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Assessing Financial and ESG Outcomes of Sustainable Firms During the COVID-19 Crisis

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Current topics for final thesis

Turning on the heat global warming and corporate risk-taking..

The following topic is suitable for BA or MA students. Please keep in mind that it is best suited for candidates who are familiar with statistical software and time series regression or those who are willing to acquire these skills within the context of their thesis. However, suggestions for alternative methodological approaches (e.g., interviews, literature reviews) are welcome.

If you are interested in the following topic, please get in touch with  Dr. Wiebke Szymczak . 

Turning on the heat? Global warming and corporate risk-taking

Heat is a common metaphor to describe interpersonal conflict. Strikingly, psychological research indeed suggests a link between heat stress and aggressive or asocial behavior. With global temperatures on the rise, one may wonder: what are the consequences of heat stress on corporate decisions? This thesis project will combine meteorological and financial data to test whether heat stress triggers systematic changes in corporate risk-taking, as one possible manifestation of aggressive financial decisions.

Shareholder activism and sustainability. Is shareholder activism a solution or a problem?

On the one hand, the term shareholder activism refers to an investment strategy of a small group of hedge funds which target underperforming firms in order to foster the implementation of financial or governance changes and capitalize on potential increases in shareholder value. On the other hand, shareholder activism refers to the actions of large institutional investors who engage with their target firms to push a non-financial agenda, e.g., better working conditions or higher investments into emission mitigation technologies. There are two possible variants of this thesis project: The first represents a systematic literature review in order to contrast both types of shareholder activism and identify positive as well as negative side-effects of both types of shareholder activism with respect to environmental, social and governance aspects. The second represents an empirical investigation into the non-financial effects of shareholder activism with respect to corporate ESG performance.

Sustainability, but not too much?

Investor objections to corporate sustainability Financial professionals report that some investors respond negatively to sustainability-focused marketing strategies to the extent that relationship managers maintain two slide decks to advertise sustainable investment products. The empirical literature suggests a positive or at least non-negative effect of corporate sustainability on financial performance. Yet, some investors remain reluctant to sustainable investment products. This thesis project aims to review the theoretical literature and explore the motives and rationales of investors who shy away from sustainable investment products.

The effect of disaster experiences on sustainability preferences

Extreme weather events are becoming ever more frequent and severe. While much research has addressed the contribution of the global economy to anthropogenic climate change, the behavioral implications of exposure to extreme weather on economic decisions have yet to be fully explored. A small but growing literature suggests that exposure to extreme weather events and natural disasters can have significant and systematic effects on the risk preferences of economic decision makers. Moreover, the attention-based view of the firm suggests that extreme weather exposure may also emphasize the importance of a stable environment as a basis for economic growth and corporate success. Within the context of this thesis project, the candidate will develop and implement a suitable regression strategy to test the impact of extreme weather exposure on sustainability preferences of households or firms.

Mood effects in ESG ratings

The following topic is suitable for BA or MA students. Please keep in mind it is best suited for candidates who are familiar with statistical software and time series regression or those who are willing to acquire these skills within the context of their thesis. However, suggestions for alternative methodological approaches (e.g., interviews, literature reviews) are welcome.

If you are interested in the following topics, please get in touch with  Dr. Wiebke Szymczak . 

Does the weather at rating offices affect ESG ratings of local firms? Several empirical studies show that local weather conditions can have a systematic effect on investor decisions. However, little is known about the specific biases in ESG ratings. Applying the rationale of investors mood effects to ESG rating agencies, theory may predict higher ESG ratings when raters are in high spirits and lower ESG ratings when spirits are low, ceteris paribus. Within the context of this thesis project, the candidate will gather establishment addresses for the major rating agencies and connect these addresses with relevant climate data in order to analyze how weather variables affect sustainability ratings of local firms.

Don't foul your own nest

Don’t foul your own nest

Does distance between HQs and plants predict pollution intensity? A proliferating number of empirical studies suggest that air pollution has a detrimental effect on local property prices. If top managers and employees in strategic positions live close to corporate headquarters, their own residential property may be affected by local production facilities. Consequently, rational choice theory predicts that they will prefer to keep air pollution as far away from home as possible. Moreover, firms reduce the risk of litigation by keeping firms away from residential areas. This thesis project will combine data on corporate air pollution reported in the toxic release inventory, financial data and corporate location data to analyze whether there exists a systematic pattern to shift polluting activities to facilities further away from corporate headquarters and/or local residential areas.

Assessing physical climate risks

The following topic is suitable for MA students. Please keep in mind that it is best suited for candidates with excellent Excel skills and those who are familiar with GIS and scenario modelling. For all the details, please refer to the full topic description .

If you are interested in the following topic, please get in touch with Dr. Sven Lundie .

Assessing physical climate risks for Altana Management Services GmbH

The importance of sustainability continues to grow at Altana Management Services GmbH. Altana is currently dealing with CDP reporting. The EU taxonomy, CSRD and in particular the TCFD are further topics that Altana will increasingly address in the future.

The effects of climate change on the company's own production are to be investigated as part of the master's thesis, i.e. the physical risks will be qualitatively assessed for the 50 production sites. In addition, the availability of materials is an important topic for the company, as climate change will also have an impact on the supply chain (including delivery times and quantities). Sales markets will also be affected. For this reason, Altana wants to systematically address future scenarios (for different warming scenarios (1.5 as well as 2 degrees), two time horizons) at the production sites that identify the risks and opportunities for the company.

The TCFD will serve as a framework guideline for this project. In a first step, only physical risks and opportunities of climate change will be addressed (e.g. risk assessment regarding future availability of biogenic raw materials or cooling water for production). In a next step, transitory risks, for example, can be investigated, as TCFD reporting by Altana could take place from 2023 onwards (outside this project).

Sustainable investment by a listed insurance company - curse and/or blessing?

The following topic is suitable for MA students. Please be aware that basic knowledge of the German language is required. The thesis itself can be written in English or German. For all the details, please refer to the full topic description .

If you are interested in the following topic, please get in touch with Prof. Dr. Timo Busch .

In close cooperation with the Investment Division of HDI Germany, this thesis sets out to explore ways of integrating sustainability into the investment decisions of a listed insurance company. Among other things, a market and opinion analysis is to be carried out for this master thesis. Possible focus areas include how the insurance company can have a positive impact on biodiversity through their investments and how to deal with data issues in measuring the sustainability of investments and the disparity of definitions of what exactly falls under the term sustainable investment.

Development of a Scope 3 estimation method for industry sectors

Reducing Scope 1 and 2 emissions, those under the direct ownership and operational control of the business is usually the first target in a company’s carbon reduction strategy. However, to become truly carbon neutral, Scope 3 emissions, which are indirect emissions released upstream and downstream in a company’s value chain, need to be prioritised too as scope 3 emission often contribute more than half of the total GHG emissions. With the introduction of the CSRD in the EU it will become compulsory for companies to report on their Scope 3 emission.

The GHG protocol has developed the framework for quantifying scope 3 emissions. Within the GHG protocol 15 sub-categories are further specified to cover all upstream and downstream emissions in detail. However, quantifying relevant scope 3 emissions can be very challenging in practice due to data availability, complexity of calculation and possibly lack of inhouse knowledge with companies.

In order to address corporate needs, the objective of this Master Thesis is to develop a Scope 3 estimation methodology according GHG protocol and to quantify the GHG hotspots along the value chains of industry sectors (following NACE and GICS codes) .

Required activities of this desk top research are, e.g.

• Review and analysis of GHG protocol, GHG ISO standards, CSRD, NACE and GICS, …
• Development of a quantitative estimation methodology for industry sectors
• Research of LCA studies that are representative for industry sectors
• Development of an Excel-based tool for qualifying and/or quantifying GHG hotspots along the value chains of industry sectors
• The student should have an interest in Scope 1, 2 & 3 GHG emissions, LCA/PCF/EPDs, environmental regulation, statistics as well as in methods development.

The Master Student will gain highly relevant GHG accounting knowledge in due course of the work.

Start: as soon as possible

Supervisors: Prof Timo Busch and Dr. Sven Lundie

The student will have the opportunity to align with the supervisor on a bi-weekly basis. Please reach out to Sven Lundie ( info "AT" sven-lundie.com )  if you are interested in this topic.

Empirical Analysis of ESG and Financial Performance

Student thesis : Master thesis

Globally, investors and financial markets are directing increasingly more attention towards responsible investments. The term “responsible investing” is often interpreted as environmental, social and governance (ESG) concerns for investment decisions with a long-term perspective. The concept has become increasingly more relevant among consumers, government, investors and stakeholders. The increased focus is not based on empirically superior relationships between risk and return, but rather on a shift in demand for responsible investments with a more long-term perspective. Previous studies focusing on the relationship between ESG and financial performance are split into three distinctions; positive, neutral and a negative relationship. These three counterparts find theoretical arguments and statistical evidence supporting their results, and a clear conclusion regarding the relationship is yet to be made. This thesis examines the relationship that has puzzled the academia, with a thorough and critical review of existing literature on ESG investing. The empirical analysis examines portfolios with varying degrees of ESG performance, where the performance has been identified by the companies’ respective ESG and controversy score. These numbers are provided by Refinitiv, which is the successor of Asset 4, and are collected through Thomson Reuters Datastream. By application of traditional asset pricing models, namely the CAPM, Fama & French three-factor, Carhart four-factor and Fama & French five-factor model, the return on various portfolios has been controlled against known risk factors. Moreover, both ESG and controversy factors have been developed to study the relationships in greater depth. The results find evidence that implies a negative relationship between high ESG scores and excess returns. However, this result is not evident in the robustness tests, where the portfolios are divided into sub-periods and classified into different portfolio sizes. In contrary to previous findings, the analysis finds evidence that the companies with the absolute lowest ESG scores have a negative excess return. Nevertheless, the negative alpha is not substantially different from zero. There is no evidence in the analysis that can provide an answer to the question of whether or not controversies have any effect on the excess return. The results are more supportive of the literature that implies a negative correlation between increased ESG initiatives and financial performance measured by excess returns. However, the question of whether ESG is priced in by the financial market remains open for further investigation.

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