The wages of social responsibility — where are they? A critical review of ESG investing |
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| Authors: | Gerhard Halbritter Gregor Dorfleitner |
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| Affiliation: | 1. Department of Management – University of Turin;2. ESCP Europe, Paris, France;1. Greenleaf Advisors LLC and DePaul University, 1 East Jackson Boulevard, Suite 5500, Chicago, IL 60614, USA;2. WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;3. Independent. Part of this research was carried out while Stefanie Kaiser was affiliated to WHU - Otto Beisheim School of Management;1. Faculty of Business, Hong Kong Polytechnic University, Hong Kong;2. CUHK Business School, Chinese University of Hong Kong, Hong Kong |
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| Abstract: | This paper contributes both to investigating the link between the corporate social and financial performance based on environmental, social and corporate governance (ESG) ratings and to reviewing the existing empirical evidence pertaining to this relationship. The sample used includes ESG data of ASSET4, Bloomberg and KLD for the U.S. market from 1991 to 2012. The econometrical framework applies an ESG portfolio approach using the Carhart (1997) four-factor model as well as cross-sectional Fama and MacBeth (1973) regressions. Previous empirical research indicates a relationship between ESG ratings and returns. As against this, the ESG portfolios do not state a significant return difference between companies with high and low ESG ratings. Although the Fama and MacBeth (1973) regressions reveal a significant influence of several ESG variables, investors are hardly able to exploit this relationship. The magnitude and direction of the impact are substantially dependent on the rating provider, the company sample and the particular subperiod. The results suggest that investors should no longer expect abnormal returns by trading a difference portfolio of high and low rated firms with regard to ESG aspects. |
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| Keywords: | ESG Environmental social governance Socially responsible investing Corporate social performance Financial performance G10 G11 G12 |
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