Green brownies picture by Leann Bird from Pixabay
10x new research on positive migration effects, warmer winter disappointments, severe greenwashes, institutional investor problems, biodiversity risks, green performance, ESG risks, green brownies, alternatives misbeliefs and communist memories (# shows number of full paper SSRN downloads as of October 11th, 2024)
Social and ecogical research
Positive migration effects: Migration into the EU: Stocktaking of Recent Developments and Macroeconomic Implications by Francesca Caselli, Huidan Lin, Frederik Toscani, and Jiaxiong Yao from the International Monetary Fund as of Oct. 7th, 2024 (#15): “… immigration into the European Union (EU) reached a historical high in 2022 and stayed significantly above pre-pandemic levels in 2023. The recent migration has helped accommodate strong labor demand, with around two-thirds of jobs created between 2019 and 2023 filled by non-EU citizens, while unemployment of EU citizens remained at historical lows. Ukrainian refugees also appear to have been absorbed into the labor market faster than previous waves of refugees in many countries. The stronger-than-expected net migration over 2020-23 into the euro area (of around 2 million workers) is estimated to push up potential output by around 0.5 percent by 2030—slightly less than half the euro area’s annual potential GDP growth at that time—even if immigrants are assumed to be 20 percent less productive than natives. … On the flipside, the large inflow had initial fiscal costs and likely led to some congestion of local public services such as schooling” (abstract).
Warmer winters disappointments: Rising Temperature, Nuanced Effects: Evidence from Seasonal and Sectoral Data by Ha Minh Nguyen and Samuel Pienknagura from the International Monetary Fund as of Oct. 7th, 2024 (#6): “Using quarterly and sectoral data, this paper uncovers nuanced effects of temperature. It finds that, for EMDEs (Sö: emerging markets and developing economies), hotter spring and summer temperatures reduce growth in real value-added of manufacturing, and most significantly, of agriculture—a 1-Celsius degree hotter spring reduces yoy growth in agricultural value-added in the same quarter by about 0.8 percentage points and by more than 1 percentage point for the following fall and winter. By contrast, a warmer winter boosts agricultural activity. For advanced countries (AEs), a hotter spring hurts growth in real value-added of all considered sectors: services, manufacturing and agriculture. Overall, for both country groups, the negative effect of a hotter spring is larger and more persistent than the positive effect of a warmer winter. …. The potentially increasing economic costs of rising temperature is also indicated by the fact that the adverse impacts of hotter temperatures in advanced economies and to a less extent, EMDEs, have accentuated in recent decades“ (p. 23).
Severe greenwashes: A turning tide in greenwashing? Exploring the first decline in six years by RepRisk as of October 2024: “Despite an overall 12% decline in greenwashing cases, high-risk incidents surged by over 30% in 2023-2024. Nearly 30% of companies linked to greenwashing in 2022-2023 were repeat offenders in 2024. In the EU’s Banking and Financial Services sector, climate-related greenwashing incidents declined by 20% in 2024, a likely consequence of stricter regulations”.
Institutional investor problems: Institutional Investor Distraction and Unethical Business Practices: Evidence from Stakeholder-Related Misconduct by Daniel Neukirchen, Gerrit Köchling, and Peter N. Posch as of July 6th, 2024 (#371): “… we … exploit exogenous shocks to institutional investors’ portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. … The effects are stronger when CEOs have more outside options in the executive the labor market, stronger career concerns and equity incentives, as well as for firms in competitive environments, which speaks to a potential underlying pattern in which CEOs weigh up the benefits and disadvantages before exploiting periods of institutional distraction to commit misconduct. … we provide some evidence suggesting that employees may be particularly vulnerable. … our cross-sectional tests suggest that career concerns drive this behavior” (p. 34).
ESG investment research (in: Green brownies)
Corporate biodiversity risks: Does biodiversity matter for firm value? by Simona Cosma, Stefano Cosma, Daniela Pennetta and Giuseppe Rimo as of October 7th, 2024 (#50): “In our article we introduce the Corporate Biodiversity Footprint as a proxy for the corporate-generated impact on biodiversity. By analyzing a sample of 1,848 publicly listed companies, we empirically estimate the effect the biodiversity loss caused by a firm’s annual activities on firm value. Our results … show that firms‘ impact on biodiversity negatively affects their firm value” (abstract).
Green outperformance? Managing Climate-Change Risks vs. Chasing Green Opportunities — What Works? by Elchin Mammadov, Xinxin Wang, and Drashti Shah from MSCI as of September 30th, 2024: “Constituents of the MSCI ACWI Investable Market Index (IMI) with high scores on the climate-change theme outperformed globally across most sectors over the past 11 years. Over this period, leaders in the environmental-opportunities theme recorded higher market returns compared to laggards, although outperformance has sharply reversed since 2021. Despite this reversal, analysts’ consensus estimates suggest an improved outlook for environmental-opportunity leaders, with expected improvements in profitability from 2024 to 2027”.
Good ESG reduces risks: ESG risks and Corporate Viability: Insights from Default Probability Term Structure Analysis by Fabrizio Ferriani and Marcello Pericoli as of Oct. 8th, 2024 (#18): “We analyze the impact of ESG risks on the term structure of default probabilities of European non-financial corporations from 2014 to 2022. Our findings reveal that higher ESG scores decrease a company’s inherent risk implicit in its probability of default, with a more pronounced effect as the time horizon for default probability increases. The relevance of ESG risks on corporate viability fluctuates over time and tends to intensify following major events related to sustainability risks, such as the Paris Agreement or the Covid-19 pandemic. … ESG considerations … also influence the credit risk premium required by investors“ (abstract).
Green brownies: Do Investors Use Sustainable Assets as Carbon Offsets? by Jakob Famulok, Emily Kormanyos, and Daniel Worring as of Sept. 24, 2024 (#345): “We find evidence that high-emission consumers tend to invest more sustainably, suggesting a compensatory behavior. Our analyses, using unique transaction-level data, show that these consumers prefer investments with favorable environmental ratings. Additional evidence from a survey with the same bank whose data we analyze supports that this is a conscious choice. We address several associated concerns in a series of robustness analyses, providing evidence that this behavior is not driven by income or consumption levels, financial motives, or heterogeneous sustainability preferences. Furthermore, we conduct a randomized control trial showing causally that individuals are more likely to choose sustainable investments after learning about their high carbon footprints. This behavior diminishes when direct carbon offsets are an option, indicating that sustainable investments and direct offsets are viewed as substitutes” (p.19/20). My comment: Perhaps I should market my fund especially to “brownies”.
Other investment research (in: Green brownies)
Alternatives misbelieves? The Rise of Alternatives by Juliane Begenau, Pauline Liang, and Emil Siriwardane as of Oct. 1st, 2024 (#165): “Since the early 2000s, public pensions in the United States have substantially altered the composition of their risky investments, shifting out of public equities and into alternative investments like private equity, real estate, and hedge funds. Explanations based on a desire to take risk, such as those caused by underfunding, have limited empirical support. Instead, we propose a new perspective rooted in beliefs: U.S. pensions increasingly perceive alternative investments to provide a more favorable risk-return profile than public equities, some more so than others. This belief-based perspective follows from textbook portfolio theory … While our study provides suggests beliefs about alternatives are shaped by consultants, peers, and experience during the 1990s, more research is needed to fully understand the process by which pensions form beliefs” (p.38/39). My comment: Recent research shows no or very little outperformance of alternative investments especially after direct and opportunity costs.
Communist memories: The long-lasting effects of experiencing communism on attitudes towards financial markets by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi as of Oct. 3rd,2024 (#505): “We show that exposure to anti-capitalist ideology can exert a lasting influence on attitudes towards capital markets and stock-market participation. Utilizing novel survey, bank, and broker data, we document that, decades after Germany’s reunification, East Germans invest significantly less in stocks and hold more negative views on capital markets. … Results are strongest for individuals remembering life in the German Democratic Republic positively …. Results reverse for those with negative experiences like religious oppression, environmental pollution, or lack of Western TV entertainment” (abstract).
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Werbehinweis (in: Green brownies)
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