Joshua Kazdin

Joshua Kazdin

Investor

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Posts

Mapping climate risk for more resilient portfolios

less than 1 minute read

Published:

From droughts and wildfires to storms and flooding, our health, lives, and livelihoods increasingly are subject to adverse climate events. As the world continues to reckon with climate change, two types of climate risk have emerged: transition risk and physical risk. Transition risk focuses on the effect of companies on the environment. Investment research within this area focuses on the risks and opportunities arising from the transition to a lower carbon global economy.

Stakeholder capitalism: the sustainability of corporate value

less than 1 minute read

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As companies pursue long-term success, there’s a growing focus surrounding the relationships that they foster across a range of stakeholders. What does this dynamic mean for the future of investing and indicators of company performance that go beyond traditional financial metrics? BlackRock’s systematic experts discuss how they use a data-driven approach to identify characteristics that seek to benefit both shareholders and stakeholders in pursuit of durable investment opportunities.

A Signal Worth Saluting: Who You Hire Matters

less than 1 minute read

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The results of hiring high quality, skilled workers can impact several business functions for companies. But is there added potential for talent acquisition strategies to lead to positive social outcomes and improved financial results? BlackRock’s systematic investment experts break down the possible implications of hiring more veterans on organizational excellence, social dynamics, and long-term results.

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publications

A Pitfall in Ethical Investing: ESG Disclosures Reflect Vulnerabilities, not Virtues

Published in Journal Of Investment Management, Vol. 15, No. 2, (2017), pp. 51–64. Winner, Special Distinction Award, 2017

It is widely believed that ESG (Environmental, Social, Governance) investing reduces regulatory and reputational risks. In a large global panel, we find that business ethics controversies and regulatory issues are more likely for firms that disclose a richer set of ESG-friendly policies. The effect is attenuated by controlling for size, industry, and country but remains economically and statistically significant. We also show that some prominent ESG indices favor companies that disclose more ESG policies and as a consequence have greater controversy exposure than an ESG-unaware benchmark.

Recommended citation: Garvey, G. T., Kazdin, J., LaFond, R., Nash, J., & Safa, H. (2017). A pitfall in ethical investing: ESG disclosures reflect vulnerabilities, not virtues. Journal of Investment Management, 15(2), 51-64. https://joim.com/wp-content/uploads/emember/downloads/p0544.pdf

Climate Alpha with Predictors also Improving Firm Efficiency

Published in The Journal of Impact and ESG Investing Winter 2021, 2 (2) 35-56. DOI 10.3905/jesg.2021.1.030, 2021

Characteristics of companies associated with climate change predict excess equity returns. We show that firms with lower carbon emission intensities—with carbon emissions being a key component of the Paris Accord—have high excess returns. We present evidence that firms with lower carbon emissions have higher productivity, and that the lower carbon intensities may reflect greater firm efficiencies. A portfolio of firms with a higher proportion of LEED certified buildings also exhibits high excess returns. Such companies also contemporaneously exhibit higher return on assets. Portfolios constructed with the carbon emission intensities and the LEED certified buildings signals are only weakly correlated to a traditional quality factor. We discuss how climate change themed measures of firm efficiency may drive value for sustainably focused investors.

Recommended citation: Kazdin, J., Schwaiger, K., Wendt, V., Ang, A. (2021) Climate Alpha with Predictors Also Improving Company Efficiency. The Journal of Impact and ESG Investing Winter 2021, 2 (2) 35-56. DOI 10.3905/jesg.2021.1.030 https://www.pm-research.com/content/pmrjesg/2/2/35

Extreme Weather and Retirement Savings

Published in The Journal of Investment Management, 22(2), 36-67., 2024

In this paper, we discuss the impact of extreme weather on US families with a specific focus on household finances. We first derive a life-cycle model of consumption, then introduce climate change-oriented consumption shocks as an additional expense which is proportional to labor income. Our key finding is that exposure to shocks associated with natural disasters may lower lifetime wealth by interrupting savings contributions. We test this model by demonstrating that households living in counties which experience a high amount of natural disasters suffer lower contributions to long-term savings between 1970 and 2020. We suggest this is driven in part by temporarily lowered income and increased labor market turnover. We conclude with a discussion on how climate change may accel- erate a retirement crisis and recommend suggestions for how the financial industry can help households address this challenge.

Recommended citation: Daverman, T., Kazdin, J., Pensky, M., Sloof, F. (2024) Extreme Weather and Retirement Savings. The Journal of Investment Management, 22(2), 36-67 https://joim.com/extreme-weather-and-retirement-savings/

Systematic Insights into Private Equity Investing

Published in Journal Of Portfolio Management, Vol. 51, No. 1, (2024), pp. 201-212., 2024

Systematic approaches have greatly benefitted investors in publicly traded equities since at least the development of the first index fund in 1971. Private equities pose a far greater challenge for systematic investing due to lack of return data and regulatory filings and to significant illiquidity. Today, however, the availability of alternative data covering private companies, as well as the development of advanced forecasting methods, are facilitating systematic approaches to private equity investing. This article will present a systematic framework for private equity investing and extend the fundamental law of active management to show the benefits of breadth available to systematic investors. It will then demonstrate what public equity data can tell us about skill in private markets. Systematic approaches to private equity investment can be expected to continue to evolve and improve over time and to start to gain market share in this asset class of increasing investor interest.

Recommended citation: Almufti, Ali, Kahn, Ronald N., Kazdin, Joshua (2024). Systematic Insights into Private Equity Investing. Journal Of Portfolio Management, Vol. 51, No. 1, (2024), pp. 201-212 https://www.pm-research.com/content/iijpormgmt/51/1/201

talks

Applications and Obstacles of Sustainability Measurement

Published:

While investors are increasingly interested in sustainability and companies are adopting and publishing CSR strategies at record rates, the availability of high quality sustainability data remains inconsistent. In this context, the three panelists will discuss current applications and processes for incorporating sustainability data in research and investing, as well as the challenges inherent in accessing neutral and reliable information to inform smart investment decisions.

ESG Investing: Strategies and Solutions

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ESG investing is an approach to asset selection that includes environmental, social, and governance criteria in the asset screening and selection process. At GYL, we have overseen ESG-screened investments for many years, and we are excited to announce our new ESG solution. By combining our proprietary “best in class” asset allocation and investment screening process with core principles of responsible investing, our ESG solution will give investors the opportunity to align their investments with the things that matter most to them.

Extreme Weather and Retirement Savings

Published:

This paper discusses the impact of climate change on US families with a specific focus on household finances. We first derive a lifecycle model of consumption, then introduce climate change oriented consumption shocks as an additional expense which is proportional to labor income. We then test this model by empirically demonstrating that households experienced a statistically significant drop in contributions to deferred compensaion during environmental disasters from 2000-2020. Over the same period, debt-to-income (DTI) ratios increased for households during disasters, leaving families exposed to steeper declines in consumption and riskier financial well-being. We conclude with a discussion on how climate change may accelerate a retirement crisis and recommend suggestions for how the financial industry can help households address this challenge.

How Geospatial Data Can Inform Investing Decisions

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Geospatial data has the potential to revolutionize investment decision-making by providing investors with insights into the spatial dynamics of different markets and assets. Host Oscar Pulido is joined by active investment analysts Joshua Kazdin and Mike Pensky, who have been developing BlackRock’s geospatial investment capability and bringing these insights into our active portfolios.

teaching

INAF U6706 Climate Change ＆ ESG Investing

Graduate course, Columbia University, School of International and Public Affairs (SIPA), 2023

The class covers how climate change and Environmental, Social, and Governance (ESG) concepts can be integrated into investment strategies to simultaneously generate financial performance of enhanced returns or reduced risk and achieve real-world outcomes. The class presents the framework of the double bottom line or double materiality of both financial performance and real-world outcomes, and the focus is on developing and evaluating investment strategies in public markets to achieve both aims from a practitioner’s perspective. Guest speakers will also address how ESG is being integrated into investment products in a rapidly evolving commercial landscape. A key deliverable of the course is for students to apply the double bottom-line framework to propose a climate-related or an ESG investment strategy of their own and demonstrate how it purports to meet both investment and real-world outcomes.

white_papers

Uneven Impact: The disproportionate effect of severe climate events on low-income counties in California

Published in BlackRock for the California Resilience Challenge, 2022

This paper uses this satellite data to analyze the interactions between extreme weather events and the local economic impact within California. The objective is to improve the public awareness of the relationship between the climate, economy and low-income communities in a state where the firm has a large and longstanding operating presence. We investigate county level economic effects of four climatological events — heat waves, droughts, wildfires, and floods — and have found that:

  • Extreme weather events have a disproportionately large economic impact on counties with lower-than average levels of income
  • Extreme heat and wildfires tend to occur more frequently in lower income communities
  • Economic impacts are exacerbated by the temperature sensitive industry mix in low-income counties

By providing actionable, county-level findings, we hope to elevate the public discourse on climate change and to assist in targeting future adaptation grants to those communities most in need.

Recommended citation: Becker, T., Covert, A., Daverman, T., Pensky, M., Ren, H. Uneven Impact: The disproportionate effect of severe climate events on low-income counties in California (2022). BlackRock White Paper. https://www.blackrock.com/us/individual/insights/climate-change-uneven-impact

The Making of Long-Term Capitalism

Published in BlackRock, 2022

As an asset manager we are a fiduciary for our clients, who are the owners of the assets we manage. This role obligates us to act in the best economic interests of our clients. Because more than half of the assets we manage are in retirement savings, we are particularly focused on creating and maintaining value over the long term. To this end, we are launching a research initiative designed to better understand the ways that a company can create long-term value for its shareholders. We undertake this from an economic and financial standpoint.

Recommended citation: Lawson, S., Boskovic, T., Hawley, A., Cooke, T., Garvey, G., Kazdin, J., Ba, M., Li, M., Ang, A., Shores, S., Goldman D., Schwaiger, K., Huang, J., Miller, B., McKinley, J. The Making of Long Term Capitalism (2022). BlackRock White Paper. https://www.blackrock.com/corporate/literature/whitepaper/the-making-of-long-term-capitalism.pdf