Asset Pricing and Sustainability: A Teaching Note

24 Pages Posted: 10 Mar 2020

See all articles by Dirk Schoenmaker

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Willem Schramade

RSM Erasmus University; Sustainable Finance Factory

Date Written: February 16, 2020

Abstract

In the transition to a sustainable economy, companies are increasingly adopting the goal of long-term value creation, which integrates financial, social and environmental value. However, investors struggle to invest for long-term value creation and perform the social function of finance. Conventional investment approaches, based on the neo-classical paradigm of portfolio theory and efficient markets, only capture financial value in their financial risk and return space. Attempts at sustainability integration through environmental, social and governance (ESG) ratings are typically too shallow to overcome this problem.

This teaching note presents an alternative investment paradigm, based on adaptive markets and fundamental analysis, that is better able to pursue long-term value creation. This long-term investment approach includes active management that assesses companies’ transition preparedness, concentrated portfolios, and deep engagement.

This teaching note can be used in courses on asset pricing. It complements asset pricing textbooks, which usually adopt the capital asset pricing model.

Keywords: asset pricing; capital asset pricing model; ESG factors; active investing; engagement

JEL Classification: G11, G12, G14

Suggested Citation

Schoenmaker, Dirk and Schramade, Willem, Asset Pricing and Sustainability: A Teaching Note (February 16, 2020). Available at SSRN: https://ssrn.com/abstract=3539080 or http://dx.doi.org/10.2139/ssrn.3539080

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Willem Schramade

RSM Erasmus University ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Sustainable Finance Factory ( email )

18
Rotterdam, 3034 SG
0682011037 (Phone)

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