Heidebild für Investors drive ESG Researchbeitrag

Investors drive ESG (Researchblog #99)

More plastic: Demographic factors and the environmental Kuznets curve: global plastic pollution by 2050 could be 2 to 4 times worse than projected by Huijie Yana, Mateo Cordiera, and Takuro Uehara as of September 27th, 2022 (#5): “… we contribute by being the first … provide a comprehensive analysis of how demographic factors affect plastic pollution …. Our empirical results support an inverted U-shaped relationship between plastic pollution and income. … Our results reveal possible environmental benefits of economic growth and a meaningful response of demographic factors to plastic pollution. At current trends, global plastic pollution … is expected to grow from 52 million tons per year in 2020 to 257 million tons per year in 2050” (abstract).

Profitable food tracing: How to trace $600 billion – Traceability could add 60% to global seafood profits by Francois Mosnier of Planet Tracker as of September 29th, 2022: “USD 1.8 trillion: Planet Tracker estimate of the global seafood supply chain revenue, from fishing and aquaculture to restaurants, via processing, wholesale, and retail. It is equivalent to 2% of global GDP. +60%: the rise in the global seafood profit pool (currently an estimated USD 76 billion), if traceability were implemented for all species/areas where it is doable – mostly attributable to reduced costs of food recalls, food waste, and staff. +USD 600 billion: the forecasted traceabilityrelated increase in valuations of global seafood supply chain corporates. 1% of seafood sales: the average amount these companies need to invest to unlock this USD 600bn opportunity. For fishing companies, the investment amounts to just 6% of the subsidies received“ (p. 2).

Bribes for the rich? Christian Attitudes toward Bribery by Robert W. McGee, Serkan Benk, and Bahadır Yüzbaşı as of Septeber 28th, 2022 (#10): “Opposition to bribe taking was strong, as indicated by an overall mean score of just 1.98, where 1 = never justifiable and 10 = always justifiable. … Women were significantly more opposed to bribe taking than were men … opposition increased with age … Those in the highest income level had the least opposition to bribe taking … The upper class had the lowest opposition to bribe taking … Those on the right had the least opposition to bribe taking … Those who worked in the private, non-profit sector were the least opposed to bribe taking …”  (p. 23/24).

Less gender regulation? The Impact of a Principles-Based Approach to Director Gender Diversity by Tor-Erik Bakke, Laura Field, Hamed Mahmudi, and Aazam Virani as of July 15th, 2022 (#200): “The results in this paper suggest that a principles-based approach potentially mitigates some of the costs of complying with rules-based approaches, while still achieving the same broad objective – in this case, increased parity in female representation in boards and senior management. Although the flexibility afforded to firms regarding board gender diversity allows firms the choice not to comply, we find that 94% of firms in our sample included female directors on their boards in 2018, compared with only 56% before the OSC announcement. … In contrast to the negative market reaction observed for approaches mandating board diversity, such as in Norway and California, we find that, for firms most affected by the ruling, market returns were significantly positive upon the announcement of the principles-based regulation in Canada” (p. 35/36).

Responsible investments: Investors drive ESG

Credit to green: Credit Supply and Green Investments by Antonio Accetturo, Giorgia Barboni, Michele Cascarano, Emilia Garcia-Appendini, and Marco Tomasi as of September 25th, 2022 (#17): “We use text algorithms to extract information on green investments from the comments to the financial statements of Italian firms between 2015 and 2019, and match this information with loan-level data from the Italian Credit Registry. … We find that green investments display a strong, positive response to credit supply. We rule out that our results are driven by a more advantageous credit supply for green investments, or by larger credit allocation for green projects. Our results largely support the idea that green investments are more capital intensive; we also show that local environmental preferences and regional subsidies play an important role in explaining our results” (p. 24).

Investors drive ESG: What drives corporate ESG? Disentangling the importance of investors, managers, and firms by Vicente J. Bermejo, Antonino Emanuele Rizzo, and Mohammed Zakriya as of Juky 25th, 2022 (#154): “… we study the importance of investor, manager, and firm heterogeneities (as well as the time heterogeneities) in explaining firms’ ESG strategies. … investor fixed effects can explain around 50% of the variations in ESG scores even after accounting for firm- and manager-variations. On examining the explanatory power of E, S, and G subscores, we document the greatest impact of investor effects on the environmental dimension and the lowest on the governance dimension. … we observe investors’ ESG orientation translated into investments in better ESG firms for some investors (such as the quasi-indexers) … investors influence their portfolio firms through their voting behavior. We find in particular a strong positive correlation between investors’ ESG preferences (as captured by their fixed effects) and their subsequent voting behavior when it comes to ESG-related shareholder proposals” (p. 26/27). My comment: See Absolute and Relative Impact Investing and additionality – Responsible Investment Research Blog (prof-soehnholz.com)

Good ESG reporting: The Association between Mandated Environmental Liability Recognition and Voluntary ESG Disclosure Quality by Daniel A. Bens, Cai Chen, and Peter R. Joos as of September 9th, 2022 (#156): “We find that the mandatory fair value estimate that firms report for environmental liabilities related to asset retirements reveals information not just about the financial implications of this transaction, but also about broader ESG disclosure. Second, our evidence suggests that mandatory recognition of environmental liabilities is associated with the quality of voluntary ESG disclosures” (p. 28).

Traditional and alternative investments: Investors drive ESG

Personality based investments: Personality Traits and Investment Styles by Thorsten Hens and Mei Ding-Hirschfeld as of Februar 9th, 2022 (#538): “We show that preferred investment styles can be determined by the big five personality traits. Using this result, we build a tool that recommends investment styles. The resulting recommendations are significantly higher rated than random recommendations. We collected detailed personality traits data and preferred investment styles of 2459 participants. They are selected from the German population”.

Good hedge funds: Did They Live Happily Ever After? The Fate of Restructured Firms After Hedge Fund Activism by Wonik Choi and Jongha Lim as of September 22nd, 2022 (#27): “This study aims to fill the void in the literature by tracing and examining the long-term performance of the firms that have successfully resolved the distress with and without hedge fund intervention. Overall, evidence in this paper supports the idea that the efficiency gains achieved through hedge funds‘ involvement during the restructuring process result in lasting benefits, especially in the form of stronger financial stability, which extends into several years after emergence from distress. We find that firms restructured with hedge fund involvement maintain significantly lower leverage for several years after emergence, achieve a faster and more significant improvement in credit quality, and, therefore, are significantly less likely to fall into another distress” (p. 23).

Art Investing: Art in Times of Crisis by Géraldine David, Yuexin Li, Kim Oosterlinck, and Luc Renneboog as of September 12th, 2022 (#16): “From 1907 to 2016, the British art price index expanded more than sevenfold in real terms. Over the whole sample period of 110 years, the arithmetic annual real return and risk amount to 3.6% and 20.1%, respectively. … Art returns plummeted at the onset of wars but became positive in the later years of the war periods and then outperformed equities. … By far the largest declines in art returns occurred in 1921 (-40.5%) during the Post-WWI recession, in 1931 during the Great Depression (-62.9%), and in 1991 (-37.3%) when the largest art market bubble in art history burst. … During financial crises and economic recessions, the art market performs poorly: returns are then even lower than those for equity, suggesting that artworks hardly qualify as safe-haven investments. … volume does not significantly collapse in recessions; the reason may be that part of the sales may be forced (because of the four Ds: death, debt, divorce, and disaster, of which the latter three may be correlated with recessions)” (p. 32)

Awful Bitcoin: Economic estimation of Bitcoin mining’s climate damages demonstrates closer resemblance to digital crude than digital gold by Benjamin A. Jones, Andrew L. Goodkind, and Robert P. Berrens as of September 29th, 2022: “We find that for 2016–2021: (i) per coin climate damages from BTC were increasing, rather than decreasing with industry maturation; (ii) during certain time periods, BTC climate damages exceed the price of each coin created; (iii) on average, each $1 in BTC market value created was responsible for $0.35 in global climate damages, which as a share of market value is in the range between beef production and crude oil burned as gasoline, and an order-of-magnitude higher than wind and solar power” (abstract).