Research activities
The Chair and Research Programme in Sustainable Finance does research on a diverse and broad set of topics. Prominent themes include the impact of ESG-considerations on (a) portfolio strategies of asset managers, (b) the risk-return tradeoff, (c) asset valuations and (d) financial security design.
Currently, eight research projects are running, covering diverse topics such as ESG disclosure and financial reporting, carbon risk measurement and management of mutual funds, or risk and returns of ESG investor activism.
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Research in the spotlight
Firm-specific Climate Risk Estimated from News
We estimate firm-specific exposures to climate risk from public news covering a period of 20 years by applying a novel topic modeling algorithm. We differentiate between regulatory (or transition) and physical climate risks and document that financial markets price both risks. Our study is the first to find a positive and statistically significant risk premium for physical climate risk. For regulatory climate risk we find a regime shift occurring around the year 2012 reconciling the conflicting evidence in the literature. While the risk premium is positive in the earlier period, it becomes significantly negative in the later one. A long-short portfolio that is long “green” firms and short “brown” firms, as identified by their topic exposures in public news, constitutes a priced risk factor and shows a surprisingly strong correlation with an ESG-sorted benchmark portfolio.
Authors:
Thomas Dangl
Vienna University of Technology
Michael Halling
University of Luxembourg
Stefan Salbrechter
Vienna University of Technology
Some of our projects
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Start date
1 January 2023
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Duration in months
36
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Funding
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Project team
Thomas Dangl (Vienna University of Technology), Michael Halling (University of Luxembourg), Jin Yu (Monash University), Josef Zechner (Vienna University of Economics and Business)
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Partners
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Description
This paper presents different social preferences and their impact on investors’ and firms’ decisions within a unified framework. We categorize preferences into three types: deontological, non-consequentialist, and consequentialist. When investors are large, all three preferences influence corporate investment. However, when investors are competitive, consequentialist preferences may become irrelevant for corporate investment, unlike the other two preference types. For these two preference types, portfolio divestment has significant effects on the supply of green and brown firms in the economy. We also discuss alternative channels through which social preferences influence decisions and review relevant experimental and empirical evidence.
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Link
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Start date
1 January 2023
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Duration in months
36
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Funding
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Project team
Marina Emiris (National Bank of Belgium); Joanna Harris (University of Chicago)
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Partners
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Description
We study the effect of environmental preferences on portfolio allocation around the implementation of the European Sustainable Finance Disclosure Regulation (SFDR). In a model of asset allocation with heterogeneous environmental preferences, we show that the introduction of disclosure regulation leads to an increase in flows to ESG funds, in particular when investors have stronger environmental preferences. We also show that it can be optimal for some funds to misreport their greenness. We test these results by combining unique security-level data on the holdings of European mutual fund shares with survey data on country preferences for protecting the environment. We find that ESG funds experienced higher flows after the regulation, and that the development of these funds was largest in countries with stronger environmental preferences. Institutional investors appear to be more responsive to the disclosure rules than households, and funds with higher initial uncertainty about their true sustainability benefited most from the disclosure.
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Link