Greenwashing and more: The Greenwashing Hydra by John Willis, Thalia Bofiliou, Arianna Manili, and Isabella Reynolds from Planet Tracker as of Jan. 10th, 2023: Definitions of Greenwashing, greencrowding, greenlighting, greenshifting, greenlabelling and greenhushing. “… greenwashing strategies are becoming increasingly sophisticated. They range from emphasising a green activity, without betraying that the rest of the company’s business is environmentally damaging, to hiding in a crowd and moving at the speed of the slowest adopter. Greenwashing is misleading but not always illegal; regulatory loopholes are sometimes used. What’s surprising is that it remains so prevalent despite being called out by NGOs, the media and, increasingly, regulators“ (p. 1).
Responsible investment research: Greenhushing?
Sustainable finance lecture: Handbook of Sustainable Finance by Thierry Roncalli as of Dec. 27th, 2022 (#1636): “This handbook in Sustainable Finance corresponds to the lecture notes of the course given at University Paris-Saclay, ENSAE and Sorbonne University. It covers the following chapters: 1. Introduction, 2. ESG Scoring, 3. Financial Performance of ESG Investing, 4. Sustainable Financial Products, 5. Impact Investing, 6. Voting Policy & Engagement, 7. Extra-financial Accounting, 8. Economic Modeling of Climate Change, 9. Climate Risk Measures, 10. Transition Risk Modeling, 11. Portfolio Optimization, 12. Physical Risk Modeling, 13. Climate Stress Testing, 14. Conclusion, 15. Appendix A Technical Appendix, 16. Appendix B Solutions to the Tutorial Exercises”(abstract).
Climate hedges: Climate uncertainty and information transmissions across the conventional and ESG assets by Oguzhan Cepni, Riza Demirer, Linh Pham, and Lavinia Rognone as of Sept. 1st, 2022 (#109): “… we find that investors who are worried about physical climate risks, that is, risks associated with the costly occurrence of both extreme and chronic climate-related hazards, could utilize ESG equity sector portfolios as a diversification tool during periods of high physical climate uncertainty. In contrast, ESG bonds are found to be particularly useful in managing transition risk exposures that are associated with policy uncertainty and/or business transitions with respect to environmental policies” (p. 16).
Brown emerging investments: Do Foreign Institutional Investors Promote Green Growth of Emerging Market Firms? by Sophia Chiyoung Cheon, Jaewon Choi, Sangeun Ha, and Ji Yeol Jimmy Oh as of Dec. 12th, 2022 (#25): „Can foreign investor capital promote economic growth in the emerging market and address climate change at the same time? Our results suggest that the answer is no. We consider emerging market firms’ inclusion in the MSCI index as a quasi-natural case of foreign-investor-driven firm expansion opportunity. A mechanical increase in foreign mutual funds following the index inclusion leads to significant increases in sales and profit margin, but at the expense of increased both direct and indirect carbon emission levels in the short term, with a further deterioration in the per-revenue emission intensity over the longer term“ (abstract).
Methane danger: Hot money – 40 financial institutions are funding a climate-changing agri-methane footprint by Planet Tracker and Changing Markets Foundation as of Jan. 16th, 2023: “This report focuses on the 20 investors and 20 banks that are funding the methane generating activities of 15 of the leading meat and dairy companies worldwide. Collectively these financial institutions fund a methane footprint that could exceed 503 Mt CO2e (CO2equivalent) – nearly as big as the CO2 emissions of Saudi Arabia” (p. 3).
PE shies ESG: ESG Transparency of Private Equity and Debt Firms by Pascal Böni, Jurian Hendrikse and Philip Joos as of Dec. 8th, 2022 (#449) “…while overall ESG transparency in private markets is much lower than that of public firms, there is substantial and systematic heterogeneity in GPs’ ESG transparency … larger, older, more recently fund-raising, and listed GPs are more transparent, while those following a venture capital investment strategy are less transparent than those investing in more mature types of portfolio companies. … those headquartered in Developed Europe being the most transparent“ (p. 29).
Impact research: Greenhushing?
Impact measures: Impact Measurement Tools and Social Value Creation: A Strategic Perspective by Leandro Nardi, Sergio G. Lazzarini and Sandro Cabral as of Nov. 17th, 2022 (#417): “We start by identifying four channels through which impact measurement connects with social value creation: signaling an impact purpose or orientation, creating management tools to monitor the performance of the target populations, assessing causality, and computing welfare gains across various types of interventions and activities. … is difficult to combine high precision, high comparability, and low cost” (abstract), for an overview see Figure 1 on page 28
Good concentration: The Value of Undiversified Shareholder Engagement by Felix Nockher as of Dec. 6th, 2022 (#156): “This paper … shows that institutional investors with large proportions of their portfolio allocated to a firm, which I term high “portfolio-at-risk” (PAR) institutions, are effective corporate monitors. Specifically, I document that higher PAR is associated with increased shareholder engagement as well as firm performance and smaller institutional investors with high PAR engage as much, if not more, as blockholders with low PAR” (p. 38/39). My experience see Engagement test (Blogposting #300) – Responsible Investment Research Blog (prof-soehnholz.com)
Traditional investment research
More stock owners: Why Has U.S. Stock Ownership Doubled Since the Early 1980s? Equity Participation Over the Past Half Century by John V. Duca and Mark Walker as of Nov. 9th, 2022 (#50): “The U.S. stock ownership rate doubled between 1983 and 2001 … mutual fund costs and indicators of background labor risk are significantly related to stock ownership over 1964-2019. Coefficient estimates and continuous data on driving variables can be used to create a continuous proxy for stock ownership, which could help researchers gauge the effects of shocks that are transmitted via equity participation. Typically omitted asset transfer costs can help analyze other aspects of household portfolio behavior” (abstract).
Bad fund recommendations: The Dark Side of Algorithms? The Effect of Recommender Systems on Online Investor Behaviors by Ruiqi Rich Zhu, Cheng He, and Yu Jeffrey Hu as of Dec. 11th, 2022 (#25): “Using data from a global e-commerce platform, the authors of this study adopt a regression discontinuity design and causally examine the effects of recommender systems on online investor behaviors, specifically in a mutual fund investment context. The results show that funds featured by recommender systems prompt significantly more purchases. This effect is especially salient among unsophisticated investors …. these investors tend to realize significantly worse performance after purchasing the recommended funds” (abstract).
Negative large cap biases: The Demand for Large Stocks by Huaizhi Chen as of Nov. 29th, 2022 (#63) “I demonstrate that the preference by asset managers to diversify stocks and follow certain investment mandates result in forecastable contrarian trading on their largest positions. Since large-cap stocks are held in similar positions across most asset managers, few equity portfolios are available to absorb this predictable source of demand. The large stock portfolios during the sample period (Q1 1990 to Q2 2021) exhibits a novel return-reversal pattern that is consistent with this demand channel” (abstract).
Bad Fintech M&A? Fintech mergers and acquisitions by Mike Qinghao Mao and Hao Zheng as of Dec. 8th, 2022 (#47): “Using the M&As of fintech companies by U.S. public banks, nonbank financial institutions and tech companies … the analysis of the acquirers’ short- and long-run performance does not reveal any significant value added from such deals. We document significantly negative stock market reactions to the announcements of deals involving bank acquirers, especially in more recent years. … we find little evidence that these three types of fintech acquirers exhibit significant improvements in operating or innovation performance in the long run when compared to matched firms. In addition, the acquirer’s industry peer firms do not react negatively to the fintech acquirer’s hypothetical gain in competitiveness” (p. 21). My comment: Scaleup M&A in general seems to perform better, see Does acquisition lead to the growth of high-tech scaleups? Evidence from Europe by Anže Burger , Teresa Hogan, Patricia Kotnik , Sandeep Rao, and Mustafa Erdem Sakinc as of Dec. 11th, 2022 (#5).
Robos to educate literate men? Are Robo-advisors reducing the disposition effect? The moderating role of gender and financial literacy by Nomeda Lisauskiene, Valdone Darskuviene, and Mindaugas Butkus as of Dec. 6th, 2022 (#13): “The research aims to contribute to reconciling mixed findings of previous studies on the tendency of investors to hold losing and sell winning stock by focusing on active vs passive digital nudges used in Robo-advisors. … The online experiment showed that active digital nudges of Robo-advisors are more effective in reducing the disposition effect for the participants with higher financial literacy. … Our experiment indicated that active Robo-advisors are more effective in reducing the disposition effect for the participants with lower feminine gender role” (abstract).