About
- Earle W. Kazis and Benjamin Schore Professor of Real Estate and Professor of Finance
- President American Real Estate and Urban Economics Association (2022)
- Visiting Scholar Federal Reserve Bank of New York (2012, 2014, 2015, 2016, 2018, 2022)
Voting History
Question A: Allowing short selling of financial securities, such as stocks and government bonds, leads to prices that, on average, are closer to their fundamental values.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Short sales are essential for negative information to be expressed and impounded into prices. It is an essential mechanism for overpricing to be corrected.
-see background information here |
Question B: When short sellers start to establish substantial short positions in a stock, the stock is likely to have been overvalued.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: short sellers seek to maximize profit by exploiting overvalued stocks. They often do so by conducting research and convincing other investors of that research.
-see background information here |
Question C: Requiring investors to disclose short positions in a stock at the equivalent threshold as they are required to do for long positions would improve the informativeness of stock prices.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: the mechanism through which short sellers affect prices can be made more effective with increased transparency and disclosure. It could also help reduce potential market manipulation.
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With some measures of concentration by market capitalization within broad US stock market indices at an all-time high, investors seeking a well-diversified passive equity portfolio should consider alternatives to market-cap-weighted indices.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: As firm values fluctuate, the vw portfolio automatically rebalances and reflects the importance of each stock in the overall market portfolio.
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Tesla shareholders are likely to benefit substantially from the decision by the Delaware Court of Chancery to void Elon Musk's $56 billion remuneration package.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Redistribution from entrenched shareholder to diffuse shareholders. signals better corporate governance. Reduce impact of erratic behavior of one large shareholder on entire company.
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On 10 January 2024, the SEC approved spot Bitcoin exchange-traded products:
https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023\
The SEC's approval of spot Bitcoin exchange-traded products makes investors overall measurably better off.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
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The Biden Administration's recommendation to lower the real discount rate used in the cost and benefit analysis of federal regulations to 2 percent (from the current levels of 3 or 7 percent) will substantially improve regulatory analysis.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: A lower discount rate will focus society on longer-term costs and benefits of regulation, undoing some of the short-termism bias in private markets. One example where this has shown to matter is in climate abatement investments.
-see background information here |
Question A: Harry Markowitz, the Nobel Prize-winning pioneer of modern portfolio theory, passed away earlier this year:
https://afajof.org/news/in-memoriam-harry-markowitz-past-president-of-the-american-finance-association-1927-2023/
Application of the principles of modern portfolio theory allows investors in practice to achieve substantial improvements in the risk-expected return trade-off relative to naive strategies such as equal-weighting that do not take account of return covariances.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: The equal weight 1/N rule has been shown to be hard to beat
-see background information here |
Question B: Widespread adoption of modern portfolio theory by investors has substantially improved the efficiency of capital allocation in financial markets.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Consideration of the best risk-adjusted investment opportunities in capital budgeting should have improved the efficient allocation of capital
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Question A: The Federal Reserve has begun quantitative tightening (QT) to reduce the size of its balance sheet. Fed holdings of Treasury securities have declined by $800 billion relative to the March 2020 peak. The Fed currently holds $4.9 trillion of Treasury securities, significantly larger than the $2.5 trillion holdings prior to the Covid pandemic.
A reduction in Fed holdings of Treasury securities measurably increases the interest rate on long-term U.S. Treasury bonds.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: FED is price inelastic buyer. Together with reduction in foreign central bank holdings and us domestic bank holdings, more price elastic buyers now must absorb a lot of new Treasury issuance. Higher yields result.
-see background information here |
Question B: A reduction in Fed holdings of Treasury securities measurably increases volatility in the Treasury market.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Fed purchases were predictable and the loss of that buyer leaves a more price sensitive and fickle fray of Treasury buyers.
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Question A: September 2023 was the 25th anniversary of the collapse of Long-Term Capital Management (LTCM). In response to LTCM's troubles, the Federal Reserve orchestrated a multi-billion dollar rescue package by a consortium of banks and it cut the Federal funds rate target by 75 basis points within six weeks.
The hedge fund sector's contribution to systemic risk is substantially lower today than at the time of LTCM.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Hedge funds are smaller as a share of GDP and compared to overall household wealth. However, they are still connected to banks from whom they borrow to lever up their trades.
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Question B: Financial market participants' expectation that the Fed will aggressively ease monetary policy in response to financial market dislocations is a substantial source of financial instability.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Too much evidence of Greenspan, Bernanke, .. put. This creates moral hazard and excessive risk taking.
-see background information here |
Question A: SEC Announcement: https://www.sec.gov/news/press-release/2023-155
The benefits of the new SEC rules on private funds - which require private funds to provide transparency to their investors regarding the fees and expenses and other terms of their relationship with private fund advisers and the performance of such private funds - substantially exceed their costs.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: While compliance is costly, the rule will bring more transparency, and competition to the PE space which will benefit a quickly growing customer base. Due diligence costs for investors will go down.
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Question B: The new SEC rules will have a substantially negative impact on the industry by stifling capital formation and reducing competition.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Specialized auditors will develop to do this reporting work efficiently after an initial period of start-up costs.
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Question C: It is appropriate policy for the SEC to impose such rules on private funds even though the investors (limited partners) are sophisticated entities.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Many institutional investors lack the resources (especially human capital and time) to do thorough due diligence. And there is enormous duplication of effort. With rising private asset ownership, more investor protection is warranted.
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Question A: New Money Market Fund (MMF) Rules: The SEC adopted amendments to the MMF rules, including a new mandatory liquidity fee for institutional prime and tax-exempt funds. The liquidity fee would trigger when daily net redemptions exceed five percent and when the costs associated with such redemptions are more than de minimus. https://www.sec.gov/news/press-release/2023-129
The new liquidity fee will substantially reduce the likelihood of runs on MMFs.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Prior to crossing the 5% threshold, the run incentive will be amplified since investors will want to get their money out before others. We need to cross this threshold before getting to the region where run incentives are lower.
-see background information here |
Question B: The new liquidity fee will cause a substantial shift of assets under management from institutional prime and tax-exempt funds to government MMFs (which are exempt from the fees).
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Prime institutional funds already got a lot smaller after the 2016 reform from fixed to floating NAV. Hard to say how much demand will shrink further following these changes, but probably somewhat if returns on prime funds fall, bringing them closer to those on govt funds.
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Question A: The impact of the Covid-19 pandemic on working and shopping habits has not been fully priced into current private valuations of downtown commercial properties in major cities.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Transaction volumes of distressed urban office & retail have been low since the onset of the pandemic and selected, i.e., only the best properties have traded. Expected distressed office sales to ramp up from their sporadic levels in 2023.H1.
-see background information here |
Question B: A continued fall in commercial real estate valuations would trigger another round of banking panic.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Many, esp. regional and smaller banks are over-exposed to CRE loans. Many of these loans will come due in 2023.H2 and 2024 and will fail to refinance. Banks have not provisioned sufficiently for future fire sales of these CRE assets.
-see background information here -see background information here |
Question A: Regulation that allows state pension funds to consider environmental, social, and governance factors in investment decisions only if these factors are material for risk and expected return would make retirees measurably worse off.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Pensioners report in surveys to be willing to give up financial return in the support of sustainability goals. Depriving them of this choice lowers welfare.
-see background information here |
Question B: Regulation that prevents state pension funds from considering environmental, social, and governance factors in investment decisions even if these factors are material for risk and expected return would make retirees measurably worse off.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Would be a grave mistake to not allow for the incorporation of, say climate risk (physical and transition risk) in portfolio allocation
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Question A: Since maturity transformation is an inherent feature of commercial banks' business model, some duration mismatch between assets and liabilities is unavoidable.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Banks use 4 tools to hedges the rate risk: deposit franchise, interest rate derivatives, loan sales, and variable-rate assets. In practice, they do not offset all rate risk, presumably because that would reduce profits substantially.
-see background information here -see background information here |
Question B: For the purposes of capital regulation, banks should be required to mark their holdings of Treasury and Agency securities to market at all times (even though their loans are not marked to market).
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Securities like Treasuries already enjoy favorable risk weights. They trade in liquid markets with price transparency. Proper accounting of the market value of liquid securities will increase depositor confidence in banks' financial health.
-see background information here |
Question A: Despite the empirical failures of the Capital Asset Pricing Model (CAPM) in explaining expected stock returns, a shareholder-value maximizing publicly-traded firm should still use the CAPM to calculate the cost of equity in capital budgeting.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: The company should use a risk-adjusted return that reflects its exposure to several sources of systematic risk, including market risk but also others (interest rate risk, size risk, value risk, profitability risk, etc.)
-see background information here |
Question B: The equity risk premium that U.S. publicly traded firms should use in cost of equity calculations in April 2023 is above 6%.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: The equity risk premium is very difficult to measure, even in long samples. Realized excess stock returns were high and bond yields were unusually low over the past 40 years, raising the realized excess return above the expected return going forward. 5-6% is about right.
-see background information here |
Question A: Financial regulators in the US and Europe lack the tools and authority to deter runs on banks by uninsured depositors.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: While bank capital and liquidity regulation offer safety and soundness protection, they cannot prevent a large-scale run on uninsured deposits.
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Question B: Not guaranteeing uninsured deposits at Silicon Valley Bank in full would have created substantial damage to the US economy.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: A widespread banking crisis triggered by a large share of uninsured (and possibly even insured) deposits leaving the regional banks, would have led to a fire sale of assets, and damage to the economy, given that banks under $100bn account for about 25% of intermediation.
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Question C: Fully guaranteeing uninsured deposits at Silicon Valley Bank substantially increases banks’ incentives to engage in excessive risk-taking.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: deposit guarantees create moral hazard for banks and a sticky deposit base that encourages more risk-taking.
-see background information here -see background information here |
Question A: By issuing inflation-indexed bonds, and thereby providing a long-term real safe asset for pension funds and retirement savers, governments can make a substantial contribution to social welfare.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Real bonds complete the payoff space and show up in optimal portfolios of stocks, nominal bonds, and real bonds. Very few other assets are good inflation hedges.
-see background information here |
Question B: Issuance of inflation-indexed bonds substantially helps government commit to a responsible fiscal and monetary policy.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Monetary policy is the remit of the Fed, not the Treasury. Price stability is important for many reasons, including keeping the debt service cost manageable. The Treasury's debt management office minimizes the cost of debt issuance; their strategy should include real bonds.
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Question A: Large-scale stock buybacks by public corporations provide short-term rewards for shareholders and senior executives at the expense of potentially higher-return corporate investments.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Corporate managers have short-term incentives to engineer share buybacks since they are natural sellers of shares. Their horizons may be shorter than that of long-run profitable investment. Some shareholders may have similar short-term incentives.
-see background information here |
Question B: The proposed higher tax on corporate stock buybacks (an increase from 1% to 4%) would generate substantial public revenues.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Given the short-termist incentives explained above, a modest tax would reduce but not eliminate share buybacks and hence raise non-trivial tax revenue. Not sure we have a precise estimate of that elasticity in the academic literature. JCT predicts the 1% tax will raise $75 bi
-see background information here |
Question C: The proposed higher tax on corporate stock buybacks would generate a substantial increase in corporate investment.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: On the margin, there would be both more dividend payouts and more investment, as some of short-termist distortions are mitigates with the tax. Just how large the effect is is uncertain, but maybe it will help to boost anemic aggregate investment.
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Question A: Missing payments on the US Treasury security obligations for several weeks would pose a substantial risk of a global financial crisis.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: If the U.S. defaults with no quick resolution in sight, it may prove to be a turning point in which it loses its status as the global safe haven currency. What comes next is hard to predict since there is no natural alternate safe haven currency. A financial crisis may ensue.
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Question B: The requirement to periodically increase the debt ceiling measurably reduces the long-run size of the debt.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: The debt ceiling has been turned into a political weapon that substitutes for sound budgetary policymaking. It risks eroding the convience yields that the US has benefited from for decades and that would be very unhelpful to lose right now with debt/GDP near 100%.
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Question A: The SEC’s proposed new rule for stock orders from individual investors is likely to be effective in giving those investors better prices on their trades on average.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: New rules will improve price transparency and the new protections on paying for order flow will also protect small investors. The latency rule in auctions is good as well and backed up by research.
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Question B: The new rule would improve the overall operation of the stock market.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Question A: Although the reported volatility of asset values in private markets (private equity, buyouts, and venture capital) is lower than that of comparable assets in public markets, their true volatility is broadly similar or greater.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Lower diversification, higher risk activities (smaller, earlier-stage, growth companies, riskier real estate investments) result in more underlying risk than traditional public equity investments which involve (diversified baskets of) larger, more stable firms.
-see background information here |
Question B: Since the global financial crisis, the realized returns on private equities have measurably exceeded the returns on public equities.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Raw returns have been similar, but risk-adjusted returns have been lower for private investments. They key is to properly adjust for (the many different sources of) risk.
-see background information here |
Question A: The collapse of a major crypto intermediary will have little impact on the wider economy and the stability of the traditional financial system.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: FTX had about $16 bi in client assets, which is like a medium-sized bank. The system can withstand a bank run of this size. Wider damage to crypto eco-system may ensue, but the entanglement with the broader levered financial sector seems contained.
-see background information here |
Question B: The collapse of a major crypto intermediary suggests the need for the crypto asset class to be more tightly regulated.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: The lack of corporate controls, auditing, and regulatory oversight in the case of FTX was stunning. Many retail investors, who placed their money and trust in the system, have lost substantial sums. More regulation is needed to offer basic investor protection.
-see background information here |
The amount of passively invested funds has reached levels at which it has a measurable detrimental effect on market efficiency.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: More passive investing and benchmarking makes a large fraction of assets and asset managers uninterested in information acquisition (information scale effect), it also makes them trade less aggressively on the information they have. Both forces reduce information aggregation.
-see background information here |
Question A: Research on the nature and impact of bank runs has made it possible to limit substantially the wider economic damage from financial crises.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Research on financial fragility has informed the design of macroprudential policy, modern bank supervisory regime, stress testing, etc., all of which has made banks much safer.
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Question B: Reforms of financial regulation since 2008 (and macroprudential policies in some countries) will not substantially reduce the probability of financial crises.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Tighter bank capital rules and stress testing have reduced the risk of banking crises. Some of the risk has migrated to shadow banks, who are less regulated.
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Question A: The costs and risks associated with a sharp fall in the value of sterling outweigh any macroeconomic benefits for the UK of export stimulus due to a weaker currency.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Question B: Concerns about government finances and debt sustainability can undermine the reserve currency status of a major currency.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: the global safe haven currency has enjoyed extra fiscal capacity over the past three centuries, but that status switches periodically, and high debt is one factor that can make a contry lose that status.
-see background information here |
Question A: The typical chief executive officer of a publicly traded corporation in the U.S. is paid more than his or her marginal contribution to the firm's value.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: theory is inconclusive on whether high CEO pay is value maximizing for shareholders or the result of rent extraction; depends on assumptions on talent distribution, importance of incentives to provide effort, etc.
-see background information here |
Question B: Mandating that U.S. publicly listed corporations must allow shareholders to cast a non-binding vote on executive compensation was a good idea.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Don't see the point of a non-binding vote as long as CEO pay is properly disclosed. Whatever effects this policy has on pay outcomes can be achieved by disclosure.
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Question A: Having companies run to maximize shareholder value creates significant negative externalities for workers and communities.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Climate externalities are good example of something shareholder value maximization typically ignores. Short-termism of shareholders another.
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Question B: Appropriately managed corporations could create significantly greater value than they currently do for a range of stakeholders – including workers, suppliers, customers and community members – with negligible impacts on shareholder value.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: Good management focused on the long-run health and well-being of the company, its employees, and its community attracts the best resources.
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Question C: Effective mechanisms for boards of directors to ensure that CEOs act in ways that balance the interests of all stakeholders would be straightforward to introduce.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Boards are imperfect governance devices, often co-opted and controlled by senior management.
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Question A: A mandate for public companies to provide climate-related disclosures (such as their greenhouse gas emissions and carbon footprint) would provide financially material information that enables investors to make better decisions.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: exposure to (physical and regulatory) climate risk has become a substantial risk for firms but lack of consistent and audited reporting makes it difficult for investors to assess it currents.
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Question B: A mandate for public companies to provide climate-related disclosures would provide material information that enables investors to make better decisions with regards to non-financial objectives (such as aiding portfolio choice based on ESG principles).
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: More comprehensive, standardized and audited reporting on a range of E, S, and G metrics would make it much easier for ESG investors to build portfolios
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Question C: A mandate for public companies to provide climate-related disclosures would induce them to reduce their climate impact substantially.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
---|---|---|---|
Comment: If it becomes better measured it becomes a KPI that management compensation can be tied to. Once those incentives are in place firms will need and want to show improvement.
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