Greenwashing risks: 7x new research on ESG performance, disaster and green flow effects, missing and/or negative impact, and Multilateral Development Bank Bonds (#shows the number of SSRN full paper downloads as of May 8th, 2025).
ESG performance: The Importance of Being Prime: A Financial Fact for Serious Companies by Rudy Kwack, and Kosmas Papadopoulos from ISS Corporate as of April 30th, 2025: “Companies with strong sustainability performance (designated as “Prime”) demonstrate superior financial outcomes, including higher profitability, better overall financial quality, and reduced stock price volatility, when compared to those with weaker sustainability performance. … Leading sustainability performers also benefit from consistently lower costs of capital compared to the broader universe of companies …” (p. 2). My comment: Even with similar performance investors should prefer sustainable investments because of positive or less-negative external effects
Disaster effects: Climate Boards: Do Natural Disaster Experiences Make Directors More Prosocial? by Sehoon Kim, Bernadette A. Minton, and Rohan Williamson as of May 5th, 2025 (#132): “… we identify Directors with Abnormal Disaster Experiences (DADEs). … firms with more DADEs on their boards exhibit lower scope 1 and 2 greenhouse gas emission intensities and are more likely to implement climate-related policies … These effects are driven by influential DADEs serving on governance, audit, or ESG committees, but absent among DADEs on finance, compensation, or risk committees, supporting a preference-based rather than risk-based mechanism. Independent directors, rather than the influence of CEOs, play a central role. The effects are stronger when disaster experiences are accumulated over longer histories and in large or high-emission firms. … firms with more DADEs do not exhibit worse financial or operational performance …! My comment: Sustainable investment may benefit from more severe disasters, but hopefully even without more disasters.
Green flow effects: The Cost of Sustainable Investing: Global Green Fund Flows and Asset Prices by Hao Jiang and Lin Sun as of May 6th, 2025 (#6): “Using the EU Sustainable Finance Action Plan as a natural experiment, we find that flows into “dark green” funds surge after the publication of the June 2020 Taxonomy Regulation, before tapering around the Sustainable Finance Disclosure Regulation in March 2021. The prices of stocks with stronger green fund buying pressures in June 2020 increase further by more than 6% and subsequently reverse, comoving with fund flows. … analyses of green fund flows and asset prices in global stock markets … provide causal evidence on large but transitory impacts of green investing on green asset prices” (abstract).
Greenwashing risks: Unveiling the dark side of sustainability: Are banks’ ESG misrepresentations truly worthwhile? by Rosa Cocozza, Domenico Curcio, Serena Gallo, and Davide Vioto as of April 30th, 2025 (#13): “… analyzing a sample of US and European listed banks over the years 2015–2022, … we use a measure of greenwashing that considers the consistency of what banks disclose with what they actually do to address ESG-related issues. We find that engaging in greenwashing practices contributes to undermining financial stability, with a rise in systemic risk which is exacerbated for less efficient and larger banks. Market seems to acknowledge a superior informative value to banks’ actual ESG performance, giving less importance to what they disclose. Finally, a better performance in each of the environmental, social and governance dimensions reduces systemic risk, but only a bank’s commitment in addressing environment related issues seems to moderate the contribution of greenwashing to financial system fragility“ (abstract).
Missing impact: Norms Make Investors Socially Responsible by Mennatallah Balbaa, Bin Dong, Alexander Vostroknutov, Peiran Jiao, and Mareike Worch as of Feb. 18th, 2025 (#84): “… our findings indicate a deviation from profit maximization among participants when the investment choice is framed with social responsibility. … The tendency to increase investment amounts in the low-performing sustainable stock as an effect of norm perceptions was observed across all treatment groups (p. 32) … the currently perceived social norms do not differ strongly between sustainable investments with and without impact. This highlights a significant risk of greenwashing, as it enables companies or fund managers to prioritize the superficial appearance of sustainability over the delivery of tangible, measurable environmental or social outcomes. Thus, it is essential for policymakers to encourage social norms targeted at actual impact by raising societal awareness of the importance of genuine sustainability efforts” (p. 35). My comment (in: Greenwashing risks): We all should focus much more on the impact of investments, see e.g. Maximale Portfolio-Nachhaltigkeit: Was geht?
Negative impact? Who Loses in Win‑Win Investing? A Mixed Methods Study of Impact Risk by Lauren Kaufmann and Helet Botha as of April 29th, 2025 (#8): “Impact risk refers to the likelihood that impact will be different than expected … through a yearlong data collection effort including interviews with 124 impact investors, we are the first, to our knowledge, to document the consideration of impact risk by practitioners. … through a vignette-based experiment with an online sample (N = 435) .. We find that win–win views of business … can lead to inadequate consideration of impact risk …“ (abstract).
MDBs or Govvies? Multilateral Development Bank Bonds by Thea Kolasa, Steven Ongena, and Christopher Humphrey as of Nov. 26th, 2025 (#144): “Multilateral development banks (MDBs) play a key role in development finance. MDBs raise capital by issuing a substantial quantity of bonds, both in terms of face value and volume. We are the first to analyze the bond issuance behavior and yield spread determinants of MDBs. Our findings highlight the increase in bond issues over time, driven by new MDB establishments and an increase in bonds issued per MDB. We also observe a shift from long-term to short-term bonds post-global financial crisis …“ (abstract). “… our findings suggest that MDBs demonstrate resilience to average levels of shareholder conflict and geopolitical risk. However, in cases of abnormal conflict between the two main shareholders, MDBs tend to issue bonds at higher costs of debt. Our analysis is based on 19 different MDBs“ (p. 26). My comment: Since many years I used MDBB instead of government bonds for “responsible” investment portfolios