Анализ влияния экологических факторов на доходность Американских и Российских акций

Considering that with each day more and more people start to care about an environment. It is verified at least by a steady growth of interest according to Google Trends search by the word “climate change”. Paris Agreement, which was signed in 2016, is one of the precursors of global consciousness about the climate change. It is obvious that with a such a rapid growth in world’s GDP, which has almost doubled for the past 20 years, businesses all around the world had made an impact on the world’s environmental state. Starting from a huge leap of production rate in China to an increase of wealth of emerging markets, which result in an increased consumption of goods and, consequently, wastage. As of now, the global temperature already increased by 2 degrees Fahrenheit or 1.15 degrees Celsius, compared with pre-Industrial era. Despite the fact it might seem as a small tradeoff between economic growth, it actually damages Earth in a big way by driving temperature extremes, reducing sea ice and changing natural habitats for different species. All in all, the rapid economic growth brings with itself not only a good thing, such as comfort, wealth and satisfaction of almost all needs, but also a great risk not only to the business in general, but whole humanity.
Not only researches around the world are worried about the climate change, but also prominent entrepreneurs. It can be seen in a huge increase of popularity of such people as Elon Musk. Musk’s companies have been stating their mission as “to accelerate the world’s transition to sustainable energy” since their beginning. Back in the day it was assessed as a joke – that a small startup from California can outperform and can have a bigger market capitalization than used-to-be giants, as General Motors. However, nowadays it is the reality – sustainability and environmental issues became not only the fancy topics of discussions, but the big value drivers for businesses all around the world.
However, what about investors’ side? According to JPMorgan Investment Outlook for 2020, starting onward, an increased market volatility can take place in 2020, because that is an election year for U.S. President. In addition, now during the COVID-19 pandemic, this uncertainty is likely to become even higher. Obviously, an increased market volatility in U.S. would have to some extent a spillover effects on other markets. Market volatility, which can be described as an increased range of possible returns on assets, is one thing that every investor should consider for. In other words, market volatility is the risk measure, meaning that there is a wider range of possible final values for investor’s investment. As it is said in the same JPMorgan Investment Outlook for 2020, due to an increased market volatility and uncertainty on the market, investors should stick to their plans and make investment decisions despite of any political or geo-political news arise. However, every investment decision should
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be still done in accordance to external factors, therefore, an investor most likely would like to know – what assets or what regions are impacted by these unexpected events from either political news or environmental news? In addition, according to Vanguard’s economic and market outlook for 2020, global growth is likely to decline in the future years, which in turn would mean a narrower room for investments to take place. However, in 2019 U.S. equity market in the face of S&P 500 has risen up over 25%, but GDP growth across the world is still at all times low, meaning that there is a limited amount of money to be made in the future. Therefore, while making investments, investors should be aware of securities and theirs’ risk-return tradeoff they are opting to. Besides, as 2019 and 2020 have already shown, a one or two words written by a famous and important person (such as Donald Trump or Elon Musk) can deteriorate stocks’ returns. However, such tweets are just a drop in the ocean, compared to the big news, such as bankruptcy of a company, new legislative requirements to firms or a pandemic outbreak in the region. Therefore, it is wise for investors to actually understand, what industries would be more or less stable in the light of unexpected shocking events on the market.
Research goal is determined as to find out sectors of economy, which are less influenced by important environmental events.
Research questions, answers for which would help to achieve the paper’s research goal, are defined as follows, based both on the prior academic research and an interest from investor community:
Question 1 – Do events of this study affect stock performance of companies from the sample?
Question 2 – Which economy sectors are less influenced in regard to these events?
Question 3 – How do U.S. and Russian stock markets differ in regard to the reaction to these events?
Research goal is going to be achieved through several research objectives, which are outlined below:
1. Acquire and synthesize knowledge about ESG factors;
2. Understand and synthesize risk mitigation techniques by investors
3. Analyze previous researches on climate risk incorporation into valuation
4. Propose an empirical methodology for the analysis of climate risk impact
on stock returns
5. Acquire and describe the data for the analysis and conduct the event
study analysis
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6. Synthesize the results of the analysis and propose managerial implications of the findings
This research is structured in accordance with an aforementioned structure and consists of introduction, three chapters, final discussion on the subject, references list and appendices.
In the first chapter, a description of different type of risks for financial investors is going to be discussed. Next, a brief literature overview on risk management approaches is going to be done. Such approaches include diversification, hedging, insurance and loss prevention. That is done in order to understand the current situation on effectiveness of such procedures for investors.
In the second chapter author is dedicated to examine theoretical background on the research subject and its aspects. First, author is dedicated to show the justification of environmental risk and its relevance through literature review on the research subject. Second, an acronym “ESG”, which means Environmental, Social and Governance factors, is examined. These factors are analyzed first from historical view: the moment that term was coined and how it was developed over time. More narrowly, such term as “climate risk” is explored, which is attributed to Environmental part of ESG scoring system. Simultaneously, in the second chapter environmental events are highlighted, in order to include to empirical research.
As for the third chapter, an examination of previous researches on the similar matter is done and an examination of possible empirical methodology for this research. As a result, author chose event studies analysis for the paper. In the same chapter, author proposes the methodology and describes the methodology in more details. Author lists events, which are most likely to affect the stock performance, and which are to be included in the event study analysis. Apart from that, research design is being described.
Further, author examines data sample collection process and includes the empirical research itself. In the first part of the paper, author describes the reasoning behind choosing the sample companies for an empirical study.
This research is based on 130 common stock equities from U.S. and Russian stock exchanges respectively. These stocks were chosen in accordance with their ESG- scoring and GICS sector classification. Author wanted to depict the picture of stocks from different sectors and geography. Final list of the GICS sectors, which would be fruitful for the research, is:
• Information Technology
• Health Care
• Financials
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• Real Estate
• Consumer Discretionary
• Industrials
• Communication Services
• Consumer Staples
• Energy
• Materials
• Utilities
These sectors are being assigned to 130 aforementioned stocks with the main goal to answer the question – how different sectors react to environmental events and subsequent answer as to what sectors are less impacted by environmental events.
As for the data sources – data on common stock returns was collected through publicly available source – Yahoo!Finance. ESG risk profiles was also found on Yahoo!Finance portal, these ESG scores are Sustainalytics’ ESG Risk Ratings. Choice of Yahoo!Finance was as such due to the availability of Sustainalytics’ ESG Risk Rating, because this same rating was used in the previous research done by Robert Engle in 2019, therefore, it is fair to say this rating is verified in academic community. A more detailed review on this paper is going to be done in the next chapter.