abstract - CONSOB AND ITS ACTIVITIES
Emerging trends in sustainable investments and cryptoasset markets - 2023
REPORT 2023
The Report analyses the emerging trends in sustainable investments and in the markets of cryptoassets, also with regard to the developments that can affect the achievement of CONSOB remit.
| Sustainable investments The Sustainalytics company-level ESG risk score measures firms’ exposure to ESG risks (i.e., climate changes, carbon footprint, transition risks, safety in the workplace, governance transparency, management remuneration policies). In the euro area it registers a decreasing trend from December 2019 to December 2022, and it remains approximately stable in 2023, showing that firms are increasingly improving their abilities in managing sustainability-related risks. Moreover, utility and energy sectors exposure to ESG risks tends to be higher compared to the exposure of industrial and financial sectors. ... more |
| ESG stock indexes at the global level (Stoxx Global ESG leaders and MSCI world ESG) and in the euro area (Euro Stoxx ESG leaders, Ftse 4Good EU 50, MSCI EMU ESG screened index) show a high level of alignment in performance. The degree of coherence, however, tends to be not stable through time and decreases if we focus on volatility. In the euro area, moreover, there is a high overlapping degree between ESG stock index constituents and conventional ones (i.e., 52% between Stoxx Euro ESG Leaders and Eurostoxx 50, 82% between MIB ESG and Ftse Mib). Lastly the “greenium”, that is the risk premium due to the eco-sustainability of a firm (so-called greenness), which is based on listed firm returns, tends to be more volatile during financial market stress periods of time and shows a growing trend starting from May 2020 to the latest available estimate. The Sustainalytics company-level ESG risk score measures firms’ exposure to ESG risks (i.e., climate changes, carbon footprint, transition risks, safety in the workplace, governance transparency, management remuneration policies). In the euro area it registers a decreasing trend from December 2019 to December 2022, and it remains approximately stable in 2023, showing that firms are increasingly improving their abilities in managing sustainability-related risks. Moreover, utility and energy sectors exposure to ESG risks tends to be higher compared to the exposure of industrial and financial sectors. In Italy, ESG risk scores are on average in line with euro area; the exposure to risk factors in the financial sector, however, tends to be higher compared to what is registered in the corporate sector. Lastly, the Report includes a focus on firms listed in Italy which aims at verifying if both Sustaynalitics ESG risk score and Refinitiv ESG rating are correlated with main firms’ characteristics (i.e., performance, volatility, liquidity, financial leverage, value at risk, price on earnings, price to book value, size and ROA). In more detail, by applying cluster analysis techniques in which ESG score is treated as a discriminant factor, two groups of firms are obtained which significantly differs only with respect of size and liquidity. In particular, companies with high ESG rating tend to be more liquid and have a bigger size, while there are no significant differences between the two groups in terms of performance, volatility and market evaluation. The analysis of ESG bonds listed in Italy relies on International Capital Market Association (ICMA) principles to identify green, social, sustainable and sustainable linked bonds. Given that around 12% of the ESG bonds listed on Italian financial markets is not included in Borsa Italiana “Green and Social bonds List”, there is evidence regarding some misalignments among ESG securities’ classifications. ESG bonds are mainly supranational green bonds with a time to maturity between 7 and 10 years. Moreover, 54% of ESG bonds listed on Borsa Italiana has a minimum trade size lower than or equal to 1.000 euro, thus within the reach of retail investors, while 69% is listed on Mot bond market segment. Finally, the Report includes analysis on open-ended sustainable funds available for sale in Italy identified on the basis of Morningstar definitions. Most of sustainable funds has an average or above average Morningstar ESG rating (59%), belongs to art. 8 SFDR classification (74%) and refers to equity category (51%); only 8% is domiciled in Italy, while for around 60%, the age (difference between current date and inception date) is lower than 6 years. Moreover, focusing only on the equity portfolio component, on average, 70% of the equity portfolio is invested in large cap. |
| Cryptoassets Cryptocurrencies continue to be characterised by highly volatile prices. As of September 2023, bitcoin's annualised return was only slightly higher than returns of other non-digital assets while showing far greater volatility. The cybersecurity of applications underlying cryptocurrencies remains a critical issue. ... more |
| Cryptoasset markets have been severely affected by the negative events of 2022. Indeed, the market value of major cryptocurrencies dropped by more than 50% in September 2023 compared to the end of 2021, following a 65% drop in 2022 and a partial recovery in the current year. The market value of cryptocurrencies remains low compared to equity markets capitalisation (2.1% of the aggregate value of American markets, 3.4% of Asian markets and 4.4% of European and Middle Eastern markets). More than 60% of the market value of cryptocurrencies refers to bitcoin and ether. The total value locked in decentralised finance protocols (Decentralised Finance or DeFi) also exhibited a sharp decline (-70% in September 2023 compared to the end of 2021 and -63% in 2022). The DeFi sector is characterised by a high heterogeneity both in the types of existing protocols and, consequently, in the liquidity pools returns despite being highly concentrated in terms of the underlying technology, with around 60% of protocols based on the Ethereum blockchain. Cryptocurrencies continue to be characterised by highly volatile prices. As of September 2023, bitcoin's annualised return was only slightly higher than returns of other non-digital assets while showing far greater volatility. Transaction volumes of bitcoin and ether have fallen significantly since the end of the previous year, and the dynamics of the ratio between market values and transaction volumes (the so-called network value to transactions ratio or NVT) suggest a bearish outlook for the markets of the two largest cryptocurrencies, although the trend in futures prices has stabilised during this year after the sharp drop in 2022. Signs of structural price instability also emerge from the share of inactive cryptocurrencies, i.e. those that have not been traded in the past year, which is close to 60% and 70% for bitcoin and ether respectively. The correlation between bitcoin price dynamics and those of the major stock indexes is positive in 2023. The correlation appears to be less pronounced for European indexes than for US indexes and declining during the current year compared to 2022. The cybersecurity of applications underlying cryptocurrencies remains a critical issue: statistics on 188 cryptocurrencies exchanges show that only 14 can be considered very secure and that the share of those with poor cybersecurity ratings has increased compared to 2022. According to other sources, the total amount of funds stolen by hackers in crypto attacks stood at 3.8 billions of dollar in 2022, up slightly from 3.3 billions in the previous year. Compared to 2022, interest in cryptoassets has declined sharply, as evidenced by the drop in both the number of searches made on the internet for terms associated with them and the number of active addresses of the main cryptocurrencies. Investments in the sector have also dropped. Estimates of cryptoasset owners indicate that, globally, almost 60% refer to Asian countries and only 4% to Western European countries. Among the largest European economies, the share of the population owning cryptoassets ranges from slightly less than 6% in France and the UK to a little more than 2% in Italy. |
The Report was prepared by:
- Section 1 'Sustainable investments'
Monica Gentile - CONSOB, Research Department (m.gentile@consob.it)
Francesco Scalese - CONSOB, Research Department (f.scalese@consob.it) - Section 2 'Cryptoassets'
Valeria Caivano - CONSOB, Research Department (v.caivano@consob.it)
Simona Di Rocco - CONSOB, Research Department (s.dirocco@consob.it)
The authors wish to thank Gaetano Finiguerra for his useful hints to the definition of the Report. The authors wish also to thank Lucia Alessi, Elisa Ossola. and Roberto Panzica (European Commission, Joint Research Centre, Italy) for providing greenium index time series, and ESMA Investor Research working group (IRWG) for the insightful comments on sustainable investment section. The opinions expressed in this Report are the authors' personal views and are in no way binding on CONSOB.