Herds on green meadows: the decarbonization of institutional portfolios

Benz, Lukas; Jacob, Andrea; Paulus, Stefan; Wilkens, Marco

doi:10.1057/s41260-019-00147-z

Cited by 29 publications

(22 citation statements)

References 34 publications

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“…In addition to screening mechanisms aimed at excluding carbon‐intensive companies, investors could also engage in trading in the sense of decarbonization, therefore selling carbon‐intensive and buying non carbon‐intensive firms. Benz, Jacob, Paulus, and Wilkens (2020) even show that trading in the sense of decarbonization triggers follow‐up trades by other investors, which represents herding behavior. The increasing interest of investors in sustainable investment opportunities leads consequently to a growing number of green investment vehicles that seek to incorporate not only financial but also social and environmental aspects in their investment process.…”

Section: Background and Related Literaturementioning

confidence: 99%

“…In this respect, we hope that this study encourages future research to further investigate the effects of ownership structure on the development of corporate CO 2 emissions. Another suggestion for future work is to examine whether the general tendency towards portfolio decarbonization (see also, e.g., Benz et al, 2020) will lead to a reaction of corporate management in terms of a CO 2 ‐efficient redesign of business processes.…”

Section: Conclusion Implications and Limitationsmentioning

confidence: 99%

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Investors' carbon risk exposure and their potential for shareholder engagement

et al. 2020

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This article examines the exposure to and management of carbon risks of different investor types. Considering the dual role as portfolio manager and partial owner, we analyze carbon risk for investors both in terms of exposure to portfolio values and in terms of responsibility as shareholder of carbon‐intensive firms. We show that among various investor types, the preference for holding carbon‐intensive stocks differs substantially, even when considering traditional investment decision parameters. In particular, it is governments whose portfolio values are most threatened by a carbon risk exposure of 49%, but at the same time, they prefer larger ownership shares in polluting firms. In contrast, individual investors, investment advisors, and mutual funds avoid holding stakes in these firms, while revealing only a moderate exposure of their assets to carbon risk. In view of the Paris Agreement, which includes the consistent steering of financial flows towards a low carbon transformation of the economy, our study provides policymakers with important implications regarding the coverage and effects of respective regulations. By identifying the ownership structures of carbon‐intensive firms and respective owners' portfolio compositions, we also offer implications for further research on portfolio decarbonization and shareholders' influence of corporate carbon management.

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Section: Background and Related Literaturementioning

confidence: 99%

Section: Conclusion Implications and Limitationsmentioning

confidence: 99%

Investors' carbon risk exposure and their potential for shareholder engagement

et al. 2020

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“…The review of the literature leads to the second contribution of this study, the investigation of herding behavior on ESG stocks. The current advanced demand for ESG assets might lead investors and fund managers to herd behavior (Przychodzen et al 2016 ; Benz et al 2020 ; Rubbaniy et al 2021 ). Most of the time inexperienced investors follow the investment behavior of others who are believed to be “market experts”.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Przychodzen et al ( 2016 ) investigate the behavior, motives and characteristics of mutual fund managers who incorporate ESG strategies into their investment decisions by providing evidence of herding behavior. In their study, Benz et al ( 2020 ) analyze institutional ownership data and conclude that investors, portfolio advisors and hedge funds follow herding behavior when decarbonizing their portfolios. Furthermore, they concluded that Institutional investors (mutual funds and hedge funds) follow ESG herding due to anxiety to accomplish the market return consensus by imitating their peer’s investment strategies.…”

Section: Literature Reviewmentioning

confidence: 99%

ESG performance, herding behavior and stock market returns: evidence from Europe

Gavrilakis

Floros

2023

Oper Res Int J

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This paper tests how financial performance indicators and combined ESG score for large-cap stocks impact on stock return. In particular, we examine how market capitalization, price to book value, Sharpe ratio and ESG score of large-cap firms in Europe are related to their stock performance. We consider a panel data consisting of six European countries—Portugal, Italy, Greece, Spain, France and Germany—for the period 2010–2020. For Greek and French firms, a firm’s size tends to negatively affect its stock returns. The investors in European countries (except Italy) do not jeopardize their returns by investing in highly ESG scoring firms. We argue that the benefit of not investing in highly ESG-scoring firms might lead investors to select smaller size companies with a higher price to book value and higher Sharpe ratio, as it is more likely to generate higher returns. Moreover, Italian firms are more susceptible to ESG issues, as ESG performance and stock return seem to have a significant negative correlation. This valuable result was confirmed by conducting a robustness test for Europe as a whole using the Euronext100 index. Finally, we find no evidence that ESG motivates herding in our selected sample (this is not the case for Greece and France), while we report evidence of ESG herding behavior during the Covid-19 outbreak in Portugal, Italy and Greece.

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“…The initiative then proceeds to the implementation of the solutions and closes the loop with the impact evaluation. While there are abundant studies conducted regarding the implementation phase of the sustainability efforts (for example, Orazalin and Mahmood [2021]) and the in uence of the nancial market on the attitude of rms towards climate change risks (for example, Benz et al [2020]), these studies focus on the implementation of a rm's climate change related actions by skipping the primary task of identifying them.…”

Section: Introductionmentioning

confidence: 99%

How Do Firms View Climate Change Risks?

Dong

Guo

Patterson

et al. 2023

Preprint

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We filter the risk disclosure statements that include climate change discussions from the recent 10 years of 10-K forms filed by all the public companies in the U.S. With this novel data, we conduct the Latent Dirichlet Allocation (LDA) analysis to identify the firms’ views of climate change at the industry and the economy level. We find that the clustered topics are material adverse financial condition, compliance costs of efficiency standards, physical effects of global climate, changing legislation regulations, cap and trade of greenhouse gasses, weather conditions and natural disasters, Clean Power Plan, and Environmental Protection Agency (EPA) regulations. Most firms do not cover climate change topics except those from the polluting industries, those subject to significant environmental regulation, and those vulnerable to climate change. Most of the firms regard the climate change risk as a set of sustainability risks, though 23% of disclosures view it as a set of regulatory risks.

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Herds on green meadows: the decarbonization of institutional portfolios

Cited by 29 publications

References 34 publications

Investors' carbon risk exposure and their potential for shareholder engagement

Investors' carbon risk exposure and their potential for shareholder engagement

ESG performance, herding behavior and stock market returns: evidence from Europe

How Do Firms View Climate Change Risks?

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