Positive immigration job growth: The Labor Demand Effects of Refugee Immigration: Evidence from a Natural Experiment by Paul Berbée, Herbert Brücker, Alfred Garloff, and Katrin Sommerfeld as of Dec. 27^th, 2022 (#4): “The large and unexpected inflow of refugees to Germany constitutes a natural experiment providing a unique opportunity for studying the demand effect. … a one percentage point increase in the local population through the immigration of asylum-seekers increases the employment rate by 0.42 percentage points in the short-run. Put differently, for every 2.4 asylum seekers hosted, one job is created in the respective district. Employment gains are fully driven by non-tradable sectors, especially in public administration and in temporary agency work, while the tradable sectors are unaffected. At the same time, unemployment is reduced substantially, making up about 55% of employment gains. … Our findings also demonstrate that the initial employment gains tend to get diluted in the medium term, i.e. two or three years after the refugee inflow, and most coefficients no longer appear statistically significant” (p. 39).

Positive immigration mobility push: Differences in Labor Mobility between Immigrant Generations: Evidence from the European Debt Crisis by Marius Braun and Jarom Görts as of Dec. 4^th, 2022 (#25): “Immigrants’ higher responsiveness to regional differences in labor market conditions has been recognized as a potentially important adjustment mechanism to labor market shocks. … Using Euro Area household-level data, we compare mobility patterns of first- and 1.5-generation immigrants and natives. We observe that 1.5-generation immigrants have a significantly lower interregional and international mobility compared to first-generation immigrants but are more mobile than natives. Our results suggest that not only first-generation immigrants but also their descendants contribute to labor market flexibility” (abstract).

Ecological research: Positive immigration

Costly price intervention: Why Germany’s “Gas Price Brake” Encourages Moral Hazard and Raises Gas Prices by Markus Dertwinkel-Kalt and Christian Wey as of Dec. 28^th, 2022 (#211): “We have formally delineated novel incentives for moral hazard that arise from the energy price brakes. As consumers’ and providers’ joint surplus increases in the contractual electricity and gas prices, both parties can have incentives to sign contracts with particularly high prices. … even if providers must only charge cost-based prices, consumers could still prefer to choose high-price contracts because of the benefits of the transfer scheme. … Right after the announcement of the price brakes, more than 200 default gas providers (Gasgrundversorger ) announced to increase prices on this day; among them are the default providers in some of the biggest German cities. Also electricity providers have raised their prices, for instance, by 77% in Cologne and 110% in Leipzig and Munich, up to more than 40, 50, or even 60 euro cents per kWh, respectively; such price increases appear to be “excessive” also according to expert opinions. A positive side effect of the price brakes is that it could reduce gas consumption considerably … While our analysis suggests that the price brakes might become more expensive than estimated, it is unlikely to produce fewer savings than intended” (p. 16/17).

Carbon inequality: The Geographic Effects of Carbon Pricing by Giacomo Mangiante as of Dec. 6^th, 2022 (#5): “… I study the heterogeneous effects of carbon pricing across regions. This is done by combining the carbon policy shocks developed by Känzig (2022) with regional-level data for Europe. I document that the regions in poorer countries are significantly more exposed to these shocks. Following a tightening carbon policy shock, the gross value added of regions at the bottom quartile of the GVA per capita distribution decreases more than twice as much relative to the regions at the top quartile. I show that different sectoral compositions or within-country variations do not explain this result. The main driver of the heterogeneous responses along the GVA per capita distribution is the across-country variation” (p. 23).

Carbon pricing alternatives? Climate Policy Options: A Comparison of Economic Performance by Jean Chateau, Florence Jaumotte, and Gregor Schwerhoff as of Dec. 29^th, 2022 (#17): “There are good alternative policy options to carbon pricing, especially in industries where technological substitution possibilities exist. While carbon pricing is generally the first-best policy, the quantifications presented in this paper suggest that regulations and feebates are also good options in the power sector as they have GDP costs that are very close to that of carbon pricing and their effects on energy prices are more contained. A feed-in subsidy also performs well on energy prices (it actually reduces them) but would be much costlier if used on its own because it incentivizes energy consumption, does not limit the use of fossil fuels, and needs to be financed with higher taxes. … contrary to common perception, a carbon tax does not necessarily put a country’s competitiveness at a disadvantage relative to other countries using regulation, as the carbon tax can lead to more effective and flexible abatement and its revenue can be used to reduce other taxes. … Explicitly accounting for all forms of climate policy while coordinating to limit substantial competitiveness effects from asymmetric policies where there is such risk would facilitate efforts to form a coalition“ (p. 37/38).

Carbon removal policies: Pigou’s Advice and Sisyphus’ Warning: Carbon Pricing with Non-Permanent Carbon-Dioxide Removal by Matthias Kalkuhl, Max Franks, Friedemann Gruner, Kai Lessmann, Ottmar Edenhofer as of Jan. 3^rd, 2023 (#7): “This paper develops a welfare and public economics perspective on optimal policies for carbon removal and storage in non-permanent sinks like forests, soil, oceans, wood products or chemical products. … we characterize three different policy regimes that ensure an optimal deployment of carbon removal: downstream carbon pricing, upstream carbon pricing, and carbon storage pricing. The policy regimes differ in their informational and institutional requirements regarding monitoring, liability and financing“ (abstract).

Brown consumers: Correcting Consumer Misperceptions about CO2 Emissions by Taisuke Imai, Davide D. Pace, Peter Schwardmann, and Joël J. van der Weele as of Dec. 21^st, 2022 (#11): “We have used incentivized survey techniques to elicit both beliefs about the carbon impact of consumer products and the valuation of this impact. We find that most consumers underestimate the impact, but heterogeneity is large. While they are willing to pay to offset carbon emissions, this willingness is highly concave and varies by subgroups. … In an experimental test, we find little support for our predictions: despite a large correction in their beliefs about beef meat, subjects are largely unresponsive in their valuations of beef products. Our results show that correcting consumer beliefs does not necessarily lead to lower demand for carbon-intense consumer products, even in settings where misperceptions are large, and consumers indicate that they are interested in offsetting emissions“ (p. 31).

Cool cities? Global warming and urbanization by Marc Helbling and Daniel Meierrieks as of Oct. 1^st, 2022: “Analyzing 118 countries between 1960 and 2016, we find that higher temperatures correlate with higher urbanization rates  … This long-run association is especially relevant in poorer and more agriculture-dependent countries with an urban bias as well as in initially non-urban countries in hotter climate zones. We also provide suggestive evidence that warming contributes to losses in agricultural productivity and to pro-urban shifts in public goods provision …”

Solar sharing: Peer-to-Peer Solar and Social Rewards: Evidence from a Field Experiment by Stefano Carattini, Kenneth Gillingham, Xiangyu Meng, Erez Yoelias of Jan. 3^rd, 2023 (#5): “Peer-to-peer solar offers an opportunity to households who cannot have solar on their homes to access solar energy from their neighbors. However, unlike solar installations, peer-to-peer solar is an invisible form of pro-environmental behavior. … Facebook ads … treated customers were informed that they could share “green reports” online, providing information to others about their greenness. We find that interest in peer-to-peer solar increases by up to 30% when “green reports,” which would make otherwise invisible behavior visible, are mentioned in the ads“ (abstract).

Responsible investment research

Dark brown banks: Carbon taxes and the geography of fossil lending by Luc Laeven and Alexander Popov as of Dec. 22^nd, 2022 (#20): “ … national authorities are concerned that imposing carbon taxes unilaterally would hurt their economies as carbon-intensive activities migrate to different jurisdictions. In this paper, we show that such carbon tax arbitraging can indeed happen because of adjustments in multinational banks’ lending portfolios. Our main finding is that following an exogenous increase in the price of carbon in their domestic market (as a result of the introduction of a carbon tax), banks reduce their lending to coal, oil, and gas companies at home, and increase such fossil lending abroad. This reallocation of fossil lending across national borders is immediate, economically meaningful, and statistically significant. Our analysis suggests that after a carbon tax is introduced in a country, foreign lending to fossil companies increases by 6.8 percent. At the same time, because domestic fossil lending declines, overall fossil lending goes down by about 0.4%. We find a similar effect of joining an ETS, as well as in the case of lending to other carbon-intensive sectors, such as metallurgy and cement production. … Banks are much more willing to reallocate lending across national borders if they already have substantial fossil lending. … Finally, banks in markets hit by carbon taxes are more likely to increase lending to private firms, to low-growth and low-debt companies, and to companies they already have a lending relationship with” (p. 38/39).

Loan greenwashing: Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review by Alix Auzepy, Christina E. Bannier and Fabio Martin as of Dec. 21^st, 2022 (#245): “The issuance of sustainability-linked loans (SLLs) has grown exponentially in recent years. … we examine the underlying key performance indicators of a large sample of SLLs … We demonstrate that the majority of loans fails to meet key requirements that would make them credible instruments for generating effective sustainability incentives”.

Biodiversity benefits: The Market Effect of Acute Biodiversity Risk: the Case of Corporate Bond by Amina Cherief, Takaya Sekine, and Lauren Stagnol from Amundi as of Dec. 8^th, 2022 (#236): “We demonstrate that the companies operating within the sectors that are the most harmful to biodiversity are particularly exposed to spread widening following acute biodiversity events. Continuing with companies from sectors with a significant impact on biodiversity, we showcased the possibility of a biodiversity risk premium in Australia between 2019 and 2022. This result also held when dismissing periods following acute biodiversity events“ (p. 52).

Nature derivative: The Feasibility of the Debt-for-Nature Swap as a Climate Finance Instrument by Luciana S Maulida as of Dec. 11^th, 2022 (#19): “DFN swap is acknowledged to be advantageous for the involved parties: (a) the debtor country benefits from a portion of the country’s external or foreign debt being relieved or forgiven in exchange for investment commitments in environmental policy measures, (b) the creditor country benefits from the improve environmental credentials and increase the value of the remaining debts, and (c) the public is benefit from the positive outcome of the environmental measures conducted and funded by the swap. … Based on the analysis of the climate finance elements and DFN swap implementation in Indonesia and Seychelles, it can be concluded that DFN swap can be used as climate finance. … In order to be classified as an instrument of climate finance, DFN swap should provide new and additional financial resources on a concessional basis with an adequate and predictable flow of funds for climate-related projects with attributable incremental costs” (p. 19).

ESG beliefs, Voting and Engagement

Investment managers disbeliefs: Revealed Beliefs about Responsible Investing: Evidence from Mutual Fund Managers by Vitaly Orlov, Stefano Ramelli, and Alexander F. Wagner as of Jan. 6^th, 2023 (#13): “We infer fund managers’ expectations regarding ESG by studying the sustainability performance of their funds when they have “skin in the game”, that is, when their investment choices have consequences also on personal wealth. We find evidence of a robust negative relationship between mutual fund managerial ownership and future portfolio sustainability performance” (p. 29). My comment: I invest a large part of my personal wealth in my “most-responsible” mutual fund

ESG talk and performance: ESG In Corporate Filings: An AI Perspective by Irene Aldridge and Payton Martin as of Dec. 6^th, 2022 (#87): “… we quantitatively examine the mentions of ESG terms in the U.S. corporate filings with the SEC over the 2019-20 period. We find that in our sample of companies, the management tends to focus ESG discussions in corporate filings along three dimensions: 1) diversity, 2) hazardous materials, and 3) greenhouse gasses. However, overall, the companies and their stakeholders approach ESG from the following three “ESG pillars”: 1) a combination of greenhouse gasses, data security and inclusion, 2) a tradeoff between emissions and product quality, and 3) product labeling. … We find that the strategic ESG messaging in corporate filings matters and significantly impacts corporations’ forward-looking returns” (abstract).

Analyst climate impact: Analyst Coverage and Corporate Environmental Policies by Chenxing Jing, Kevin Keasey, Ivan Lim, and Bin Xu as of Dec. 8^th, 2022 (#72): “Difference-in-differences estimates show that firms experiencing exogenous decreases in analyst coverage significantly increase their toxic pollution relative to a matched group of control firms. In cross-sectional tests, we find the effect is more pronounced in treated firms with low initial analyst coverage, poor corporate governance, and firms that are monitored less intensely by environmental regulators. We then provide evidence on four non-mutually exclusive channels through which decreases in analyst coverage lead to higher corporate pollution: fewer environmental questions raised during conference calls, higher cost of monitoring for institutional investors, reductions in firm investments in pollution abatement technologies and processes, and deteriorating internal governance related to environmental goals” (p. 35/36).

Blackrock & co. problems: Big Three Power, and Why it Matters by Lucian Bebchuk and Scott Hirst as of Dec. 23^rd, 2022 (#245): “The Big Three (Sö: Blackrock, Vanguard and State Street) collectively hold more than 20% of the shares of S&P 500 companies and almost 25% of the votes cast at the annual meetings of those companies. … The Big Three have incentives to be more deferential to the managers of the companies in which they invest than would be optimal for their own investors and to invest less in stewardship than their own investors would prefer. … the deferential actions of the Big Three insulate corporate managers from challenges by others, and the structure of the index fund market means that it contains no corrective mechanism that would lead the Big Three to improve their stewardship performance” (p. 55).

Effective engagement? Walk the Talk: Shareholders’ Soft Engagement at Annual General Meetings by Alix Auzepy, Christina E. Bannier, and Fabio Martin as of Dec. 11^th, 2022 (#292): “The right to ask questions and voice their opinions at annual general meetings (AGMs) represents one of the few avenues for shareholders to communicate directly and publicly with the firm’s management. Examining AGM transcripts of U.S. companies between 2007 and 2021, we find that shareholders actively express their concerns about environmental, social and governance (ESG) issues in accordance with their specific relationship with the company. Further, they are also demonstrably more vocal about ESG issues at AGMs of firms with poor sustainability performance. What is more, we show that this soft engagement translates into a more negative tone which, in turn, results in lower approval rates for management proposals” (abstract). My comment see Impact Investing mit Voting und Engagement? (Opinionpost #194) – Responsible Investment Research Blog (prof-soehnholz.com)

Traditional investment research

Moving averages work: Technical Trading Rules, Loss Avoidance, and The Business Cycle by Lerby Ergun, Alexander Molchanov, and Philip Stork as of Sept. 9^th, 2022 (#43): Technical trading rules-based strategies in equity markets substantially reduce left tail risk exposure. Following a simple moving average strategy, an investor would be able to avoid a large percentage of negative shocks. Left tail exposure is reduced even further during NBER recessions, which we attribute to feedback effects between financial markets and the real economy. Theory suggests that risk reduction should be accompanied by a performance penalty. Our findings, however, are not consistent with this notion – TTR performance measures are almost always better than those corresponding to a buy-and-hold strategy. Our results are remarkably robust and warrant further investigation of various trading strategies from the perspective of left tail risk reduction. My comment: This is also my experience see Einfaches Risikomanagement kann erstaunlich gut funktionieren – Responsible Investment Research Blog (prof-soehnholz.com)

Consultants reduce job risks: Choosing Pension Fund Investment Consultants by Aleksandar Andonov, Matteo Bonetti and Irina Stefanescu as of Dec. 28^th, 2022 (#16): “Pension funds rely on the advisory services of investment consultants for asset allocation decisions, manager selection, and performance benchmarking. While prior research finds that consultants generally do not add value, pension funds have increased the number of consultants over time, particularly in alternative assets, such as real assets, private equity and hedge funds. … We find that consultants are more likely to be hired by funds with high allocations to alternative assets or having political boards. Pension funds are also more likely to hire consultants that have a discretionary asset management services arm, despite potential agency conflicts. Both hiring and firing depend on past performance, although we find weak evidence that performance improves subsequent to a consultant turnover. Overall, our evidence is consistent with pension funds hiring consultants to shift responsibility rather than improve performance” (abstract).

Stupid private equity investments: Desperate Capital Breeds Productivity Loss: Evidence from Public Pension Investments in Private Equity by Vrinda Mittal as of Dec. 13^th, 2022 (#380): “Using a sample of 6,700 buyouts from 1997 to 2018, I show that while private equity led to substantial increases in labor productivity at targets relative to control firms in the first half of 2000s, the second half has seen substantial decreases in labor productivity. … The decrease in labor productivity at targets post buyout coincides with an increase in capital from the most underfunded public pensions to private equity. … I show that firms with the most underfunded public pensions as the dominant investor, experience a −5.2% labor productivity change per year post buyout, whereas firms majorly financed by investors other than public pension funds experience a +5.2% productivity gain. Further, targets financed by low quality GPs show decreases in productivity” (p. 40/41).