Green voting disaster illustration from Pixabay by Mabel Amber
20x new research on biodiversity measures,climate catastrophes, hydrogen, brown tech, green and brown returns, green stamps, green reporting, GHG reporting issues, redundant ESG information, greenwashing definitions, green portfolio theory, governance scores, green ventures, green voting disaster, green fund deficit, fear, investment advice, alternatives and LLM overconfidence (#shows the number of full research paper downloads from SSRN as of Feb. 27th, 2025)
Social and ecological research
2 biodiversity measures: Species metrics by Imène Ben Rejeb-Mzah, Nathalie Jaubert, Alexandre Vincent, and Zakaria Ajerame as of February 20th, 2025 (#910): “This research paper investigates … two biodiversity measurements …: Rarity Weighted Richness (RWR) and Species Threat Abatement and Restoration (STAR). RWR measures the specific richness of an ecosystem by weighting species according to their rarity, emphasizing ecosystems rare species that are more vulnerable to environmental and human pressures. Conversely, STAR was designed to quantify the impact and contribution of actions to restore habitats and preserve rare and endangered species, as well as broader biodiversity …” (abstract).
Costly catastrophes: Going NUTS: the regional impact of extreme climate events over the medium term from the European Central Bank by Sehrish Usman, Guzmán González-Torres Fernández, and Miles Parker as of Dec. 11th, 2024 (#91): “.. the impact of an extreme event may not only persist but can also intensify over time … Overall, four years after the event, output is 1.4 percentage points lower in regions affected by a heatwave, and 2.4 percentage points lower in regions affected by a drought. … adaptation capital is less productive than other types of capital in aggregate, total factor productivity falls. Moreover, we document the falling population in affected regions. To the extent that these impacts are more likely to occur in certain countries, there may well be migratory pressures within Europe itself … We also find evidence that economic activity may be higher following an extreme climate event, although this appears to be restricted to just one case: floods occurring in high-income regions. The destruction of capital leads to a period of reconstruction, including higher output and TFP, suggesting these regions are able to “build back better” and upgrade their capital“ (p. 31/32).
Costly hydrogen: Hydrogen in Renewable-Intensive Energy Systems: Path to Becoming a Cost-Effective and Efficient Storage Solution by Chunzi Qu, Rasmus Noss Bang, Leif Kristoffer Sandal, and Stein Ivar Steinshamn as of Jan. 13th, 2025 (#20): “… reducing hydrogen costs to 12.5% of current levels and increasing round-trip efficiency to 70% could make it competitive. These are challenging targets but feasible given positive predictions on cost reduction and efficiency attainability currently. Hydrogen storage reduces total energy system costs by partly replacing lithium batteries to lower storage costs, due to its suitability for long-term storage, while increasing grid flexibility to lower transmission costs. Moreover, integrating hydrogen can decrease the share of nuclear and fossil fuels in the generation mix, reducing generation costs. Italy and Germany are identified as primary targets for hydrogen expansion in Europe. In scenarios of limited lithium supply, hydrogen becomes more competitive and essential to compensate for system storage capacity shortages, though it may not reduce total system costs” (abstract). My comment: No surprise that funds which have been relying heavily on hydrogen investments have had disappointing results so far.
ESG investment research (in: Green voting disaster)
Brown technology: ESG in Platform Markets by Stefan Buehler, Rachel Chen, Daniel Halbheer, and Helen S. Zeng as of Feb. 25th, 2025 (#17): “Platforms have radically transformed many markets. Initially perceived as the harbinger of a new economy, platforms today can no longer ignore their impact on the triple bottom line of profit, planet, and people …, as their adverse effects on the environment (e.g., massive energy consumption and carbon emissions) and society (e.g., misinformation, hate speech, discrimination, degradation of mental health, and privacy violations) become increasingly evident …. As a result, consumers, regulators, and even business leaders demand greater transparency along the environmental (E), social (S), and governance (G) pillars of a platform’s activities” (abstract). My comment: See why I do not invest in such patforms in my direct equity portfolios even though many ESG ETFs/funds are heavily invested in such stocks: Glorreiche 7: Sind sie unsozial? – Responsible Investment Research Blog
Indirect ETS effects: Pricing Pollution: Asset-Pricing Implications of the EU Emissions Trading System by Joop Huij, Philip Stork, Dries Laurs, and Remco C.J. Zwinkels as of Feb. 20th, 2025 (#48): “Our findings point towards a robust influence of carbon prices on stock prices starting from Phase II of the EU ETS in 2008. We find that the transmission of carbon prices to stock prices … also applies to non-European firms that are regulated to a lesser extent” (abtract).
Carbon market premium: Green and brown returns in a production economy from the European Central Bank by Ivan Jaccard, Thore Kockerols, and Yves Schüler as of Feb. 19th, 2025 (#27): “Using a sample of green and brown European firms, we initially demonstrate that green companies have outperformed brown ones in recent times. Subsequently, we develop a production economy model in which brown firms acquire permits to emit carbon into the atmosphere. We find that the presence of a well-functioning carbon market could account for the green equity premium observed in our data“ (abstract).
Green stamp premium: The Value of Being Green: Assessing the Impact of Green Bond Issuance on Stock Prices of European Listed Companies by Radoslaw Pietrzyk, Sylwia Frydrych, Paweł Węgrzyn, and Krzysztof Biegun as of Feb. 19th, 2025 (#22): “… generally, the issuance of green bonds does not result in a significant change in the stock prices of the issuing companies. … certified green bonds generally show a more favourable market perception with no significant change in stock prices. In contrast, non-certified green bonds are associated with a decline in the stock prices of the issuing companies“ (abstract).
Green reporting premium: Strategic Transparency: Impact of Early Sustainability Reporting on Financial Performance by Jose Antonio Muñiza, Charles Larkin, and Shaen Corbet as of Feb. 24th, 2025 (#7): “… by analysing a sample of 2,857 publicly traded companies in the United States … results show a clear financial advantage for firms reporting sustainability information, with those reporting before the Paris Agreement experiencing significantly stronger financial performance than their non-reporting counterparts” (abstract).
Dubious GHG accounting? Corporate Carbon Accounting: Current Practices and Opportunities for Research by Gunther Glenk as of Feb. 24th, 2025 (#43): “The common framework for determining and reporting corporate greenhouse gas (GHG) emissions today is the GHG Protocol. … Their design and implementation, however, often result in disclosures that obscure firms’ actual emissions and decarbonization progress“ (abstract).
Redundant ESG infos? From KPIs to ESG: Addressing Redundancy and Distortions in ESG Scores by Matteo Benuzzi, Özge Sahin, and Sandra Paterlini as of February 20th, 2025 (#11): “We investigate the construction of Environmental, Social, and Governance (ESG) scores, focusing on Refinitiv’s (acquired by the London Stock Exchange Group) methodology. We uncover critical challenges, including the inflation of correlations caused by missing data imputation and redundancy among Key Performance Indicators (KPIs). … we demonstrate imputing missing values with zeros distorts relationships between KPIs. … Our findings reveal that a small subset of KPIs can closely replicate Refinitiv’s pillar scores, highlighting that many of the 180 KPIs used are redundant”. My comment: The detailed data which are assembled for ESG-scores should be interesting for many responsible investors, independent of the aggregation method.
Greenwashing definitions: How to enforce ‘greenwashing’ in the financial sector? By Veerle Colaert and Florence De Houwer as of Feb. 24th, 2025 (#13): “National supervisors have … reported detecting only a limited number of instances of greenwashing, and formal enforcement decisions remain scarce. … We found that there is a plethora of definitions of “greenwashing” in the financial sector …. Those definitions differ in terms of their material scope of application (environmental claims versus any sustainability-related claims), their personal scope of application (certain financial market participants versus all market participants), the objective standard against which greenwashing should be measured (basic environmental or sustainability standards versus prior claims made by the greenwashing entity), the subjective state of the greenwasher (is “intent” relevant or not), the scope of resulting damage (consumer/investor detriment versus unfair competition), and the question whether greenbleaching is deemed an instance of greenwashing. None of those definitions are, however, legally binding” (abstract). My comment: I suggest to use activity-based net SDG-aligned revenues to find sustainable funds and greenwashing, see SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Responsible Investment Research Blog
Green portfolio theory: Advancing sustainable portfolio selection: Insights from a structured literature review by Sofia Baiocco as of Feb. 19th, 2025 (#11): “The purpose of this paper is to rigorously analyze the current state of empirical research on sustainable portfolio selection … From an initial pool of 757 papers … we applied a six-step screening procedure resulting in a final sample of 44 high-quality articles addressing the topic. .. these papers revealed two main methodological streams: the first extends Markowitz’s (1952) portfolio selection theory by incorporating sustainability as an additional criterion; the second uses multi-criteria decision-making (MCDM) methodologies to balance returns, risks, and sustainability objectives. The prevalence of MCDM methods underscores their value in accommodating investor preferences … several challenges need to be addressed, including the inconsistency of ESG data, the complexity of calculation methodologies, and the risk of greenwashing, all of which can undermine portfolio performance and the applicability of these models” (abstract). My comment: I have made very good experiences with passive forecast-free allocations, see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf
Governance confusion: The G in ESG: How good are the governance ratings in ESG ratings? by Kornelia Fabisik as of Feb. 26th, 2025 (#37): “I examine the governance ratings’ ability to provide useful information to shareholders. My results not only suggest rather limited success in predicting relevant firm outcomes (such as financial-statement restatements, governance incidents, class action law suits, operating performance, firm value, stock returns, and credit ratings), but in the case of most raters, I identify multiple instances of counterintuitive results, that is, with the opposite direction of the effect” (abstract).
SDG and impact investment research
Green voting disaster: Voting Matters 2024 Are asset managers using their proxy votes for action on environmental and social issues? by Danielle Vrublevskis, Felix Nagrawala, and Lia Viasilikiotis from Share Action as of Feb. 18th, 2025: “Support for shareholder resolutions has hit an all-time low, driven by the voting behaviour of large US asset managers … Asset managers are not voting in line with commitments they have made to net-zero or as part of Climate Action 100+ … Asset managers are increasingly ignoring urgent environmental and social issues … Our first ever analysis of votes on management items shows asset managers fail to use these votes to hold some of the largest companies in the world accountable …” (p. 10/111). My comment: I now use this study to exclude ETF issuers and fund managers of the bottom half of the participants in this study, e.g. Blackrock.
Green venture premium? When does it pay to be green for startups? Sustainability signaling and venture funding by Markus Koenigsmarck, Martin Geissdoerfer, and Dirk Schiereck as of Feb. 24th, 2025 (#8): „… on a dataset of 27,000 startups … We find a robust U-shaped connection sustainability signaling and venture funding, with the most and least sustainable startups attracting more funding than their peers. This pattern is persistent for just-green and just-brown subsamples …” (abstract).
Missing green funds? Green Finances: Young Adults and Climate Change by Danielle Kent, William Beckwith, Syed Shah, and Robert Wood as of Dec. 4th, 2024 (#51): “… while the environment is very important to them, young adults struggle to believe their individual actions can make a difference. They want government and large corporations, particularly banks, to take more action towards sustainability. … Most participants wanted to adopt solar panels and electric vehicles, but the required investment was beyond their reach. Our findings highlight that more financial product innovations offering incremental sustainability investment opportunities, that do not require property ownership, are needed to reduce the financial hurdles to sustainability action for young people …” (abstract). My comment: Look at my fund (see “Werbung” below).
Other investment research (in: Green voting disaster)
Fear beats risk: Fear, Not Risk, Explains Asset Pricing by Rob Arnott and Edward F. McQuarrie as of Feb. 7th, 2025 (#816): “Risk theory has dominated the asset pricing literature since the 1960s. We chronicle empirical failures of risk theory in its prediction of the excess return on equities, to lay the groundwork for a complementary framework, investor-focused rather than asset-focused, and centered on fear rather than objective measures of risk. A fear premium puts fear of missing out on a par with fear of loss. Most anomalies and factors of the past half-century would have been expected, given a fear-based model for returns. The new paradigm is offered as a starting point to advance investment science” (abstract).
Convincing advice? Financial Advice and Investor Beliefs: Experimental Evidence on Active vs. Passive Strategies by Antoinette Schoar and Yang Sun as of Oct. 23rd, 2024 (#278): “… we test how retail investors assess and update their priors based on different types of financial advice, which either aligns with their priors or goes against it. We compare advice that emphasizes either the benefits of passive investment strategies (such as diversification and low fees) or active strategies (such as stock picking and market timing). We find that participants rate advice significantly higher when it aligns with their priors rather than contradicts them. But people update their beliefs about investment strategies in the direction of the advice they receive, independent of their priors. At the same time, there is significant heterogeneity based on the subjects‘ financial literacy. Financially more literate subjects positively update in response to seeing passive advice, but most do not update (and rate the advice negatively) when exposed to active advice. In contrast, financially less literate subjects are strongly influenced by both types of advice. Finally, we show that subjects rate the advice lower if the advisor is perceived to have misaligned incentives (the advisor in the video mentions receiving commission-based pay) compared to when it is more aligned (advisor receives flat fee)” (abstract). My comment: No wonder that it is very difficult to sell active funds whereas active ETFs are booming
Costly alternatives: What is the Future of Alternative Investing? by Richard M. Ennis as of Feb. 20th, 2025 (#347): “Alternative investments, or alts, cost too much to be a fixture of institutional investing. A diverse portfolio of alts costs at least 3% to 4% of asset value, annually. Institutional expense ratios are 1% to 3% of asset value, depending on the extent of their alts allocation. Alts bring extraordinary costs but ordinary returns — namely, those of the underlying equity and fixed income assets. Alts have had a significantly adverse impact on the performance of institutional investors since the GFC. Private market real estate and hedge funds have been standout under-performers. Agency problems and weak governance have helped sustain alts-investing. CIOs and consultant advisors, who develop and implement investment strategy, have an incentive to favor complex investment programs. They also design the benchmarks used to evaluate performance …” (abstract). My comment: Maybe private debt and private equity investments are not the best way to generate positive impact and risk-adjusted returns
LLM Overconfidence: How Much Should We Trust Large Language Model-Based Measures for Accounting and Finance Research? by Minji Yoo as of Nov. 4th, 2024 (#565): “Researchers often ask ChatGPT to provide confidence levels for its predictions, using these scores to measure the likelihood that a sample is correctly labeled. … Experiments using ChatGPT on financial sentiment analysis reveal a substantial 38–43% gap between average accuracy and self-reported confidence under popular prompts … a fine-tuning approach that retrieves probability estimates directly from the model nearly eliminates overconfidence … smaller, non-generative LLMs, such as RoBERTa, show no overconfidence and outperform prompted ChatGPT in both calibration and failure prediction when fine-tuned. Finally, this paper highlights how empirical analyses can be affected by the methods used to obtain confidence scores” (abstract).
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Werbung (in: Green voting disaster)
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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 Gesundheits-ETF hat eine netto SDG-Umsatzvereinbarkeit von 7%, Artikel 9 Fonds haben 21%, Impactfonds 38% und ein ETF für erneuerbare Energien 43% (vgl. SDG-Umsätze: Die wichtigste Nachhaltigkeitskennzahl – Responsible Investment Research Blog).
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.