Truvalue Labs' Academic Roundtable

James Hawley

FactSet

Bio

Mr. Jim Hawley, PhD, is the Senior ESG Advisor to FactSet. In this role, he is responsible for the Academic Network using Truvalue Labs’ (a FactSet company) data as well as other FactSet projects and research. He is the author of The Rise of Fiduciary Capitalism (2001), Dollars and Borders (1985/2018), and has published more than 60 academic articles and papers, in addition to practitioner ones. Mr. Hawley earned a PhD in Economic Sociology from McGill University and is Professor Emeritus of Management, School of Economics, and Business at Saint Mary’s College of California.

Yao Chen

University of Exeter

Bio

Yao Chen is a Lecturer (Assistant Professor) in Finance at the University of Exeter Business School. Yao’s research interests are in behavioral finance, empirical asset pricing, and sustainable finance. He has published in the Journal of Financial and Quantitative Analysis, and his work has been presented at leading international conferences. Yao holds a PhD from the University of Warwick.

Abstract

Using a novel dataset containing daily snapshots of firm-level material ESG information, we examine whether active mutual fund managers successfully integrate material ESG information into their portfolio decisions. We find that a typical fund manager over-weights firms with high material ESG score and improves portfolio performance. Fund managers also incorporate material ESG information to cater to investor demand, especially during periods of greater ESG awareness. In the cross-section, ESG-information-investment relation is stronger among funds with better ESG ratings and higher 12b-1 fees. Further, funds located in Democratic states and managers who are less likely to be discriminated exhibit stronger ESG sensitivity.

Co-Authors

Linquan Chen, University of Exeter
Alok Kumar, University of Miami
Woon Sau Leung, University of Edinburgh

View PDF of paper.

Otgo Erhemjamts

Bentley University

Bio

Otgo Erhemjamts, PhD, is a Professor of Finance at Bentley University. Otgo’s research and teaching interests have spanned multiple disciplines: banking, risk management and insurance, corporate finance, CSR, and sustainable investing. Her research has appeared in highly-regarded finance, economics, risk management and insurance, and business ethics journals. In addition to writing about mainstream corporate finance topics such as product market competition, debt maturity, capital structure, and innovation, Otgo has written about the impacts of CSR and long-termism on shareholder value for financial and non-financial firms. She also has expertise in banking, risk management and operational efficiency of life insurance companies.

Otgo is a co-author of two leading finance textbooks published by McGraw-Hill: Financial Institutions Management: A Risk Management Approach (10th edition), and Financial Markets and Institutions (8th edition). These textbooks have leading market shares in the U.S. (56 and 51 percent, respectively). According to the “Business School Teaching Power” rankings by the Financial Times, Financial Institutions Management: A Risk Management Approach textbook is among 42 finance textbooks within the top 500 assigned titles in business and economics. The “Teaching Power” ranking draws from 5 million titles cited in more than 7 million syllabi in nearly 7,400 universities in 96 countries.

Abstract

We find that bank environmental, social, and governance (ESG) performance is positively associated with climate risk and that public ESG sentiment towards these banks is negatively associated with climate risk. Controlling for widely accepted pricing factors, portfolios that long bank stocks of high ESG sentiment and short those with low ESG sentiment positively predicts stock returns at daily intervals. We provide evidence that bank ESG performance spills over benefits to local economies: Using a nearest-neighbor matching estimator, we find that when matched on determinants of ESG performance, banks that exhibit net ESG strengths are associated with a deposit portfolio of higher geographical readiness for climate risk (i.e., the ability of a region to leverage private and public sector investment for adaptive actions against climate risk) compared to otherwise similar banks exhibiting net ESG concerns.

Co-Author

Kershen Huang, Nova Southeastern University

View PDF of paper.

Witold Henisz

The Wharton School, The University of Pennsylvania

Bio

Witold J. Henisz is the Deloitte & Touche Professor of Management in Honor of Russell E. Palmer, former Managing Partner at The Wharton School, The University of Pennsylvania. He is also Director of the Wharton Political Risk Lab and the founder of the Wharton ESG Analytics Lab. His research examines the impact of political hazards as well as environmental, social and governance factors more broadly on the strategy and valuation of global corporations. This work analyzes best practices in corporate diplomacy to win the hearts and minds of external stakeholders as well as the measurement thereof. He has published over three dozen peer-reviewed articles in top-ranked journals in international business, management, international studies and sociology, is the author of the book “Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders” and co-authored over twenty teaching cases. Witold has won multiple teaching awards at the graduate and undergraduate levels including being named Iron Prof, 2019 and an Aspen Institute Ideas Worth Teaching Award Winner, 2020. He also teaches extensively on the topic of Corporate Diplomacy as well as ESG integration in open enrollment and custom executive education programs as well as on Coursera. He is currently a principal in the consultancy PRIMA LLC whose clients span multinational firms, asset managers, intergovernmental and non-governmental organizations.

Abstract

We extend theory at the intersection of value-based and stakeholder strategies to analyze the contingent relationship between corporate social performance (CSP) and corporate financial performance (CFP). Our analysis hypothesizes that ex ante investments in environmental, social, and governance (ESG) issues most salient to a firm’s stakeholders build relational capital that enhances ex post joint value creation and minimizes ex post risks of discord in value appropriation and distribution. We show that issue salience weighted investments in relational capital generate revenue, cost, and productivity gains that outweigh up-front and ongoing lost revenues, higher costs, and productivity losses, supporting the potential for a win-win between shareholders and stakeholders. We thereby advance the debate from whether CSP contributes to CFP to how, when, and where that relationship obtains.

Co-Author

James McGlinch, The Wharton School, The University of Pennsylvania

View PDF of paper.

Raiha Khan

Columbia University

Bio

Raiha Khan is a second-year graduate student pursuing an MS in Computer Science (Machine Learning) at Columbia University. Currently, she serves as the Project Coordinator of Columbia University's Data Science Institute's Data for Good Scholars team that is contributing to the Rights CoLab initiative on Harnessing Big Data to Mobilize Investors on Human Rights. Since joining this initiative as a 2021 Summer Fellow, she has focused on applying data science methods to news sources to demonstrate the financial impact of corporate labor practices. Raiha is passionate about using data science and machine learning for positive social impact. She received her B.S. in Mathematical Sciences with Honors from New Jersey Institute of Technology (NJIT). She has spent three years in financial services immersed in all areas of the enterprise data science lifecycle, and she has competed in hackathons such as the NBA Business Analytics Hackathon and Columbia University’s Hacking for Humanity to implement AI-driven decision making in the areas of sports business analytics and social services.

Abstract

As part of a collaboration between Rights CoLab and the Value Reporting Foundation to support better integration of human rights into the Human Capital standards, a data team from Columbia University’s Data Science Institute applies data science and an NLP-based heuristic method to TruValue Labs SASB Spotlight DataFeed and Form 10-Ks to surface evidence of the financial materiality of two topics by industry: Diversity, Equity, and Inclusion (DEI) and Labor Conditions in Supply Chains (LCSC).

Co-Author

Isha Shah, Columbia University

James McGlinch

The Wharton School, University of Pennsylvania

Bio

James McGlinch is a doctoral candidate at the Wharton School of the University of Pennsylvania focused on corporate strategy. His research examines under what conditions the integration of environmental, social, and governance (ESG) issues into corporate strategy may impact firm performance; particularly during periods of corporate restructuring, reorganization, and economic or financial distress; and the propensity of senior managers, shareholders, and other stakeholders to effectively anticipate such impacts.

Prior to Wharton, James began his career in equity research at Barclays Capital, followed by positions in global investment research at Goldman Sachs and mergers & acquisitions investment banking at Credit Suisse. He is a CFA charterholder.

Abstract

In this study, I examine the surplus assumption embedded within current studies on stakeholder value-based strategy and whether a corporation’s stakeholder management can precipitate or negate corporate distress. By defining corporate distress as a condition of challenged legitimacy arising from the failure to satisfy the minimum appropriation demands of powerful stakeholders, I create a perspective for managing corporate distress that’s complementary to existing studies on organizational decline, corporate failure, and financial distress, yet extends their findings to better capture why corporations with similar financial and economic characteristics may have differing probabilities of experiencing corporate distress. Specifically, using panel regression, difference-in-difference, and machine learning statistical methods on a sample of 8,256 publicly traded corporations, I find cultivating ex ante relational capital with a corporation’s more powerful stakeholders, as measured by stakeholder sentiment across 26 distinct environmental, social, and governance (ESG) issues, is associated with a lower probability of entering corporate distress, particularly when environmental uncertainty is high.

View PDF of paper.

Alec Schmidt

New York University Tandon School of Engineering | Stevens Institute of Technology

Bio

Dr. Anatoly (Alec) Schmidt is Adjunct Prof. at Financial Engineering Depts. of the NYU Tandon School and Stevens Institute of Technology. He was also visiting prof. at Nanyang Technological University and Moscow Financial Academy. Alec holds a PhD in Physics and has worked in the financial industry for more than 20 years, most recently as Lead Research Scientist at a market data analytics company, Kensho Technologies. Alec published three books, "Quantitative Finance for Physicists" (Elsevier, 2004), "Financial Markets and Trading: Introduction to Market Microstructure and Trading Strategies" (Wiley, 2011), and "Modern Equity Investing Strategies" (World Scientific, 2021).

Abstract

The optimal ESG portfolios (OESGP) are based on the mean variance framework in which portfolio is simultaneously optimized in terms of return, risk (volatility) and portfolio ESG value (PESGV) (Pedersen et al. 2021; Schmidt 2020). PESGV is assumed to be the sum of portfolio constituents’ weighted ESG scores. Since the OESGP Sharpe ratios often monotonically fall with increasing PESGV due low correlations between the portfolio constituents’ returns and ESG scores, it was suggested using the ESG-tilted Sharpe ratio as a portfolio performance measure (Schmidt 2020; Schmidt & Zhang 2021). The latter usually has a maximum at intermediate PESGVs, which can be treated as the definition of OESGP.

In this work I consider OESGPs based on the constituents of nine major US equity sector ETFs using the Truvalue scores on 12/31/2021. I compare results for the Truvalue scores based on all 26 SASB categories and on the ecological impact scores.

Isha Shah

Columbia University

Bio

Isha Shah is currently a Data Scientist at DrivenData and a second-year Master's in Computer Science student at Columbia University. She was the project coordinator for the Columbia University's Data Science Institute's collaboration with the Rights CoLab initiative on Harnessing Big Data to Mobilize Investors on Human Rights from December 2019 to December 2021. She previously worked as a research analyst at the Brookings Institution's Metropolitan Policy Program and Workforce of the Future initiative, where she applied econometrics and data science to policy research questions.

Abstract

As part of a collaboration between Rights CoLab and the Value Reporting Foundation to support better integration of human rights into the Human Capital standards, a data team from Columbia University’s Data Science Institute applies data science and an NLP-based heuristic method to TruValue Labs SASB Spotlight DataFeed and Form 10-Ks to surface evidence of the financial materiality of two topics by industry: Diversity, Equity, and Inclusion (DEI) and Labor Conditions in Supply Chains (LCSC).

Co-Author

Raiha Khan, Columbia University

Hui (Stacie) Wang

State Street Associates

Bio

Hui (Stacie) Wang is the Co-Head of ESG research at State Street Associates. Stacie’s ESG research areas of focus thus far have been climate finance, portfolio decarbonization, human capital, and corporate governance in public equity and FX markets. Stacie has over nine years of experience in applying quantitative and machine learning methods in investment models across multiple asset classes. Prior to joining SSA in 2014, she worked in the Enterprise Risk Management group at State Street, where she built quantitative credit risk models for State Street’s investment portfolios. Stacie holds a PhD degree in Economics from Ohio State University, a bachelor’s degree in Finance from Shandong Economics University, and is a CFA® charterholder.

Abstract

The coronavirus pandemic caused a sharp market decline while raising heterogeneous responses across companies related to their employees, supply chain, and repurposing of operations to provide needed products and services. We study whether during the 2020 COVID-19 induced market crash, investors differentiated across companies based on their human capital, supply chain, and products and service response. Using data derived from natural language processing applied to news coverage of corporate responses to the coronavirus crisis for 3,023 companies around the world, we find that more positive sentiment around a company’s response is associated with less negative returns. This is especially true for companies with more salient responses and in industries that those responses are more likely to represent a credible commitment to their stakeholders.

Co-Authors

Alex Cheema-Fox, State Street Associates
Bridget R. LaPerla, State Street Associates
George Serafeim, Harvard Business School

View PDF of paper.

Aaron Yoon

Northwestern University

Bio

Professor Aaron Seokhyun Yoon teaches Financial Accounting (ACCT 430) to Kellogg MBA students.

He is interested in how to account for and quantify a firm's Environment Social Governance (ESG) efforts and integrate the information into portfolio decision making process. According to the Financial Times, his research on ESG was a turning point on how investors viewed and integrated ESG information and the methodologies suggested in his research have been widely implemented by asset owners and investment managers. 

He has presented his research to academics, regulators, and practitioners around the World and his work has been regularly cited in outlets such as Barron's, Bloomberg, Financial Times, Forbes, The New York Times, and The Wall Street Journal. He also received multiple awards for his research and teaching, including the Chair's Core Teaching Award from Kellogg, Crowell Prize for Best Paper in Quantitative Investing from PanAgora Asset Management, Best 40 Under 40 Professors Recognition from Poets & Quants, and the Best International Accounting Dissertation Award from the American Accounting Association. 

Professor Yoon earned his Doctor of Business Administration from Harvard University; he also earned his master’s in Economics and bachelor’s in economics and Mathematical Methods in the Social Sciences (MMSS) from Northwestern University. Prior to academia, he worked as an equities sales trader and research analyst at Credit Suisse, and also controlled air traffic in the 8th US Army as a Korean augmentee.

Session 1 Abstract

We investigate whether ESG ratings predict future ESG news and the associated market reactions. We find that the consensus rating predicts future news, but its predictive ability diminishes for firms with large disagreement between raters. The relation between news and market reaction is moderated by the consensus rating. In the presence of high disagreement between raters, the relation between news and market reactions weakens while the rating with the most predictive power predicts future stock returns. Overall, while rating disagreement hinders the incorporation of value relevant ESG news into prices, ratings predict future news and proxy for market expectations of future news.

Co-Author

George Serafeim, Harvard Business School

View PDF of paper.

Session 2 Abstract

Using a dataset that classifies firm-level ESG news as positive and negative, we examine how stock prices react to different types of ESG news. We analyze 111,020 firm–day observations for 3,126 companies and find that prices react only to issues identified as financially material for a given industry by sustainability accounting standards, and the reaction is larger for news that is positive, receive more attention, and that is related to social capital issues. We conclude that investors differentiate in their reactions based on whether the news is likely to affect a company’s fundamentals, and therefore their reactions are motivated by a financial rather than a nonpecuniary motive.

Co-Author

George Serafeim, Harvard Business School

View PDF of paper.