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<title>Chapter 1 Introduction | Perspectives in sustainable equity investing</title>
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<nav aria-label="Table of contents"><h2>Table of contents</h2>
<ul class="book-toc list-unstyled">
<li><a class="active" href="index.html"><span class="header-section-number">1</span> Introduction</a></li>
<li><a class="" href="ESGdata.html"><span class="header-section-number">2</span> ESG Data</a></li>
<li><a class="" href="Investors.html"><span class="header-section-number">3</span> Investors and SRI</a></li>
<li><a class="" href="Perf.html"><span class="header-section-number">4</span> ESG investing and financial performance</a></li>
<li><a class="" href="Quant.html"><span class="header-section-number">5</span> Quantitative portfolio construction with ESG data and criteria</a></li>
<li><a class="" href="Climate.html"><span class="header-section-number">6</span> Climate change risk</a></li>
<li><a class="" href="Equilibrium.html"><span class="header-section-number">7</span> SRI in economic equilibria</a></li>
<li><a class="" href="Conc.html"><span class="header-section-number">8</span> Conclusion</a></li>
<li><a class="" href="Bib.html"><span class="header-section-number">9</span> Bibliography</a></li>
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</header><main class="col-sm-12 col-md-9 col-lg-7" id="content"><!--bookdown:title:end--><!--bookdown:title:start--><div id="Introduction" class="section level1" number="1">
<h1>
<span class="header-section-number">1</span> Introduction<a class="anchor" aria-label="anchor" href="#Introduction"><i class="fas fa-link"></i></a>
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<p><strong>This website is periodically updated</strong> - current version: 2022-07-18<br>
The printed version of the book (CRC Press) was released in March 2022 and is available on the <a href="https://www.taylorfrancis.com/books/mono/10.1201/9781003215257/perspectives-sustainable-equity-investing-guillaume-coqueret"><strong>publisher</strong></a> <a href="https://www.routledge.com/Perspectives-in-Sustainable-Equity-Investing/Coqueret/p/book/9781032071015#">website</a>, or on Amazon <a href="https://www.amazon.com/Perspectives-Sustainable-Investing-Guillaume-Coqueret-ebook/dp/B09RRMCB4R/ref=sr_1_1?"><strong>US</strong></a>, <a href="https://www.amazon.co.uk/Perspectives-Sustainable-Investing-Guillaume-Coqueret-ebook/dp/B09RRMCB4R/ref=sr_1_1"><strong>UK</strong></a> and <a href="https://www.amazon.fr/Perspectives-Sustainable-Equity-Investing-English-ebook/dp/B09RRMCB4R/ref=sr_1_1"><strong>France</strong></a>.</p>
<p>The research on sustainable finance has intensified in the past decade. This <strong>survey</strong> aims to synthesize recent academic results and models on socially responsible investing (SRI) in equity markets. The review is based on more than 900 sources (scholarly articles mostly) and is split into six thematic parts: <a href="http://www.esgperspectives.com/ESGdata.html"><strong>data</strong></a> issues, investor <a href="http://www.esgperspectives.com/Investors.html"><strong>preferences</strong></a>, link with <a href="http://www.esgperspectives.com/Perf.html"><strong>financial performance</strong></a>, <a href="http://www.esgperspectives.com/Quant.html"><strong>portfolio</strong></a> integration, <a href="http://www.esgperspectives.com/Climate.html"><strong>climate change risk</strong></a>, and <a href="http://www.esgperspectives.com/Equilibrium.html"><strong>theoretical models</strong></a>.</p>
<p>The full bibliography can be accessed in the data folder of the <a href="https://github.com/shokru/esgperspectives.github.io"><strong>Github</strong></a> repo of the book (‘bib.bib’), or in the <a href="http://www.esgperspectives.com/Bib.html">last chapter</a> of the book. Typo corrections and reference additions can be performed by pulling requests: <strong>contributors are invited to improve the content</strong>.</p>
<p>The <strong>online</strong> version of the book will be updated regularly and it features <strong>code chunks</strong> in R that were used to generate several figures.<br>
For Python users, we point to a related <a href="https://github.com/shokru/carbon_emissions">Github project</a> even though the scope is slightly different.</p>
<div id="intro1" class="section level2" number="1.1">
<h2>
<span class="header-section-number">1.1</span> Content and target audience<a class="anchor" aria-label="anchor" href="#intro1"><i class="fas fa-link"></i></a>
</h2>
<p>This short book is a large-scale literature review on the topic of <strong>sustainable equity investing</strong>. It covers more than 900 academic sources (research articles, overwhelmingly), grouped into six thematic chapters. As such, it can serve as reference for analysts and researchers who work on environmental, social or governance (ESG)-driven portfolios. The book assumes no prior knowledge of this field, but some parts, especially the last chapter, can be rather technical mathematically.</p>
<p>While the sheer number of references may seem exhaustive, the survey only scratches the surface of the topic because the amount of contributions is daunting. The best round estimate on the pace of the development of the literature is roughly two serious papers per day (based on one year of compiling research output). The intellectual production on this matter is such that surveying a narrow subfield thereof can take weeks. In addition, all facets of the issue are interconnected, so that it does not make any sense to consider them separately. Focusing on pure ESG integration without notions in climate change risk is ill-advised. The big picture matters.</p>
<p>Briefly, we outline the chapters of the book below.<br>
- <strong>Chapter</strong> <a href="ESGdata.html#ESGdata">2</a> introduces a large number of terms to make sure the reader familiarizes with the jargon and nomenclature.<br>
- In <strong>Chapter</strong> <a href="Investors.html#Investors">3</a>, we cover the broad theme of <em>green investors</em>, including their beliefs, preferences, and practices, as well as the topic of impact investing.<br>
- <strong>Chapter</strong> <a href="Perf.html#Perf">4</a>, which is the core of the book, is dedicated to the very complex relationship between ESG investing and financial performance.<br>
- Technical details on how to integrate sustainable criteria in complex portfolio optimization are provided in <strong>Chapter</strong> <a href="Quant.html#Quant">5</a>.<br>
- The subject of climate change (its measurement, impact, and how to tackle it) is treated in <strong>Chapter</strong> <a href="Climate.html#Climate">6</a>.<br>
- Finally, <strong>Chapter</strong> <a href="Equilibrium.html#Equilibrium">7</a> is dedicated to theoretical models related to ESG investing and to the push for sustainability more broadly in the economy.</p>
<p>The review is compact, meaning that we favored concision to in-depth treatment. The monograph is intended as a <strong>thematic compass</strong>, pointing towards some relevant directions. For many topics, the interested reader will have to satisfy his or her curiosity by examining the mentioned references.</p>
<p>While the bulk of the book is non-technical, it is written in an <strong>academic fashion</strong> and the density of references is significantly more pronounced, compared to monographs aimed at popularization. As such, prior knowledge of notions related to ESG investing can prove helpful, even if we cover many of them along the way. Consequently, the readers who will most benefit from this work are professionals who work in the field of corporate sustainability and/or in the money management industry. Students and scholars may also appreciate a very compact overview of most themes that relate to green equity investing.</p>
</div>
<div id="intro3" class="section level2" number="1.2">
<h2>
<span class="header-section-number">1.2</span> Foreword<a class="anchor" aria-label="anchor" href="#intro3"><i class="fas fa-link"></i></a>
</h2>
<p>The output of academic research linked to the broad topic of <em>sustainability</em> is growing exponentially. The reason behind this dynamic is patent: the durable negligence of resources (both natural and human) is increasingly perceived as an unstoppable threat to economic, cultural and social activities. This rising awareness is spreading at many levels and through diverse channels. In particular, investors are increasingly concerned with these issues and their preferences are shifting: environment, social and governance (ESG) preoccupations have become ubiquitous in the money management industry.<a class="footnote-ref" tabindex="0" data-toggle="popover" data-content='<p>See, e.g., CNBC’s report, <a href="https://www.youtube.com/watch?v=OQ1cliM0b0Q">The Rise of ESG Investing</a>.</p>'><sup>1</sup></a> Concomitantly, firms, because they genuinely believe in sustainability, or because they want to <strong>attract capital</strong>, also bend some of their corporate policies toward green or social goals.</p>
<p>This trend stands in sharp contrast with Milton Friedman’s 1970 claim that “<em>The Social Responsibility of Business is to Increase Its Profits</em>” (which is the title of a short article in the <em>New York Times</em> magazine - see <span class="citation"><a href="Bib.html#ref-friedman1970friedman" role="doc-biblioref">M. Friedman</a> (<a href="Bib.html#ref-friedman1970friedman" role="doc-biblioref">1970</a>)</span>).<a class="footnote-ref" tabindex="0" data-toggle="popover" data-content='<p>Surprisingly, maximizing profitability may sometimes be beneficial from a social point of view - see <span class="citation"><a href="Bib.html#ref-green2020allocation" role="doc-biblioref">D. Green and Roth</a> (<a href="Bib.html#ref-green2020allocation" role="doc-biblioref">2020</a>)</span></p>'><sup>2</sup></a> The arguments in the paper are subject to interpretation (see <span class="citation"><a href="Bib.html#ref-hart2017companies" role="doc-biblioref">O. Hart and Zingales</a> (<a href="Bib.html#ref-hart2017companies" role="doc-biblioref">2017</a>)</span>) and must be contextualized (<span class="citation"><a href="Bib.html#ref-austin2020milton" role="doc-biblioref">Austin</a> (<a href="Bib.html#ref-austin2020milton" role="doc-biblioref">2020</a>)</span>), but it is undeniable that the discussions around corporate social responsibility (CSR) have since then spawned a rich and sometimes passionate debate.<a class="footnote-ref" tabindex="0" data-toggle="popover" data-content='<p>Technically, it is hard to date the origins of socially responsible investing (SRI). We refer to <span class="citation"><a href="Bib.html#ref-townsend2020sri" role="doc-biblioref">Townsend</a> (<a href="Bib.html#ref-townsend2020sri" role="doc-biblioref">2020</a>)</span> for a historical perspective on the matter.</p>'><sup>3</sup></a> <span class="citation"><a href="Bib.html#ref-cyert1963behavioral" role="doc-biblioref">Cyert and March</a> (<a href="Bib.html#ref-cyert1963behavioral" role="doc-biblioref">1963</a>)</span> is often cited as a foundational work on the topic. The authors advocate that firms should take into account all stakeholders and not only maximize value for the shareholder. The resulting and rapidly expanding literature, stemming both from scholars and practitioners,<a class="footnote-ref" tabindex="0" data-toggle="popover" data-content='<p>Recently, the Portfolio Management Research umbrella even created a dedicated outlet: the <em>Journal of Impact and ESG Investing</em>. Meanwhile, the <em>Journal of Sustainable Finance &amp; Investment</em> is in its tenth year, and its contributions are reviewed with a bibliometric lens in <span class="citation"><a href="Bib.html#ref-alshater2021journal" role="doc-biblioref">Alshater, Atayah, and Hamdan</a> (<a href="Bib.html#ref-alshater2021journal" role="doc-biblioref">2021</a>)</span>.</p>'><sup>4</sup></a> is notoriously hard to survey. As <span class="citation"><a href="Bib.html#ref-nath2021business" role="doc-biblioref">Nath</a> (<a href="Bib.html#ref-nath2021business" role="doc-biblioref">2021</a>)</span> (p. 194) puts it: “<em>SRI evolved from having a simple definition to a more complex concept embodying heterogeneity in terminology, definitions, strategies and practices</em>.”
</p>
<p>The organization of the book is intended to make it useful to <strong>researchers</strong> or <strong>practitioners</strong> (e.g., quantitative analysts, or portfolio managers) who seek references on a particular subfield of socially responsible investing (SRI) - or who want to make sure their own <strong>literature review</strong> is not missing important or relevant references. The survey is focused on the equity investment space, while other asset classes (e.g., green bonds or sustainable real estate) are out of the scope of the present compilation. One of its intentions is to leave room for recent contributions, hence it incorporates many working papers (consequently, this implies heterogeneity in the quality of the references). In Figures <a href="Introduction.html#fig:journals">1.1</a> and <a href="Introduction.html#fig:years">1.2</a>, we show the outlets which we cite most often (by numbers of papers) as well as the dynamic in publication dates. Whenever an unpublished manuscript could be found on the Social Science Research Network (SSRN), we picked SSRN as the journal affiliation by default, which explains its prominence in the graph below.</p>
<div class="sourceCode" id="cb1"><pre class="downlit sourceCode r">
<code class="sourceCode R"><span class="co"># The code below extracts data from bib file and plots journal counts</span>
<span class="kw"><a href="https://rdrr.io/r/base/library.html">library</a></span><span class="op">(</span><span class="va"><a href="http://tidyverse.tidyverse.org">tidyverse</a></span><span class="op">)</span> <span class="co"># Package for data wrangling</span>
<span class="va">df</span> <span class="op"><-</span> <span class="fu">read_delim</span><span class="op">(</span><span class="st">"bib.bib"</span>, delim <span class="op">=</span> <span class="st">"@"</span><span class="op">)</span> <span class="co"># Read bib file</span>
<span class="va">df_book</span> <span class="op"><-</span> <span class="va">df</span><span class="op">[</span>,<span class="fl">2</span><span class="op">]</span> <span class="op">%>%</span> <span class="co"># From names:</span>
<span class="fu"><a href="https://rdrr.io/r/stats/na.fail.html">na.omit</a></span><span class="op">(</span><span class="op">)</span> <span class="co"># Remove missing points</span>
<span class="fu"><a href="https://rdrr.io/r/base/colnames.html">colnames</a></span><span class="op">(</span><span class="va">df_book</span><span class="op">)</span> <span class="op"><-</span> <span class="st">"type"</span> <span class="co"># Change column names</span>
<span class="va">df</span> <span class="op"><-</span> <span class="va">df</span><span class="op">[</span>,<span class="fl">1</span><span class="op">]</span> <span class="op">%>%</span> <span class="co"># From publication types:</span>
<span class="fu"><a href="https://rdrr.io/r/stats/na.fail.html">na.omit</a></span><span class="op">(</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Remove missing</span>
<span class="fu"><a href="https://rdrr.io/r/stats/filter.html">filter</a></span><span class="op">(</span><span class="fu"><a href="https://rdrr.io/r/base/length.html">length</a></span><span class="op">(</span><span class="va">X1</span><span class="op">)</span><span class="op">></span><span class="fl">1</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Keep long types</span>
<span class="fu">mutate</span><span class="op">(</span>X1 <span class="op">=</span> <span class="fu"><a href="https://rdrr.io/r/base/substr.html">substr</a></span><span class="op">(</span><span class="va">X1</span>, <span class="fl">3</span>, <span class="fu"><a href="https://rdrr.io/r/base/length.html">length</a></span><span class="op">(</span><span class="va">X1</span><span class="op">)</span><span class="op">)</span><span class="op">)</span> <span class="co"># Remove first 2 characters</span>
<span class="va">df</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/strsplit.html">strsplit</a></span><span class="op">(</span><span class="va">df</span><span class="op">$</span><span class="va">X1</span>, <span class="st">"="</span><span class="op">)</span> <span class="co"># Split types before/after "="</span>
<span class="va">df</span> <span class="op"><-</span> <span class="va">df</span> <span class="op">%>%</span> <span class="fu"><a href="https://rdrr.io/r/base/unlist.html">unlist</a></span><span class="op">(</span><span class="op">)</span> <span class="co"># Switch to dataframe</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/which.html">which</a></span><span class="op">(</span><span class="va">df</span> <span class="op">==</span> <span class="st">"journal"</span><span class="op">)</span> <span class="co"># Focus on journals only</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="va">df</span><span class="op">[</span><span class="va">jour</span><span class="op">+</span><span class="fl">1</span><span class="op">]</span> <span class="co"># Index of journals</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">jour</span>, <span class="st">","</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove commas</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">jour</span>, <span class="st">"\\{"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove brackets {</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">jour</span>, <span class="st">"\\}"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove brackets }</span>
<span class="va">jour</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/data.frame.html">data.frame</a></span><span class="op">(</span>jour <span class="op">=</span> <span class="va">jour</span><span class="op">)</span> <span class="co"># Create dataframe</span>
<span class="va">jour</span> <span class="op">%>%</span> <span class="co"># Long pipe that creates plot</span>
<span class="fu">group_by</span><span class="op">(</span><span class="va">jour</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Group by journal</span>
<span class="fu"><a href="https://r-spatial.github.io/sf/reference/tidyverse.html">summarise</a></span><span class="op">(</span>n <span class="op">=</span> <span class="fu">n</span><span class="op">(</span><span class="op">)</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Count</span>
<span class="fu">mutate</span><span class="op">(</span>jour <span class="op">=</span> <span class="fu">str_remove</span><span class="op">(</span><span class="va">jour</span>, <span class="st">"\\\\"</span><span class="op">)</span><span class="op">)</span> <span class="op">%>%</span>
<span class="fu"><a href="https://rdrr.io/r/stats/filter.html">filter</a></span><span class="op">(</span><span class="va">n</span> <span class="op">></span> <span class="fl">4</span><span class="op">)</span> <span class="op">%>%</span>
<span class="fu">ggplot</span><span class="op">(</span><span class="fu">aes</span><span class="op">(</span>x <span class="op">=</span> <span class="fu"><a href="https://rdrr.io/r/stats/reorder.factor.html">reorder</a></span><span class="op">(</span><span class="va">jour</span>, <span class="va">n</span><span class="op">)</span>, y <span class="op">=</span> <span class="va">n</span><span class="op">)</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">geom_col</span><span class="op">(</span>fill <span class="op">=</span> <span class="st">"#86B991"</span>, alpha <span class="op">=</span> <span class="fl">0.9</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">theme_light</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">coord_flip</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">scale_y_log10</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">theme</span><span class="op">(</span>axis.title.y<span class="op">=</span><span class="fu">element_blank</span><span class="op">(</span><span class="op">)</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">geom_text</span><span class="op">(</span><span class="fu">aes</span><span class="op">(</span>label <span class="op">=</span> <span class="va">n</span><span class="op">)</span>, hjust <span class="op">=</span> <span class="fl">1.5</span>, color <span class="op">=</span> <span class="st">"white"</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">ylab</span><span class="op">(</span><span class="st">"Number of articles (logscale)"</span><span class="op">)</span> </code></pre></div>
<div class="figure" style="text-align: center">
<span id="fig:journals"></span>
<img src="ESG_p_files/figure-html/journals-1.png" alt="Articles per journal." width="672"><p class="caption">
FIGURE 1.1: Articles per journal.
</p>
</div>
<p>The survey encompasses 963 articles, 35 books,
9 book chapters and 3 technical reports.</p>
<div class="sourceCode" id="cb2"><pre class="downlit sourceCode r">
<code class="sourceCode R"><span class="co"># The code below plots the evolution of publication intensity</span>
<span class="va">year</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/which.html">which</a></span><span class="op">(</span><span class="va">df</span> <span class="op">==</span> <span class="st">"year"</span><span class="op">)</span> <span class="co"># Extract year data</span>
<span class="va">year</span> <span class="op"><-</span> <span class="va">df</span><span class="op">[</span><span class="va">year</span><span class="op">+</span><span class="fl">1</span><span class="op">]</span> <span class="co"># Index of year</span>
<span class="va">year</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">year</span>, <span class="st">","</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove commas</span>
<span class="va">year</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">year</span>, <span class="st">"\\{"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove bracket</span>
<span class="va">year</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">year</span>, <span class="st">"\\}"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove bracket</span>
<span class="va">year</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/data.frame.html">data.frame</a></span><span class="op">(</span>year <span class="op">=</span> <span class="fu"><a href="https://rdrr.io/r/base/numeric.html">as.numeric</a></span><span class="op">(</span><span class="va">year</span><span class="op">)</span><span class="op">)</span> <span class="co"># Convert to dataframe</span>
<span class="va">year</span> <span class="op">%>%</span> <span class="co"># Piping flow for the plot</span>
<span class="fu">group_by</span><span class="op">(</span><span class="va">year</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># For each year...</span>
<span class="fu"><a href="https://r-spatial.github.io/sf/reference/tidyverse.html">summarise</a></span><span class="op">(</span>n <span class="op">=</span> <span class="fu">n</span><span class="op">(</span><span class="op">)</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># ... count the # of instance</span>
<span class="fu"><a href="https://rdrr.io/r/stats/filter.html">filter</a></span><span class="op">(</span><span class="va">year</span> <span class="op">></span> <span class="fl">1989</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Keep only > 1989</span>
<span class="fu">ggplot</span><span class="op">(</span><span class="fu">aes</span><span class="op">(</span>x <span class="op">=</span> <span class="va">year</span>, y <span class="op">=</span> <span class="va">n</span><span class="op">)</span><span class="op">)</span> <span class="op">+</span> <span class="fu">geom_col</span><span class="op">(</span>fill <span class="op">=</span> <span class="st">"#86B991"</span>, alpha <span class="op">=</span> <span class="fl">0.9</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">theme_light</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span> <span class="fu">theme</span><span class="op">(</span>axis.title.y<span class="op">=</span><span class="fu">element_blank</span><span class="op">(</span><span class="op">)</span><span class="op">)</span> <span class="op">+</span> <span class="fu">xlab</span><span class="op">(</span><span class="st">"Year"</span><span class="op">)</span> </code></pre></div>
<div class="figure" style="text-align: center">
<span id="fig:years"></span>
<img src="ESG_p_files/figure-html/years-1.png" alt="References per year." width="672"><p class="caption">
FIGURE 1.2: References per year.
</p>
</div>
<p>In Figure <a href="Introduction.html#fig:keywords">1.3</a>, we exhibit the most frequent words in the titles of the references.</p>
<div class="sourceCode" id="cb3"><pre class="downlit sourceCode r">
<code class="sourceCode R"><span class="kw"><a href="https://rdrr.io/r/base/library.html">library</a></span><span class="op">(</span><span class="va"><a href="https://github.com/juliasilge/tidytext">tidytext</a></span><span class="op">)</span> <span class="co"># Package for text processing</span>
<span class="va">title</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/which.html">which</a></span><span class="op">(</span><span class="va">df</span> <span class="op">==</span> <span class="st">"title"</span><span class="op">)</span>
<span class="va">title</span> <span class="op"><-</span> <span class="va">df</span><span class="op">[</span><span class="va">title</span><span class="op">+</span><span class="fl">1</span><span class="op">]</span>
<span class="va">title</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">title</span>, <span class="st">"\\{"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove brackets</span>
<span class="va">title</span> <span class="op"><-</span> <span class="fu">str_replace_all</span><span class="op">(</span><span class="va">title</span>, <span class="st">"\\}"</span>, <span class="st">""</span><span class="op">)</span> <span class="co"># Remove brackets</span>
<span class="va">tokens</span> <span class="op"><-</span> <span class="fu"><a href="https://rdrr.io/r/base/data.frame.html">data.frame</a></span><span class="op">(</span>title <span class="op">=</span> <span class="va">title</span><span class="op">)</span> <span class="op">%>%</span> <span class="fu"><a href="https://rdrr.io/pkg/tidytext/man/unnest_tokens.html">unnest_tokens</a></span><span class="op">(</span><span class="va">word</span>, <span class="va">title</span><span class="op">)</span>
<span class="va">tidy_tokens</span> <span class="op"><-</span> <span class="va">tokens</span> <span class="op">%>%</span>
<span class="fu">anti_join</span><span class="op">(</span><span class="va">stop_words</span><span class="op">)</span> <span class="co"># Remove stop words</span>
<span class="va">tidy_tokens</span> <span class="op">%>%</span>
<span class="fu">count</span><span class="op">(</span><span class="va">word</span>, sort <span class="op">=</span> <span class="cn">TRUE</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Count words</span>
<span class="fu">arrange</span><span class="op">(</span><span class="fu">desc</span><span class="op">(</span><span class="va">n</span><span class="op">)</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Order words</span>
<span class="fu"><a href="https://rdrr.io/r/utils/head.html">head</a></span><span class="op">(</span><span class="fl">35</span><span class="op">)</span> <span class="op">%>%</span> <span class="co"># Number of words displayed</span>
<span class="fu">ggplot</span><span class="op">(</span><span class="fu">aes</span><span class="op">(</span>x <span class="op">=</span> <span class="fu"><a href="https://rdrr.io/r/stats/reorder.factor.html">reorder</a></span><span class="op">(</span><span class="va">word</span>,<span class="va">n</span><span class="op">)</span>, y <span class="op">=</span> <span class="va">n</span><span class="op">)</span><span class="op">)</span> <span class="op">+</span> <span class="fu">geom_col</span><span class="op">(</span>fill <span class="op">=</span> <span class="st">"#86B991"</span>, alpha <span class="op">=</span> <span class="fl">0.6</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">theme_light</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span> <span class="fu">coord_flip</span><span class="op">(</span><span class="op">)</span> <span class="op">+</span> <span class="fu">xlab</span><span class="op">(</span><span class="st">"Keywords"</span><span class="op">)</span> <span class="op">+</span>
<span class="fu">theme</span><span class="op">(</span>axis.title.x<span class="op">=</span><span class="fu">element_blank</span><span class="op">(</span><span class="op">)</span><span class="op">)</span> </code></pre></div>
<div class="figure" style="text-align: center">
<span id="fig:keywords"></span>
<img src="ESG_p_files/figure-html/keywords-1.png" alt="Most frequent keywords in the titles of the references mentioned in the survey." width="672"><p class="caption">
FIGURE 1.3: Most frequent keywords in the titles of the references mentioned in the survey.
</p>
</div>
<p>Because of the sheer quantity of work published on sustainable investing, it is sometimes imperative to make editing choices and cluster many contributions in a short amount of space. Even though it is clearly suboptimal from a qualitative standpoint, we occasionally resort to simple lists, instead of literary prose. This is meant to ease the presentation in an exercise that requires concision. Finally, throughout the book, we will resort to jargon and acronyms such as: CSI, or, corporate social irresponsibility which is less frequent than CSR, but sometimes used in studies (see <span class="citation"><a href="Bib.html#ref-windsor2013corporate" role="doc-biblioref">Windsor</a> (<a href="Bib.html#ref-windsor2013corporate" role="doc-biblioref">2013</a>)</span>), <span class="citation"><a href="Bib.html#ref-kang2016washing" role="doc-biblioref">C. Kang, Germann, and Grewal</a> (<a href="Bib.html#ref-kang2016washing" role="doc-biblioref">2016</a>)</span> and <span class="citation"><a href="Bib.html#ref-price2017doing" role="doc-biblioref">Price and Sun</a> (<a href="Bib.html#ref-price2017doing" role="doc-biblioref">2017</a>)</span>), corporate social performance (CSP), corporate environmental performance (CEP), and corporate financial performance (CFP).
</p>
</div>
<div id="intro4" class="section level2" number="1.3">
<h2><span class="header-section-number">1.3</span> Previous surveys and meta studies</h2>
<p>The blossoming of ESG investing has generated a thriving literature.<a href="#fn5" class="footnote-ref" id="fnref5"><sup>5</sup></a> There have been several attempts to summarize and synthesize parts of it. In this landscape, because so many articles have been written on SRI, some authors have written meta-analyses on the subject. But as of 2021, there are so many <strong>meta-studies</strong> that it has almost become possible to compile a chronological meta-meta survey:</p>
<ul>
<li><span class="citation"><a href="Bib.html#ref-orlitzky2003corporate" role="doc-biblioref">Orlitzky, Schmidt, and Rynes</a> (<a href="Bib.html#ref-orlitzky2003corporate" role="doc-biblioref">2003</a>)</span> find that, overall, CSP is positively correlated with CFP.</li>
<li><span class="citation"><a href="Bib.html#ref-margolis2009does" role="doc-biblioref">Margolis, Elfenbein, and Walsh</a> (<a href="Bib.html#ref-margolis2009does" role="doc-biblioref">2009</a>)</span> also document a positive effect, albeit a small one.</li>
<li><span class="citation"><a href="Bib.html#ref-rathner2013influence" role="doc-biblioref">Rathner</a> (<a href="Bib.html#ref-rathner2013influence" role="doc-biblioref">2013</a>)</span> concludes that, across 25 studies on socially responsible versus conventional funds, there is little evidence of outperformance in either direction.</li>
<li><span class="citation"><a href="Bib.html#ref-endrikat2014making" role="doc-biblioref">Endrikat, Guenther, and Hoppe</a> (<a href="Bib.html#ref-endrikat2014making" role="doc-biblioref">2014</a>)</span> compile 149 studies and conclude that CFP and CEP are generally positively linked (bidirectionally causal).</li>
<li><span class="citation"><a href="Bib.html#ref-friede2015esg" role="doc-biblioref">Friede, Busch, and Bassen</a> (<a href="Bib.html#ref-friede2015esg" role="doc-biblioref">2015</a>)</span> analyze a panel of 2,200 papers and come to the conclusion that 90% of contributions find a non-negative ESG–CFP relation (though this relation may not be significant).</li>
<li><span class="citation"><a href="Bib.html#ref-revelli2015financial" role="doc-biblioref">Revelli and Viviani</a> (<a href="Bib.html#ref-revelli2015financial" role="doc-biblioref">2015</a>)</span> find that investing according to CSR purposes is “<em>neither a weakness nor a strength compared with conventional investments</em>.”</li>
<li><span class="citation"><a href="Bib.html#ref-hang2018economic" role="doc-biblioref">Hang et al.</a> (<a href="Bib.html#ref-hang2018economic" role="doc-biblioref">2018</a>)</span>- build a large dataset of studies on the CEP-CPF relationship. They perform panel regressions to explain the variations across different variables: countries, GDP, firm size, industries, etc. They find that economic development and legal systems impact the link between ESG performance and firm profitability.<br />
</li>
<li><span class="citation"><a href="Bib.html#ref-mutlu2018corporate" role="doc-biblioref">Mutlu et al.</a> (<a href="Bib.html#ref-mutlu2018corporate" role="doc-biblioref">2018</a>)</span> study the impact of governance on firm performance in China. They indicate that board independence and managerial incentives are financially rewarded.</li>
<li><span class="citation"><a href="Bib.html#ref-kim2019can" role="doc-biblioref">C.-S. Kim</a> (<a href="Bib.html#ref-kim2019can" role="doc-biblioref">2019</a>)</span> builds a meta-study which reports that many articles find SRI to improve performance, but many papers also point to the opposite; the net effect is that ESG investing is hardly distinguishable from conventional investing, at least from a financial point of view.</li>
<li><span class="citation"><a href="Bib.html#ref-whelan2021esg" role="doc-biblioref">Whelan et al.</a> (<a href="Bib.html#ref-whelan2021esg" role="doc-biblioref">2021</a>)</span> compile 1,000 studies published between 2000 and 2015 which assess the link between ESG and financial performance. Based on 245 corporate studies, they report that positive (58%), neutral (13%) and mixed (21%) associations dominate the literature.<br />
</li>
<li><span class="citation"><a href="Bib.html#ref-hornuf2022performance" role="doc-biblioref">Hornuf, Yüksel, et al.</a> (<a href="Bib.html#ref-hornuf2022performance" role="doc-biblioref">2022</a>)</span> analyze 153 studies and conclude that SRI does not outperform nor under-perform the market portfolio.</li>
</ul>
<p>In addition to meta-studies, researchers have written <strong>thematic reviews</strong>. We cite a few of them below in chronological order. The overview of <span class="citation"><a href="Bib.html#ref-schueth2003socially" role="doc-biblioref">Schueth</a> (<a href="Bib.html#ref-schueth2003socially" role="doc-biblioref">2003</a>)</span> provides historical insights on the development of SRI. <span class="citation"><a href="Bib.html#ref-beal2005we" role="doc-biblioref">Beal, Goyen, and Philips</a> (<a href="Bib.html#ref-beal2005we" role="doc-biblioref">2005</a>)</span> review various reasons why individuals may be driven towards ethical investments. <span class="citation"><a href="Bib.html#ref-renneboog2008socially" role="doc-biblioref">Renneboog, Ter Horst, and Zhang</a> (<a href="Bib.html#ref-renneboog2008socially" role="doc-biblioref">2008a</a>)</span> survey various topics, such as regulatory issues, drivers of CSR, and performance of ESG portfolios. An exhaustive list of channels that positively link environmental and economic performance is provided in <span class="citation"><a href="Bib.html#ref-ambec2008does" role="doc-biblioref">Ambec and Lanoie</a> (<a href="Bib.html#ref-ambec2008does" role="doc-biblioref">2008</a>)</span>. <span class="citation"><a href="Bib.html#ref-van2008worth" role="doc-biblioref">Van Beurden and Gössling</a> (<a href="Bib.html#ref-van2008worth" role="doc-biblioref">2008</a>)</span>, <span class="citation"><a href="Bib.html#ref-clark2014implications" role="doc-biblioref">Clark and Viehs</a> (<a href="Bib.html#ref-clark2014implications" role="doc-biblioref">2014</a>)</span> and <span class="citation"><a href="Bib.html#ref-malik2015value" role="doc-biblioref">Malik</a> (<a href="Bib.html#ref-malik2015value" role="doc-biblioref">2015</a>)</span> focus mostly on the CSR-CFP relationship (i.e., on the value-enhancing potential of CSR). <span class="citation"><a href="Bib.html#ref-hoepner2009categorisation" role="doc-biblioref">Hoepner</a> (<a href="Bib.html#ref-hoepner2009categorisation" role="doc-biblioref">2009</a>)</span> provides a graphical representation (via clusters) of the SRI literature. <span class="citation"><a href="Bib.html#ref-chegut2011assessing" role="doc-biblioref">Chegut, Schenk, and Scholtens</a> (<a href="Bib.html#ref-chegut2011assessing" role="doc-biblioref">2011</a>)</span> review best practices for ESG investing. <span class="citation"><a href="Bib.html#ref-kitzmueller2012economic" role="doc-biblioref">Kitzmueller and Shimshack</a> (<a href="Bib.html#ref-kitzmueller2012economic" role="doc-biblioref">2012</a>)</span> cover fundamental questions about CSR: why it exists and whether it should exist at all.</p>
<p>Some impacts of SRI are listed in the early review of <span class="citation"><a href="Bib.html#ref-wagemans2013effectiveness" role="doc-biblioref">Wagemans, Koppen, and Mol</a> (<a href="Bib.html#ref-wagemans2013effectiveness" role="doc-biblioref">2013</a>)</span>. The survey of <span class="citation"><a href="Bib.html#ref-stephenson2015corporate" role="doc-biblioref">Stephenson and Vracheva</a> (<a href="Bib.html#ref-stephenson2015corporate" role="doc-biblioref">2015</a>)</span> focuses on the subtopic of tax avoidance in relation to SRI. <span class="citation"><a href="Bib.html#ref-gianfrate2015cost" role="doc-biblioref">G. Gianfrate, Schoenmaker, and Wasama</a> (<a href="Bib.html#ref-gianfrate2015cost" role="doc-biblioref">2015</a>)</span> concentrate their analysis on the relationship between sustainability and the <strong>cost of capital</strong> (see <span class="citation"><a href="Bib.html#ref-cantino2017esg" role="doc-biblioref">Cantino, Devalle, and Fiandrino</a> (<a href="Bib.html#ref-cantino2017esg" role="doc-biblioref">2017</a>)</span> for the link with capital structure). On the particular topic of <strong>carbon data disclosure</strong>, <span class="citation"><a href="Bib.html#ref-hahn2015organizations" role="doc-biblioref">Hahn, Reimsbach, and Schiemann</a> (<a href="Bib.html#ref-hahn2015organizations" role="doc-biblioref">2015</a>)</span> provide a tour of the literature prior to 2015. For sustainable disclosure more generally, we point to <span class="citation"><a href="Bib.html#ref-adedeji2017national" role="doc-biblioref">Adedeji, Popoola, and Tze</a> (<a href="Bib.html#ref-adedeji2017national" role="doc-biblioref">2017</a>)</span> and <span class="citation"><a href="Bib.html#ref-nwachukwu2021systematic" role="doc-biblioref">Nwachukwu</a> (<a href="Bib.html#ref-nwachukwu2021systematic" role="doc-biblioref">2021</a>)</span>. The paper by <span class="citation"><a href="Bib.html#ref-hjort2016potential" role="doc-biblioref">Hjort</a> (<a href="Bib.html#ref-hjort2016potential" role="doc-biblioref">2016</a>)</span> exhaustively compiles topics related to climate risks in financial markets (a more up-to-date survey focused on transition risks in <span class="citation"><a href="Bib.html#ref-semieniuk2021low" role="doc-biblioref">Semieniuk et al.</a> (<a href="Bib.html#ref-semieniuk2021low" role="doc-biblioref">2021</a>)</span>). <span class="citation"><a href="Bib.html#ref-hvidkjaer2017esg" role="doc-biblioref">Hvidkjær</a> (<a href="Bib.html#ref-hvidkjaer2017esg" role="doc-biblioref">2017</a>)</span> gives a synthetic view of the state of research in ESG investing but concludes that “<em>the most consistent finding in the current review is that sin stocks exhibit outperformance</em>.” <span class="citation"><a href="Bib.html#ref-brooks2018effects" role="doc-biblioref">Brooks and Oikonomou</a> (<a href="Bib.html#ref-brooks2018effects" role="doc-biblioref">2018</a>)</span> provide a general purpose review of themes associated with CSR and investments. It is probably the closest in spirit to the present study (along with <span class="citation"><a href="Bib.html#ref-piu2020esg" role="doc-biblioref">Piu</a> (<a href="Bib.html#ref-piu2020esg" role="doc-biblioref">2020</a>)</span>).</p>
<p>Slightly more recently, the particular topic of <em>impact investing</em> is treated in <span class="citation"><a href="Bib.html#ref-agrawal2019impact2" role="doc-biblioref">Agrawal and Hockerts</a> (<a href="Bib.html#ref-agrawal2019impact2" role="doc-biblioref">2019b</a>)</span>. <span class="citation"><a href="Bib.html#ref-chatzitheodorou2019exploring" role="doc-biblioref">Chatzitheodorou et al.</a> (<a href="Bib.html#ref-chatzitheodorou2019exploring" role="doc-biblioref">2019</a>)</span> propose a mapping of SRI types and investors motivations. <span class="citation"><a href="Bib.html#ref-brakman2019buyer" role="doc-biblioref">Brakman Reiser and Tucker</a> (<a href="Bib.html#ref-brakman2019buyer" role="doc-biblioref">2020</a>)</span> survey the landscape of ESG funds: themes, strategies, fees, and voting patterns. <span class="citation"><a href="Bib.html#ref-talan2019doing" role="doc-biblioref">Talan and Sharma</a> (<a href="Bib.html#ref-talan2019doing" role="doc-biblioref">2019</a>)</span> propose a classical survey on SRI and identify a few research gaps. <span class="citation"><a href="Bib.html#ref-daugaard2020emerging" role="doc-biblioref">Daugaard</a> (<a href="Bib.html#ref-daugaard2020emerging" role="doc-biblioref">2020</a>)</span> provides a recent review that identifies five emerging and trending themes: the human element, climate change, fund flows, fixed income and the rise of non-Western players. <span class="citation"><a href="Bib.html#ref-liang2020corporate" role="doc-biblioref">Liang and Renneboog</a> (<a href="Bib.html#ref-liang2020corporate" role="doc-biblioref">2021</a>)</span> and <span class="citation"><a href="Bib.html#ref-billio2022sustainable" role="doc-biblioref">Billio et al.</a> (<a href="Bib.html#ref-billio2022sustainable" role="doc-biblioref">2022</a>)</span> cover topics such as conceptual definitions of CSR, measurement of ESG indicators, credit risk, debt and equity costs, and finally performance of ESG-driven products (equity portfolios and green bonds).</p>
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<p>Lately, <span class="citation"><a href="Bib.html#ref-camilleri2020market" role="doc-biblioref">Camilleri</a> (<a href="Bib.html#ref-camilleri2020market" role="doc-biblioref">2020</a>)</span> surveys recent trends of SRI, while <span class="citation"><a href="Bib.html#ref-schanzenbach2020esg" role="doc-biblioref">Schanzenbach and Sitkoff</a> (<a href="Bib.html#ref-schanzenbach2020esg" role="doc-biblioref">2020</a>)</span> focus on legal and conceptual aspects,<a href="#fn6" class="footnote-ref" id="fnref6"><sup>6</sup></a> and <span class="citation"><a href="Bib.html#ref-meuer2020nature" role="doc-biblioref">Meuer, Koelbel, and Hoffmann</a> (<a href="Bib.html#ref-meuer2020nature" role="doc-biblioref">2020</a>)</span> explore all the definitions of corporate sustainability proposed by the literature. <span class="citation"><a href="Bib.html#ref-giglio2020climate" role="doc-biblioref">Giglio, Kelly, and Stroebel</a> (<a href="Bib.html#ref-giglio2020climate" role="doc-biblioref">2021</a>)</span> and <span class="citation"><a href="Bib.html#ref-tokat2021top" role="doc-biblioref">Tokat-Acikel et al.</a> (<a href="Bib.html#ref-tokat2021top" role="doc-biblioref">2021</a>)</span> explore the links between climate change and financial markets (across several asset classes). Likewise, <span class="citation"><a href="Bib.html#ref-breitenstein2020environmental" role="doc-biblioref">Breitenstein, Nguyen, and Walther</a> (<a href="Bib.html#ref-breitenstein2020environmental" role="doc-biblioref">2021</a>)</span> review practices in environmental hazard mitigation and their impact on the financial sector. In the US market, regulatory perspectives linked to the Employee Retirement Income Security Act (ERISA) are provided by <span class="citation"><a href="Bib.html#ref-feuer2020ethics" role="doc-biblioref">Feuer</a> (<a href="Bib.html#ref-feuer2020ethics" role="doc-biblioref">2020</a>)</span> and <span class="citation"><a href="Bib.html#ref-sharfman2020esg" role="doc-biblioref">B. S. Sharfman</a> (<a href="Bib.html#ref-sharfman2020esg" role="doc-biblioref">2020</a>)</span>. A discussion on the comparison with the European equivalent (Institutions for Occupational Retirement Provision - IORP II) is outlined in <span class="citation"><a href="Bib.html#ref-daniels2021environmentally" role="doc-biblioref">Daniels, Stevens, and Pratt</a> (<a href="Bib.html#ref-daniels2021environmentally" role="doc-biblioref">2021</a>)</span>. This matters because individual savings can be nudged toward (or away from) sustainable investments, thereby shifting aggregate demand substantially. <span class="citation"><a href="Bib.html#ref-marshall2021financial" role="doc-biblioref">Marshall, Nguyen, and Visaltanachoti</a> (<a href="Bib.html#ref-marshall2021financial" role="doc-biblioref">2021</a>)</span> provide a very clear review of the impact of carbon dioxide emissions on financial markets.</p>
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<p>Finally, <span class="citation"><a href="Bib.html#ref-kuchler2020social" role="doc-biblioref">Kuchler and Stroebel</a> (<a href="Bib.html#ref-kuchler2020social" role="doc-biblioref">2020</a>)</span> summarize the field of contributions which link social interactions and financial decision making, and <span class="citation"><a href="Bib.html#ref-barroso2020socially" role="doc-biblioref">Barroso and Araújo</a> (<a href="Bib.html#ref-barroso2020socially" role="doc-biblioref">2021</a>)</span> map and reveal the links (citations) between important papers in the literature. <span class="citation"><a href="Bib.html#ref-borghei2021carbon" role="doc-biblioref">Borghei</a> (<a href="Bib.html#ref-borghei2021carbon" role="doc-biblioref">2021</a>)</span> surveys the literature on carbon disclosure. <span class="citation"><a href="Bib.html#ref-gillan2021firms" role="doc-biblioref">Gillan, Koch, and Starks</a> (<a href="Bib.html#ref-gillan2021firms" role="doc-biblioref">2021</a>)</span> compile the contributions in corporate finance and <span class="citation"><a href="Bib.html#ref-chang2022sustainable" role="doc-biblioref">X. Chang et al.</a> (<a href="Bib.html#ref-chang2022sustainable" role="doc-biblioref">2022</a>)</span> those published in 2000-2021 in the top 5 finance journals.
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<li><a class="nav-link" href="#Introduction"><span class="header-section-number">1</span> Introduction</a></li>
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