Lecture 3 Flashcards
Why do investors seek to improve firm’s social outcomes?
- Social preferences play a significant role in investors’ SRI decisions
- Meeting client demand about SRI helps to keep clients loyalty
- Meeting client demand about SRI allows for higher fees
- Large investors cannot avoid owning polluters. So they try to influence them to pollute less
Hartzmark & Sussman
Effects about sustainability ratings
Investor response to the introduction of sustainability ratings - after introduction of Morningstar rating, funds with high sustainability attracted more assets, and those with low scores attracted less
Hartzmark & Sussman
Reasons for SI
- Are institutional investors bound by regulation or other limits? → No
- Do better ESG scores coincide with higher realized returns? → No, actually its vice-versa
- Do investors expect a better risk-return ratio from more globes? → Yes
- Is it only about the money expected? → No, people also expect ESG results for better scored SRI funds
Krüger et al
Conclusion 4
Main reasons for ESG investment
For the planet
Because of the law
For better investment results
Riedl & Smeets
Conclusion 1
(..), (..) and (..) explain socially responsible investment
If they are convinced that SRI has social impact they will be (..), but not more than usual
Social preferences, personality, and social signaling
More likely to invest
Krüger et al
Purpose
The importance of climate risks for institutional sustainable investors
Krüger et al
Problem
- Sample bias
- Population are investors that participate at ESG conferences
- Low R^2
Krüger et al
Method
Survey regarding:
1. Investment decisions and opinions
- Risk management
- Shareholder engagement
- View of asset pricing
Krüger et al
Method
- Investment decisions and opinions
- Ranking the risks importance (environmental was chosen as most important)
- Expectations about climate change (majority chose up to 2-3 degrees)
- Climate risks motivation (reputation and moral ethic most important)
Krüger et al
Method
- Risk management
How investors manage climate risk:
Analyze, Make investment choices (less important exclusion)
Krüger et al
Method
- Shareholder engagement
- Discuss with management regarding financial implications on climate risk
- Propose action to reduce climate risk
- Vote against management on proposal over climate risk issues
- Voting against reelection of any board directors due to climate risk issues
Krüger et al
Method
- View of asset pricing
Is the climate risk priced into stocks?
o No, because a lot of carbon emitting industries are overvalued
o ESG heavy investors think that fossil stocks are particularly overvalued (biased)
Riedl & Smeets
Purpose
Why retail investors (people) hold socially responsible mutual funds
Riedl & Smeets
Data
Robeco clients
Portfolio characteristics; Risk preferences; Social preferences; Individual characteristics
Riedl & Smeets
Problems
Small dataset, not-strong results
