Green gatekeepers: Illustration from Pixabay by Alan Frijns plus AI from Pixabay 

6x new research on green policy risk reduction effects, the roles and risks of green gate keepers such as SBTI, equity valuation effects of heat anomalies, the potential role of SDG scores, anti-diversification ETF effects and active share as return predictor (#shows the number of SSRN full paper downloads as of Sept. 19^th, 2024)

Green policy risk reduction: Economic Policy Uncertainty, Carbon Emissions and Firm Valuation: International Evidence by Sudipta Bose, Syed Shams, Searat Ali, Abdullah Al Mamun, and Millicent Chang as of Sept. 13^th, 2024 (#21): “… From a sample spanning 22 countries over the period 2007 to 2018, our results show that, while carbon emissions increase with policy uncertainty, this relationship is mediated by renewable energy consumption. Country factors such as climate change performance, emissions trading schemes, and business culture also affect this relationship. In countries where economic policy uncertainty tends to be high, firms generally have a lower market value, due in part to higher levels of carbon emissions” (abstract).

Green gatekeepers such as SBTI: Green Gatekeepers by Luca Enriques, Alessandro Romano, and Andrew F. Touch as of Sept. 12^th, 2024 (#122): “Environmental qualities … cannot be verified by consumers even after consumption. … green gatekeepers certify claims made about the green qualities of products or firms, … After distinguishing green gatekeepers from highly reputation-sensitive traditional gatekeepers in financial markets, we argue that green gatekeepers face weaker reputational constraints than traditional ones. Consequently, they are more likely to issue inaccurate certifications. We hand-code data on over 450 green gatekeepers, and we show that many of these gatekeepers are opaque, as in many instances they do not even disclose the standards they follow. We then propose a framework for regulation …“ (abstract).

Lower earnings, higher returns? The Heat Anomaly Premium by Amir Hosseini as of April 22^nd, 2024 (#67): “This paper investigates the premium for exposure to heat anomalies among firms with presence across the U.S. states. … I show that facing larger heat anomalies predicts lower earnings in five industries based on the Fama and French twelve industries classification. The effect is stronger, especially among firms with low geographic dispersion. Given the negative economic effect of heat anomalies and the uncertainty about their magnitude resulting from climate change, I argue that exposure to heat anomalies is a source of risk. I … show that stocks with the highest exposure to heat anomalies, outperform those with the lowest, especially in recent years. The premium for exposure to heat anomalies grows to an average of 62 bps per month for the period after the Paris Agreement when investors’ climate concerns reach their highest levels. I also show that the premium is concentrated among stocks belonging to the industries with earnings sensitivity to heat anomalies and especially among firms with low geographic dispersion. The heat anomaly premium responds positively to the monthly shocks in the news-based index of climate concerns, suggesting that investors’ climate concerns drive the premium“ (abstract).

SDG score benefits: Corporate Sustainability and Scandals by Anna Vasileva, Jan Anton van Zanten, and Laurens Swinkels as of Aug. 22^nd, 2024 (#190): “… we find evidence that positive contribution towards Sustainable Development Goals – measured by the SDG score – is broadly associated with fewer scandals in the next time period. We show that this measure offers explanatory power beyond the ESG score and exhibits a stronger and consistent relationship. … the most important individual SDG, which are associated with fewer scandals … are SDG 1 (“No Poverty”), SDG 7 (“Affordable and Clean Energy”), and SDG 13 (“Climate Action”)” (p. 27/28). My comments see Neues Research: SDG-Fokus besser als ESG-Fokus? | CAPinside

ETF risks: Limits to Diversification: Passive Investing and Market Risk by Lily Fang, Hao Jiang, Zheng Su, Ximing Yin, and Lu Zheng as of Sept. 18^th, 2024 (#24): “We show that the rise of passive investing leads to higher correlations among stocks and increased market volatility, thereby limiting the benefit of diversification. The extent to which a stock is held by passive funds (index mutual funds and ETFs) positively predicts its beta, correlation, and covariance with other stocks, but not its idiosyncratic volatility. During crisis periods, stocks with high passive holdings contribute more to market risk compared to before the crisis. Correlated trading by passive funds explains these results, which are further amplified by implicit indexing due to performance benchmarking” (abstract). My comment: The smallcap stocks in my fund are held only by rather few and typically small ETFs. The diversification in the corresponding 30-stock model portfolio works fine since it start in 2017.

Active advantage: The Value of Active Share in Global Equity Funds and Across Regions of Investment by Markus Broman and Jon Fulkerson as of April 18^th, 2024 (#68): “Using a sample of nearly 3,300 global equity funds from 19 developed markets, we provide out-of-sample evidence of active share as a return predictor in foreign portfolios. However … a fund’s within-region active share only predicts superior performance in Europe and Asia-Pacific, but not in the United States“ (abstract). My comment: My fund ha a very high active share compared to all potentially relevant benchmarks which I know.

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Werbehinweis (in: Green gatekeepers)

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