Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective

25 Pages Posted: 16 Jun 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

Abstract

Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) 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.

Suggested Citation

Lee, Darren David and Faff, Robert W., Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective. Financial Review, Vol. 44, Issue 2, pp. 213-237, May 2009. Available at SSRN: https://ssrn.com/abstract=1392975 or http://dx.doi.org/10.1111/j.1540-6288.2009.00216.x

Darren David Lee

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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