Do high and low‐ranked sustainability stocks perform differently?

Abstract

Purpose -The purpose of this paper is to examine whether portfolios comprising high-ranked corporate social performance (CSP) firms out/underperform portfolios comprised of low-ranked CSP firms. The authors employed a US sample covering the period 1998-2007. Design/methodology/approach -In the context of the Fama and French model augmented by momentum and industry factors, the authors test the significance of the alpha for a CSP difference portfolio, defined as high-ranked minus low-ranked CSP stocks. Findings -The results are consistent with the "no-linkage" hypothesis, which argues that no significant difference in the risk-adjusted performance is expected between high-and low-ranked CSP-formed portfolios. Furthermore, little evidence was found that high-or low-ranked CSP-formed portfolios, irrespective of the portfolio formation type, systematically differ with regard to performance, size, book-to-market or momentum factors. Originality/value -The authors employ sustainability CSP rankings that focus on environmental, social and governance (ESG) materiality factors, in contrast to many prior studies that solely use KLD ratings or just focus on a subarea of CSP. Moreover, the authors' dataset considerably improves upon previous studies employing similar data in which individual company rankings are not available.

Sustainable investments in the Norwegian stock market

“…When testing for industry bias through a best-in-class approach, our results remain consistent. These results firmly contradict previous studies, which provide evidence of abnormal return through the use of an ESG portfolio strategy Lee et al, 2013;Statman and Glushkov, 2009), and support those who find no relationship (Cohen et al, 1995;Guerard Jr, 1997;McWilliams and Siegel, 2000). Based on the Fama-MacBeth (1973) regression, it is evident that the CMD factor does not provide any explanatory power of returns and is not priced in the Norwegian market.…”

“…also compared the performance of high-and low-rated companies in the U.S. for the period of 1992 to 2004. As opposed toLee et al (2013), they constructed their portfolios based on a value-weighted approach and found a significant performance for the high-low portfolio, with an abnormal return of up to 8.7% per…”

The wages of social responsibility — where are they? A critical review of ESG investing

“…Lee, Faff, and Rekker (2013) also investigate the performance of U.S. companies dependent on the ESG ratings of SAM. The Carhart (1997) four‐factor model for 1998 to 2007 provides evidence in favor of a significant outperformance of high‐rated companies as well as of high‐rated sectors.…”

Do Sustainability Rating Schemes Capture Climate Goals?

“…Companies with the best 10% sustainability ratings are included in the Dow Jones Sustainability Index World (RobecoSAM, 2015). The SAM data have been used in several recent academic studies (Eccles, Krzus, & Ribot, 2015b; Humphrey, Lee, & Shen, 2012; Kumar, Camille Smith, Nan, Ambrosy, & Tavares, 2016; Lee, Faff, & Rekker, 2013). RobecoSAM relies on two main types of information.…”