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• Working Paper | HBS Working Paper Series | 2019

  Decarbonization Factors

  Alex Cheema-Fox, Bridget LaPerla, George Serafeim, David Turkington and Hui (Stacie) Wang

  In the face of accelerating climate change, investors are making capital allocations seeking to decarbonize portfolios by reducing the carbon emissions of their holdings. To understand the performance of portfolio decarbonization strategies and investor behavior towards decarbonization we construct decarbonization factors that go long low carbon intensity sectors, industries, or firms and short high carbon intensity. We consider several portfolio formation strategies and find strategies that lowered carbon emissions more aggressively performed better. Decarbonization factor returns are associated with contemporaneous institutional flows into the factors. Buying decarbonization factors when coincident flows are positive while selling when they are negative produces significantly positive alphas. Combining decarbonization factors that have positive contemporaneous flows would provide investors with significantly superior returns and continuous exposure to low carbon portfolios. The results are more pronounced in Europe relative to the US. Our results suggest that institutional investor flows contain information about anticipated fundamentals related to climate change developments.

  Keywords: climate change; ESG; investment management; factor investing; investor behavior;

  Citation:

  Cheema-Fox, Alex, Bridget LaPerla, George Serafeim, David Turkington, and Hui (Stacie) Wang. "Decarbonization Factors." Harvard Business School Working Paper, No. 20-037, September 2019.  View Details

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• Working Paper | HBS Working Paper Series | 2019

  Corporate Purpose and Firm Ownership

  Claudine Gartenberg and George Serafeim

  Analyzing data from approximately 1.5 million employees across 1,100 established public and private US companies, we find that the strength of employee beliefs about their firm’s purpose is lower in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among public companies, purpose becomes progressively lower with more concentrated shareholders, especially among firms with high hedge fund ownership. These patterns can be partly explained by differences in CEO backgrounds and compensation: public firms, particularly those with strong shareholders, choose outsider CEOs at higher rates and pay them more relative to their employees. Our analyses suggest that these results are not driven solely by sorting effects, but appear attributable in part to the impact that firm owners have on their employees. In summary, shareholders appear to influence the strength of corporate purpose deep within organizations via the leadership and corporate practices they enable at the top.

  Keywords: purpose; corporate purpose; culture; corporate culture; public and private organizations; hedge fund; executive pay; Organizational Culture; Mission and Purpose; Employees; Attitudes; Ownership; Leadership; Executive Compensation;

  Citation:

  Gartenberg, Claudine, and George Serafeim. "Corporate Purpose and Firm Ownership." Harvard Business School Working Paper, No. 20-024, August 2019.  View Details

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• Case | HBS Case Collection | April 2019 (Revised July 2019)

  Aperture Investors

  Krishna G. Palepu, George Serafeim and David Lane

  Aperture Investors is a startup investment firm that seeks to disrupt the asset management industry through competitive differentiation by charging investors primarily when its portfolio managers outperform the marketplace. Headed by Wall Street veteran Peter Kraus and backed with substantial and patient seed capital, Aperture seeks to attract both star portfolio managers and assets from mutual funds and hedge funds. Kraus believes that his innovative business model addresses the current dysfunctional fee and incentive structures in the industry, which have led to long-term market underperformance, and that Aperture will address the reasons that are motivating investors to shift to cheaper, passively-managed index and exchange-traded funds.

  Keywords: Business Model; Talent and Talent Management; Investment; Investment Funds; Asset Management; Recruitment; Selection and Staffing; Marketing Channels; Emerging Markets; Partners and Partnerships; Motivation and Incentives; Financial Services Industry;

  Citation:

  Palepu, Krishna G., George Serafeim, and David Lane. "Aperture Investors." Harvard Business School Case 119-053, April 2019. (Revised July 2019.)  View Details

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