Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective
Posted: 20 Feb 2009
Date Written: February 16, 2009
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: Suggested Citation