Sustainable Wealth Management: Directing Capital Towards Sustainability (Sustainable Finance)

This book explores sustainable wealth management and the challenges that arise for asset managers in times of ecological crises and climate change. It deals with portfolio engineering, combining risk and impact, transitioning from environmental, social, and governance (ESG) concepts to Sustainable Development Goals (SDG) concepts and the different role of the intermediaries and players in the financial markets. It provides researchers, scholars, academics and policy makers an interdisciplinary approach to redirecting capital towards sustainability. Contents About the Authors Chapter 1: Learn or Lose: Challenges and Perspectives in Sustainable Wealth Management 1.1 Main Challenges and the Special Role of Risk Management 1.2 Cycles 1.3 SWM Learning 1.4 It’s Not the Technology, Stupid! 1.5 Bipartisan Investment and the Importance of Values 1.6 Ethical Finance for the Future of Wealth Management References Chapter 2: From ESG to Impact Investing, Taxonomies, and Sustainable Development Goals 2.1 Viable System Model 2.2 The Emerging Role of Taxonomies 2.3 The EU Action Plan and Taxonomy 2.4 Asian Taxonomies References Part I: Climate Change and Climate Risk Chapter 3: Can the Financial Sector Protect the Climate? The Potential of Sustainable Finance 3.1 Introduction 3.2 Reporting as an Instrument for Communication 3.2.1 How Corporate Reporting Helps Mitigate Climate Change 3.2.2 Forward-looking Reporting to Break the Tragedy of the Horizon 3.2.3 Recommendations 3.3 Investor Demand for Sustainability Information 3.3.1 Institutional Investors Are Taking the Lead 3.3.2 Risk of Retail Investors Being Overchallenged 3.3.3 Recommendations 3.4 Mobilizing Investment for the Energy Transition 3.4.1 Carbon Pricing Signals Do Not Always Reach Investors 3.4.2 Financing Costs Have a Greater Impact on Green Sectors 3.4.3 Policy Signals Could Improve Financing Conditions 3.4.4 Recommendations 3.5 Conclusion References Chapter 4: Environmental Information Disclosure Quality, Institutional Pressure, and the Cost of Debt: Evidence from China’s Heavy Polluters 4.1 Introduction 4.2 Literature Review 4.2.1 Economic Consequences of Environmental Disclosures 4.2.2 Environmental Disclosures and Corporate Cost of Debts 4.2.3 Environmental Disclosures and Institutional Pressures 4.3 Theoretical Analyses and Hypothesis Development 4.3.1 The Impact of Environmental Information Disclosure on Cost of Debts 4.3.2 The Impact of Institutional Pressures on the Quality of Environmental Disclosures 4.3.2.1 Coercive Pressure 4.3.2.2 Normative Pressure 4.3.2.3 Mimetic Pressure 4.3.3 The Moderating Effects of Institutional Pressures on the Relationship Between Environmental Information Disclosure Quality and Corporate Cost of Debt 4.4 Methodology 4.4.1 Sample Selection and Data Sources 4.4.2 Variables and Measurements 4.4.2.1 Dependent Variables 4.4.2.2 Independent Variable 4.4.2.3 Moderating Variables 4.4.2.4 Control Variables 4.4.2.5 Models 4.5 Results and Discussion 4.5.1 Descriptive Analyses 4.5.2 Correlation Analyses 4.5.3 Regression Analyses 4.5.4 Further Analyses 4.5.5 Robustness Tests 4.6 Conclusions References Part II: Sustainability and Environmental Social Governance (ESG) in Asset Management Chapter 5: Values and Norms in the Sustainable Finance Debate: Similarities, Differences, and Perspectives for Sustainable Investment 5.1 Norms and Values as the Hallmarks of Sustainable Finance 5.1.1 The Holistic Claim to Action of Ethical Investors 5.1.2 Churches as Ethical Investors 5.1.3 Church Investment with Values- and Norms-Based Approaches 5.2 Values and Norms: Differences and Mutual Conditionality 5.2.1 On the Relationship Between Values and Norms in General 5.2.2 The Importance of Values and Norms for Sustainable Finance 5.2.3 The Importance of Values and Norms for Church Investors 5.3 Values and Norms as the Basis of Every Financial Investment 5.4 On the Practice of Values and Norms in Monetary Investments 5.4.1 Investment Criterion Human Rights Violations 5.4.2 Nuclear Energy as an Investment Criterion 5.4.3 Armaments and Military Investment Criterion 5.4.4 Further Investment Criteria 5.5 Values as a Further Materiality Dimension 5.6 Conclusion and Outlook Literature Chapter 6: Sustainability as an Information Challenge in Asset Management 6.1 Introduction 6.2 Sustainability as Information Challenge 6.3 Facing the Information Challenge 6.3.1 Conceptual Reflection: Managed Practices, Knowledge Objects and Organisational Bubbles 6.3.2 Learning from Existing Managed Practices 6.3.3 Types of Asset Management Practice 6.3.3.1 Quantitative Asset Management 6.3.3.2 Qualitative Asset Management 6.3.3.3 Project-Oriented Investments and Other Single Investment 6.3.3.4 Rule-Based Asset Management 6.4 Summary References Chapter 7: Sustainability Across Different Asset Classes: Integration in a Multi-asset Portfolio 7.1 Stakeholders and Regulation Set Standards 7.2 Sustainability Criteria in the Asset–Liability Study 7.3 Influence on Return Potential 7.4 ESG Integration in a Multi-asset Mandate 7.5 Results of the Asset–Liability Study Flow into Portfolio Construction 7.6 Strategic Asset Allocation: The Basis of the Investment Strategy 7.7 SAA with Consistent ESG Integration Poses a Variety of Challenges 7.8 Tactical Asset Allocation: The “Fine Tuning” for Short-Term Market Opportunities 7.9 Efficient Portfolio Management Not Yet Sustainable 7.10 Reporting: Transparent and Comprehensible Reporting for Sustainable Investments 7.11 Sustainable Multi-asset Portfolios for the Future Chapter 8: Two Sides of the Same Coin: ESG Risk and Opportunity Management in the Investment and Lending Business 8.1 A Bird’s-Eye Perspective 8.2 The Machinery of Banking Supervision Sets Into Motion 8.3 ESG as the New Keyword for Risk and Opportunity Management 8.3.1 The Risk Radar as a Knowledge-Based Approach to ESG-Risk Assessment 8.4 The Strategic ESG Matrix 8.5 Outlook References Chapter 9: ESG Investing and Firm Efficiency: The Costs and Benefits of SRI Efficiency Screening 9.1 Introduction 9.2 Literature Review 9.2.1 Sustainability Screening 9.2.2 Multi-criteria Portfolio Management 9.3 Methodology 9.4 Data 9.5 Results 9.5.1 Financial Performance 9.5.2 ESG Performance 9.5.3 Turnover Rates 9.6 Conclusion References Chapter 10: SDG Portfolio Construction in Times of the EU Taxonomy 10.1 Introduction 10.2 The EU Taxonomy 10.2.1 The SDG Portfolio 10.2.2 Based on a Theory of Change 10.3 Research Application 10.4 Weighting Methods 10.5 Data Description 10.6 Presentation of Results 10.7 Summary References Chapter 11: The Green Siblings: Exploring the Emerging Structure of Sustainable Finance 11.1 The Organic Growth of Sustainable Finance 11.2 The Burden of One-Size-Fits-All 11.3 Naming the Children 11.4 Application Benefits References Chapter 12: Custom ESG Indexing: How Direct ESG Indexing Can Solve Many Responsible Investing Problems 12.1 Broad Responsible Investment Criticism 12.2 Solutions for ESG Investing Problems 12.2.1 No Standard Definition of Sustainable Investing 12.2.1.1 Exclusions Can Be Defined in Many Ways 12.2.1.2 Positive Criteria: Limitations of Labels, Norms, and Themes 12.2.1.3 ESG Criteria 12.2.1.4 Impact and the Question of Liquid or Illiquid Investing 12.2.1.5 Voting, Engagement, or Signaling? 12.2.1.6 The DVFA Policies for Responsible Investing Tool (DVFA PRISC) as Anti-greenwashing Tool 12.2.1.7 Poor Real Economy? 12.2.2 Increasing Number of Sustainable Products Available 12.2.2.1 Different (Sustainable) Investment Philosophies 12.2.2.2 Problematic Actively Managed Sustainable Mutual Funds and ETFs 12.2.2.3 The Diversification Myth: ESG as Antipode to ETFs? 12.2.3 Early Stages of Custom ESG Indexing 12.2.3.1 Direct Indexing on the Rise 12.2.3.2 Stock-Unpicking Is Not the Same as Active Portfolio Management 12.2.3.3 Benefits of Custom ESG Self-Indexing 12.2.3.4 Direct Bond and Multi-asset Indexing and Risk Management 12.2.3.5 Fractional Shares as Bottleneck for Mass-Marketing 12.2.3.6 ETF Marketing May Be the Biggest Enemy of Direct Indexing 12.3 Summary and Outlook: Core-Satellite Responsible Investing Approach? References Chapter 13: Customized Portfolios Using Machine Learning: Interview with Stefan Klauser 13.1 Interview with K. Wendt, Sustainable Finance, 31.1.2023 Part III: Developments in China Chapter 14: Internet Finance, Private Firm Financing, and Investment: Evidence from China 14.1 Introduction 14.2 Internet Finance in China 14.2.1 Literature 14.2.2 Private Firm’s Financing Via Internet Finance: Descriptive Analysis 14.3 Hypotheses 14.3.1 Private Firms’ Financing Choice Via Internet Finance 14.3.2 Private Firms’ Financing Cost Via Internet Finance 14.3.3 Private Firms’ Investment Via Internet Finance 14.4 Method 14.4.1 Variables and Measurement 14.4.1.1 Dependent Variables 14.4.1.2 Independent Variables 14.4.1.3 Control Variables 14.4.2 Analysis Method 14.5 Regression Results 14.6 Discussions and Conclusion References Chapter 15: Corporate Tax Reform and Firm Share Price: Evidence from China 15.1 Introduction 15.2 Literature Review 15.3 Data and Methodology 15.3.1 Event and Measurement Window 15.3.2 Data 15.3.3 Normal and Abnormal Returns 15.3.4 Statistical Test 15.4 Results Analysis 15.4.1 Event Window Test Results 15.4.2 Moderators Towards the Event Impact 15.4.3 Further Tests 15.4.4 Robustness 15.5 Conclusion References Chapter 16: Over-Investment, Internal Control, and Government Intervention: Evidence from China’s State-Owned Enterprises 16.1 Introduction 16.2 Literature and Hypotheses 16.2.1 Internal Control and Investment Efficiency 16.2.2 Internal Control and Investment Efficiency in the Context of Government Intervention 16.3 Sample and Research Design 16.3.1 Sample Selection 16.3.2 Data Collection 16.3.3 Research Design 16.3.3.1 Model 16.3.3.2 Dependent Variable (Over_Invst): Measurement of Enterprise Over-Investment 16.3.3.3 Independent Variable (IC): Measurement of Internal Control and Measurement of Government Intervention (GI) 16.3.3.4 Control Variables 16.4 Results and Discussion 16.4.1 Descriptive Statistics 16.4.2 Hypothesis Testing 16.4.3 Robustness Test 16.5 Conclusions References Chapter 17: Exploring Financial Institution Environmental Disclosures: Evidence from China 17.1 Introduction 17.2 Literature Review 17.2.1 CSR Reporting in the Financial Sector 17.2.2 Environmental Disclosures by Financial Institutions 17.2.3 Factors Influencing Financial Sector Environmental Disclosures 17.2.4 Relevant Studies in the Chinese Context 17.3 Theoretical Framework 17.4 Method 17.4.1 Sample Selection 17.4.2 Data Sources 17.4.3 Content Analysis and Measurement 17.5 Results and Discussions 17.6 Conclusion References Part IV: Sustainable FinTech Chapter 18: Towards Its Digital and Sustainable Economy: A Review of Recent Fintech Policies and Developments in China 18.1 Introduction 18.2 China Bans Crypto Currency 18.2.1 Crypto Currency and Anti-corruption 18.2.2 Crypto Currency and Exchange Control 18.2.3 Crypto Currency and Environmental Concerns 18.3 P2P and Related Issues 18.3.1 Shadow Banking and P2P Lending 18.3.2 P2P Lending Advantages 18.3.3 P2P Lending Platforms Threaten the Bank-Based Financial System 18.3.4 Closing Down of P2P Lending Platforms 18.4 China Supports Supply Chain Finance (SCF) 18.4.1 Financialisation of Chinese Firms 18.4.2 SCF and the Real Economy 18.4.3 Policy Support to SCF 18.5 Payment Platforms 18.6 Banking Enhancement 18.7 Conclusion References Part V: Financing the Anthropocene Chapter 19: The Future Wealth of Nations 19.1 Introduction 19.2 The Indispensable Triad: Friendly Strategic Triangulation 19.3 Traditional Approaches: Other Proposal and Beyond the Six Pack 19.4 The Future Wealth of Nations 19.4.1 Friendly Co-existence: Why Parallel, Digital and Going Direct? 19.4.2 How to Parallelise and Digitalise the Monetary System? 19.5 The Top Ten Best Practices 19.6 A General Law of Economic Transformation 19.7 Conclusion 19.8 Policy Recommendations References Glossary of Terms Index