“Employees are our greatest asset” is a phrase often heard from companies. However, due to accounting rules requiring that most expenditures related to employees be treated as costs and expensed as incurred, the value of employees is an intangible asset that does not appear on any balance sheet. That leaves the interesting question of whether employee satisfaction provides information on future returns.
There is a “Pink” elephant in the room. The paucity of women in the key investment and decisión-making roles in finance is that “pink” elephant. While women are represented at 33%, 37%, and 63% in the law, medical, and accounting professions, respectively (Morningstar 2016), the percentage of female investment decision-makers in investment pales in comparison at less than 10%. And it gets worse if we look at sub-sectors. Take private equity, it’s 6% (Lietz, 2011), hedge funds at 3% (Soloway, 2011), or investment banking documented in this scorecard, at a global median of 0%.
After 40 years or so, quantitative investing has evolved into a thriving practice. A major feature of the quantitative approach involves developing underlying numerical models and testing them on a historical (data) record and then forecasting where alpha may be embedded into the prices of a set of stocks. Whether you agree or disagree with this approach, it is difficult to deny that with the advanced state of data access and computational skill, “quants will win the day in ESG investing”. Such is the premise of this article and happily, it is accompanied by a compelling argument.
Carbon markets are quickly making their way to the forefront of Environmental, Social, and Governance (ESG) investing, as well as the finance community as a whole. The Kraneshares Global Carbon ETF, (Ticker: KRBN) (whose holdings I’ll dive into shortly) was one of the top 5 performing ETFs in 2021 on a % return basis (Ferringer, Best performing ETFs of the Year - etf.com). However, it doesn’t appear that 2021 was a one-hit-wonder for Carbon Markets, but instead, the beginning of a new and very real trend.
We will be hosting our 5th annual Democratize Quant conference later this month via Zoom. The event is 100% free but we do screen participants to enforce our "no spammers" policy. https://alphaarchitect.com/democratizequant/
In theory green stocks should have lower expected returns, this however, is not what we've seen. So the question is what has caused the outperformance of green stocks? And has that outperformance cost value investors their returns?
There was really only one question investigated in this research: Are social preferences and values the main drivers of an SRI investors' choice of SRI mutual funds?
Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations Kronlund, Pool, Sialm and StefanescuJournal of Financial Economics, 2021A version of this paper can be found hereWant to read our summaries of [...]
Sustainable investing has grown substantially in recent years, demonstrating that investor demand can be driven by nonfinancial issues such as environmental (E), social (S), and governance (G) characteristics. A full list of our posts on [...]
Aggregate Confusion: The divergence of ESG ratings Florian Berg, Julian F. Koelbel, and Roberto RigobonMIT Working PaperA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our [...]
Impact Investing: Killing Two Birds with One Stone? Caseau and GrolleauFinancial Analyst Journal, 2020A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category What [...]
Decarbonizing Everything Alexander Cheema-Fox, Bridget Realmuto LaPerla, George Serafeim, David Turkington, & Hui (Stacie) WangFinancial Analysts JournalA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our [...]
While environmental, social, and governance (ESG) investing continues to gain in popularity, economic theory suggests the share prices of “sin” businesses (typically those involved in the gambling, tobacco, alcohol, guns, and defense industries) will become [...]
Board Gender Diversity and Corporate Innovation: International Evidence Dale Griffin , Kai Li , and Ting XuJournal of Financial and Quantitative AnalysisA version of this paper can be found hereWant to read our summaries of academic [...]
Optimal Strategies for ESG Portfolios Fabio Alessandrini and Eric JondeauJournal of Portfolio ManagementA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category [...]
ESG as Waving Banners and as Pulling Plows Meir StatmanJournal of Portfolio Management, 2020A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category What [...]
Get Green or Die Trying? Carbon Risk Integration into Portfolio Management Maximilian Görgen, Andrea Jacob, and Martin NerlingerJournal of Portfolio ManagementA version of this paper can be found hereWant to read our summaries of academic finance [...]
Deconstructing ESG Ratings Performance: Risk and Return for E, S, and G by Time Horizon, Sector, and Weighting Guido Giese, Zoltán Nagy, and Linda-Eling LeeJournal of Portfolio ManagementA version of this paper can be found hereWant [...]
Climate Change and Asset Allocation: A Distinction That Makes a Difference Brian Jacobsen, Eddie Cheng, and Wai LeeJournal of Portfolio ManagementA version of this paper can be found hereWant to read our summaries of academic finance [...]
A few years ago, before launching our freedom-weighted emerging markets index, I was in a coffee shop where I overheard a group of students talking at the next table. They were anxious about an upcoming [...]