Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective

Posted: 20 Feb 2009

See all articles by Darren D. Lee

Darren D. Lee

ESG Research Services Australia

Robert W. Faff

University of Queensland

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2009

Abstract

Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds (a) leading sustainability firms do not underperform the market portfolio and (b) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios.

Keywords: Sustainability, corporate social performance, corporate financial performance, idiosyncratic risk, global evidence, best of sector

JEL Classification: G30, G11, Q56

Suggested Citation

Lee, Darren David and Faff, Robert W., Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective (February 16, 2009). The Financial Review, Vol. 44, No. 2, May 2009. Available at SSRN: https://ssrn.com/abstract=1344731

Darren David Lee (Contact Author)

ESG Research Services Australia

4070 Brisbane, Queensland
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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