).

27 PE questions: Asset Allocation with Private Equity by Arthur Korteweg and Mark M. Westerfield as of Auf. 26th, 2022 (#49): “We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We examine how the partnership arrangement fits into a broader portfolio of investments, and we consider the methods and difficulties in performance measurement, both at the fund level and at the asset class level. We follow with a discussion of performance persistence and the skill and pricing power of both general and limited partners. We continue by examining the limited partner’s problem of managing commitments and investments over time while diversifying across funds in light of both idiosyncratic and systematic shocks. We close with a summary of recent work on optimal portfolio allocation to private equity. Throughout, we consider how empirical and theoretical work match the particular institutional details of private equity, and we identify 27 open questions to help guide private equity research forward.“