Dr. Roman Kräussl (University of Luxembourg): Ground-breaking ESG investing research


Investment greenwashing and how questions of gender affect business sustainability, just two of the on-going research topics by Dr. Roman Kräussl, Professor of Finance at the University of Luxembourg. Here he explains how his academic work should result in tangible benefits for people, profits and the planet.



Please introduce yourself and explain your commitment to ESG

I am Roman Kräussl, Visiting Fellow at the Hoover Institution at Stanford University and Professor of Finance at the University of Luxembourg. My research focus is Alternative Investments. In recent years I researched extensively “The True Value of Art”, work which resulted in numerous publications. One of these, entitled “Gendered Prices”, provides evidence that culture, specifically gender culture, is a source of pricing bias. Using a sample of 1.9 million auction transactions from 1970 to 2016 in 49 countries for 69,189 individual artists, I document that auction prices for paintings by female artists are significantly lower than prices for paintings by male artists. I also found that the gender discount in auction prices is generally higher in countries with greater gender inequality. This study was in a way my reconnection to ESG.


Luxembourg is on the right track with its focus on ESG, sustainability and green finance

What do you mean by “reconnection to ESG“?

25 years ago, when I started my PhD studies, I worked on sustainable economic development. Since it was brought to broad public attention at the UNCED Conference in Rio de Janeiro in 1992, the concept of sustainability had developed into a new socio-economic paradigm. However, all too often it was not much more than a mere buzzword. For the Kyoto 1997 meetings, I analyzed the existing models of emissions trading and identified minimum conditions for sustainable development. I’ve co-developed a macro-econometric model, which included the measurement of energy and material consumption, and this was well suited for indicating the link between economic development and environmental impact. I found that there was a trade-off between economic growth and employment, on the one hand, and environmental concerns on the other hand. Nevertheless, sustainable compromises were possible. So it was hugely frustrating when in subsequent years, the topic of sustainable economics was only talked about, but resulting in scant action.


What is your current research focused on?

My current research on ESG focuses on two topics: Greenwashing and Gender. As regards gender research, previous studies have found that having multiple women on a board of directors translates into better financial performance due to greater creativity and better decision-making. I fully agree with these findings, but think they are too narrowly focused. In my ESG-related gender research, I would like to dig deeper and analyze more than just female representation in senior leadership positions. Thus, I am going to investigate additional performance metrics and their impact on the financial performance of a company. These metrices are: (1) attraction, e.g., the percentage of women employees among new hires and in the total workforce; (2) retention, such as the percentage difference in average employment years for female and male employees; and (3) promotion, including the percentage of women in senior management roles. I hope to have a first working paper completed in 2021.


How will you address greenwashing in your research?

My goal is that my research will help facilitate greater transparency in the sustainable finance market, which can bridge the gap between artificial and genuine concern for the environment. We truly need a better understanding of the available data. It is not sufficient to look only at the highest ESG ratings and declare a company “good”. Academic research can play here an important role as a sort of impartial check and balance to the economic system. We have to understand that many of these ESG ratings rely on self-reported data, and do not even try to fully understand and capture controversies. It is very tempting for companies to report great stuff. In the mid-1980s, for example, Chevron ran the now-infamous “The People Do” campaign on TV, while actively violating the Clean Air and Water Acts. Today, many customers ask whether Tesla, for instance, is really green? The government and regulators will try to regulate this away and ensure level playing field, but this could take years (even with SFDR) and we need to move fast. So I think academia has a really important role to play in “calling it out”, talking about the elephant in the room and not letting companies get away with greenwashing.


ESG & Me in 5 years?

I am very happy to see that Luxembourg is on the right track with its focus on ESG, sustainability and green finance. Recent initiatives such as Luxembourg Sustainable Finance Initiative (LSFI) all point in the right direction. Educating the future workforce is important, and we’ve recently started at our University a new track on Sustainable Finance within our Master’s programs. I am confident that our ongoing research will deliver interesting results, not just by analyzing standard data sources such as ESG ratings by MSCI, but by also making use of non-public data sets such as UTIL, which do not rely on self-reported, potentially greenwashed data. My goal is to keep up my strong research ties with Stanford University and deliver further interesting academic papers. At the same time, I would like to develop a dynamic ESG investment tool. Using this, an individual or institutional investor could pick their ideal green-asset allocation, depending on how much E or S or G to support, while keeping the risk and return characteristics of the investment in mind.