Corporate sustainability performance and idiosyncratic risk: a global perspective

Darren D. Lee, Robert Faff

Research output: Contribution to journalArticle

177 Citations (Scopus)

Abstract

Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios.
Original languageEnglish
Pages (from-to)213-237
Number of pages24
JournalFinancial Review
Volume44
Issue number2
Early online date21 Apr 2009
DOIs
Publication statusPublished - 2009

Keywords

  • corporate sustainability performance
  • idiosyncratic risk
  • global perspective
  • sustainability
  • best of sector
  • global evidence
  • corporate financial performance
  • corporate social performance

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