Abstract
This article studies sin stocks on the European market over the period 2006–2020. In addition to stocks in alcohol, tobacco, gambling, and defense sectors that are traditionally considered sin stocks, we analyze stocks in carbon-intensive sectors that have newly evolved as sin stocks, such as oil and gas, metals and mining, uranium, and coal. To investigate the return performance of sin stocks, we run time-series regressions with factor models and Fama–MacBeth cross-sectional regressions. Our results suggest that there is no robust sin premium for new sin stocks or traditional sin stocks, either in comparison with the market or their peer stocks. Our analysis on ownership characteristics shows that investors in sin stocks are mainly investment managers, corporations, and individuals. While new sin stocks are popular among institutional investors, traditional sin stocks are less held by norm-constrained investors. Finally, our subsample analyses indicate some potential changes in the market perception of the new sin stocks after the Paris Agreement.
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Notes
For example, Blitz and Fabozzi (2017) mention that large institutional investors are increasingly setting carbon footprint targets, effectively divesting in stocks with high CO2 emissions. Bolton and Kacperczyk (2021) document a carbon risk premium and that institutional investors have already implemented exclusionary screening based on direct emission intensity. The report “European Sustainable Funds Landscape: 2020 in Review” by Morningstar shows that funds related to climate change were among the best sellers in 2020, while even more funds divested from the highest-carbon emitters.
For “Oil and gas-related equipment and services” group, we exclude stocks in “Gasoline stations” (PermID 4294951989) as our focus is on the extractive industries. For “Metals and mining” group, we remove stocks in “Aluminium” (PermID 4294951902 to 4294951908) as our focus is on mining (extractive industry).
One could potentially argue that the information about the signing of the agreement was already available to the market before December 2015 and the investors could change their behavior in anticipation of the enforcement of the agreement at the beginning of 2015. In such a case, we could consider 2015 as the starting year of the post-Paris-Agreement period. We have replicated all the subsample analyses using the alternative cut-off point, i.e., 2006–2014 for the pre-Paris-Agreement period and 2015–2020 for the post-Paris-Agreement period. The magnitude and significance of the coefficients are very similar to those using 2016 as the cut-off point. Thus, all the findings still hold. Due to the limited space, these results are not included in the paper and are available upon request.
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We would like to thank Laurens Swinkels for valuable comments and feedback.
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Appendices
Appendix
The most frequent investors
The table presents the ten most frequent investors, based on % holdings of traded shares, in the different groups of sin stocks. The table shows the investor type, if they are active/passive and the average % holdings per stock in the groups of sin stock, and the total holdings in each group in millions of euros. The table is sorted by total holdings in million Euro. Uranium is left out as it only has unique investors and no investors occurred more than once. The numbers are from February 2021.
Investor name | Investor type | Investment orientation | Total holdings | Average holdings |
|---|---|---|---|---|
Panel A: Military and defense | ||||
Oil and gas | ||||
Federal Agency for State Property Management | Government Agency | Passive | 17,687 | 36.9% |
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 17,685 | 1.0% |
Italian Government | Government Agency | Passive | 15,672 | 34.8% |
Gazprom PAO | Corporation | Passive | 14,331 | 48.2% |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 13,452 | 1.2% |
Norges Bank Investment Management (NBIM) | Sovereign Wealth Fund | Active | 8939 | 1.2% |
State Treasury of the Republic of Poland | Government Agency | Passive | 6913 | 52.5% |
Capital Research Global Investors | Investment Advisor | Active | 3509 | 1.4% |
Romanian Government | Government Agency | Passive | 3355 | 52.0% |
BlackRock Advisors (UK) Limited | Investment Advisor/Hedge Fund | Passive | 3165 | 0.2% |
Metals and mining | ||||
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 13,981 | 1.5% |
Norges Bank Investment Management (NBIM) | Sovereign Wealth Fund | Active | 8113 | 1.5% |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 7448 | 1.4% |
Capital Research Global Investors | Investment Advisor | Active | 5637 | 2.3% |
BlackRock Investment Management (UK) Ltd. | Investment Advisor/Hedge Fund | Active | 3821 | 1.3% |
Public Investment Corporation (SOC) Limited | Sovereign Wealth Fund | Passive | 3252 | 4.2% |
Legal and General Investment Management Ltd. | Investment Advisor/Hedge Fund | Passive | 2828 | 0.4% |
BlackRock Advisors (UK) Limited | Investment Advisor/Hedge Fund | Passive | 2792 | 0.3% |
Schroder Investment Management Ltd. (SIM) | Investment Advisor/Hedge Fund | Active | 2294 | 0.6% |
M and G Investment Management Ltd. | Investment Advisor | Active | 1910 | 2.0% |
Coal | ||||
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 1755 | 1.5% |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 977 | 1.1% |
Dimensional Fund Advisors, L.P. | Investment Advisor/Hedge Fund | Active | 101 | 0.4% |
Grantham Mayo Van Otterloo and Co LLC | Investment Advisor/Hedge Fund | Active | 23 | 0.1% |
NN Investment Partners Towarzystwo Funduszy Inwestycyjnych S.A | Investment Advisor | Active | 12 | 0.5% |
AXA Towarzystwo Funduszy Inwestycyjnych S.A. | Investment Advisor | Active | 9 | 1.2% |
Aviva Investors Poland Towarzystwo Funduszy Inwestycyjnych S.A. | Investment Advisor | Active | 0.93 | 0.9% |
Tobacco | ||||
Capital Research Global Investors | Investment Advisor | Active | 4904 | 2.9% |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 3002 | 2.3% |
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 2964 | 3.4% |
Cedar Rock Capital Ltd. | Investment Advisor/Hedge Fund | Active | 1688 | 2.4% |
Fidelity International | Investment Advisor | Active | 1603 | 3.7% |
Fidelity Management and Research Company LLC | Investment Advisor | Active | 936 | 2.87 |
Schroder Investment Management Ltd. (SIM) | Investment Advisor/Hedge Fund | Active | 668 | 1.14 |
Invesco Advisers, Inc. | Investment Advisor | Active | 279 | 0.47 |
Dimensional Fund Advisors, L.P. | Investment Advisor/Hedge Fund | Active | 234 | 0.52 |
Nordea Funds Oy | Investment Advisor | Active | 190 | 0.43 |
Casinos and gaming | ||||
Capital Research Global Investors | Investment Advisor | Active | 7388 | 7.61 |
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 2832 | 1.92 |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 1628 | 1.58 |
Capital World Investors | Investment Advisor | Active | 1430 | 2.00 |
Norges Bank Investment Management (NBIM) | Sovereign Wealth Fund | Active | 960 | 1.49 |
Aberdeen Standard Investments (Edinburgh) | Investment Advisor | Active | 815 | 2.54 |
Fidelity Management and Research Company LLC | Investment Advisor | Active | 560 | 0.99 |
Avanza Bank Holding AB | Corporation | Passive | 338 | 3.50 |
M and G Investment Management Ltd. | Investment Advisor | Active | 312 | 3.52 |
Dimensional Fund Advisors, L.P. | Investment Advisor/Hedge Fund | Active | 274 | 0.66 |
Military and defense | ||||
BlackRock Institutional Trust Company, N.A. | Investment Advisor | Passive | 2527 | 2.54 |
Capital Research Global Investors | Investment Advisor | Active | 1496 | 3.72 |
The Vanguard Group, Inc. | Investment Advisor/Hedge Fund | Passive | 1234 | 2.23 |
Schroder Investment Management Ltd. (SIM) | Investment Advisor/Hedge Fund | Active | 655 | 2.76 |
Silchester International Investors, L.L.P. | Investment Advisor/Hedge Fund | Active | 646 | 4.07 |
Legal and General Investment Management Ltd. | Investment Advisor/Hedge Fund | Passive | 604 | 1.14 |
Baillie Gifford and Co. | Investment Advisor | Active | 531 | 2.31 |
MFS Investment Management | Investment Advisor/Hedge Fund | Active | 520 | 1.04 |
Norges Bank Investment Management (NBIM) | Sovereign Wealth Fund | Active | 376 | 2.04 |
INVESCO Asset Management Limited | Investment Advisor/Hedge Fund | Active | 355 | 1.87 |
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Sagbakken, S.T., Zhang, D. European sin stocks. J Asset Manag 23, 1–18 (2022). https://doi.org/10.1057/s41260-021-00247-9
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DOI: https://doi.org/10.1057/s41260-021-00247-9
Keywords
- Sin stocks
- Sin premium
- Norm-constrained investors
- Carbon-intensive sectors
- Environmental, Social, and Governance (ESG)