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The wages of social responsibility — where are they? A critical review of ESG investing
Author(s) -
Halbritter Gerhard,
Dorfleitner Gregor
Publication year - 2015
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2015.03.004
Subject(s) - portfolio , corporate social responsibility , corporate governance , sample (material) , socially responsible investing , financial economics , exploit , business , economics , empirical evidence , accounting , abnormal return , econometrics , finance , political science , public relations , philosophy , chemistry , computer security , chromatography , epistemology , computer science , stock exchange
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.