ESG Controversies and Their Impact on Performance

Franco, Carmine De

doi:10.3905/joi.2019.1.106

Cited by 39 publications

(22 citation statements)

References 3 publications

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“…Typically, research in this vein argues that good ESG practices can shelter firms from shocks to their underlying cash flows and provide improved investment and production opportunities. Franco (2020) examines the impact of ESG controversies (i.e., news and scandals) on stock and portfolio performances and finds that European and US stocks that experience severe ESG controversies and subsequent ESG downgrades underperform both the benchmark portfolio and portfolios with low or no ESG controversies. Friede et al (2015) review more than 2,000 ESG/SRI studies and find supporting evidence for an overall positive relationship between ESG performance and financial performance.…”

Section: Literature Reviewmentioning

confidence: 99%

No more excuses! Performance of ESG‐integrated portfolios in Australia

Lee

Fan

Wong

2020

Accounting & Finance

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We find compelling evidence that integrating environment, social and governance (ESG) analyses into ongoing investment practices in Australia does not harm risk-adjusted returns. High-ESG-rated portfolios consistently provide superior outperformance, diversification efficiencies, and lower overall risk compared to low-ESG-rated portfolios. In contrast to low-rated portfolios, we find no evidence that high-ESG-rated portfolios underperform the market. All results remain robust to alternative time periods, market cycles, seasonality effects, ratings method and the inclusion of trading costs and management fees. Overall, our findings suggest that a simple ESG integration strategy may provide a natural hedge against the risks that arise from the evolving fiduciary responsibilities of professional investment managers relating to ESG risks.

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Section: Literature Reviewmentioning

confidence: 99%

No more excuses! Performance of ESG‐integrated portfolios in Australia

Lee

Fan

Wong

2020

Accounting & Finance

View full text Add to dashboard Cite

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“…The topic of the ESG controversies related to environmental, social and governance issues was investigated in the literature because of the assumed negative impact that the ESG problems or weaknesses may have on the corporate financial results and the need to deal with them. De Franco (2018) [38] (p. 2) empirically proved that strong controversies ("failures of a company to address and mitigate associated risks") negatively affect the financial performance from the investors' perspective. This effect was confirmed only for European and US stocks, while an opposite result was achieved for the Asia-Pacific region, where a lower number of controversial stocks were examined [38].…”

Section: Unravelling Esg Behaviormentioning

confidence: 99%

“…De Franco (2018) [38] (p. 2) empirically proved that strong controversies ("failures of a company to address and mitigate associated risks") negatively affect the financial performance from the investors' perspective. This effect was confirmed only for European and US stocks, while an opposite result was achieved for the Asia-Pacific region, where a lower number of controversial stocks were examined [38]. The ESG controversies are usually based on public or media disclosure of ESG-related corporate scandals, and Aouadi and Marsat (2018) [18] interestingly found a positive impact of ESG controversies over the firm value, which could be associated with an increased corporate visibility but not a higher appreciation of the company.…”

Section: Unravelling Esg Behaviormentioning

confidence: 99%

Mapping the ESG Behavior of European Companies. A Holistic Kohonen Approach

et al. 2019

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In the context of increased awareness for complying with the multiple requirements for sustainable development, the stakeholders need to have the proper information for analyzing the corporate behaviors from various perspectives. Thus, the purpose of this research is to investigate and map the sustainability patterns of European companies at the beginning of 2019, in order to uncover valuable insights into the corporate sustainable behaviors. The Environmental, Social and Governance (ESG) performances of 1165 European companies were considered by applying the Kohonen neural network for clustering purposes at three main levels: (1) ESG overall level, including country and sectoral perspectives; (2) ESG thematic level; (3) ESG four-folded innovative level (stakeholder, perspective, management level and focus views). All three analyses carried out show a three-clustering solution—Lower, Middle and Higher ESG clusters. Most firms are top ESG performers and the companies with good ESG scores also have more related controversies. The results highlight the sustainability profiles of the examined companies. Firstly, the environmental and social priorities are preferred over corporate governance targets. Secondly, companies tend to implement a business-customized ESG approach for achieving organizational efficiency and competitiveness. Thirdly, there is a higher consideration of employees, external-directed measures, operational issues and process-orientation in the corporate ESG performance and development. The ESG approach of the European reporting companies is mainly mature, strategic and long-term oriented, aimed to increase the corporate competitiveness and to support the societal well-being altogether.

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“…Carmine de Franco in the article introduced an aggregated indicator of controversy built from 10 specific ESG indicators from the Sustainalytics database [35]. After classifying stocks dynamically as low, moderate, high, or no controversy the author first built portfolios of stocks with the same level of controversy and reviewed their aggregated performance in three different regions: Europe, US, and Asia-Pacific.…”

Section: Sustainability 2020 12 X For Peer Review 7 Of 20mentioning

confidence: 99%

Sustainable Funds’ Performance Evaluation

et al. 2020

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The purpose of this research is to consider if the growing popularity of sustainable investment does not create additional risks in investing. Different views on sustainable investments were analyzed to identify different approaches to the main risks. A quantitative analysis was carried out to investigate the possible benefits and advantages of sustainable investment. Without taking into account the social perks of investing in sustainable funds, this study evaluates the performance and economic returns of both sustainable and traditional funds. The research was carried out in two parts by comparing samples of 30 sustainable and 30 traditional funds. Firstly, such methods as annual returns, standard deviations, Sharpe ratios, skewness, and kurtosis were calculated and analyzed. The Capital Asset Pricing Model (CAPM), Fama–French three-factor model and Carhart four-factor model were used to value different market portfolios. The findings of this study suggest that sustainable funds are less risky than traditional funds. However, at the same time, we want to point to pay attention to the period of our analysis and to have in mind that an increasing demand of social responsible assets increases risks as well. However, no clear evidence was found to confirm that sustainable funds can generate higher returns compared to traditional piers or benchmark index. Moreover, after studying different methods the study reveals that the Fama–French three-factor model was the most suitable for explaining the traditional and sustainable funds’ results.

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ESG Controversies and Their Impact on Performance

Cited by 39 publications

References 3 publications

No more excuses! Performance of ESG‐integrated portfolios in Australia

No more excuses! Performance of ESG‐integrated portfolios in Australia

Mapping the ESG Behavior of European Companies. A Holistic Kohonen Approach

Sustainable Funds’ Performance Evaluation

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