An Empirical Study of the World Price of Sustainability

Yuchao Xiao, Robert Faff, Philip Gharghori*, Darren Lee

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

27 Citations (Scopus)


The core goal of this study is to empirically investigate whether there is a "world price" of corporate sustainability. This is assessed in the context of standard asset pricing models-in particular, by asking whether a risk premium attaches to a sustainability factor after controlling for the Fama-French factors. Both time-series and cross-sectional tests are formulated and applied. The results show that (1) global Fama-French factors have strong power to explain global equity returns and (2) sustainability investments have no significant impact on global equity returns. The absence of a significant relationship between sustainability and returns implies that large institutional investors are free to implement sustainability mandates without fear of breaching their fiduciary duties from realising negative returns due to incorporating a sustainability investment process.

Original languageEnglish
Pages (from-to)297-310
Number of pages14
JournalJournal of Business Ethics
Issue number2
Publication statusPublished - May 2013
Externally publishedYes


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