Corporate sustainability performance and idiosyncratic risk: A global perspective

Darren D. Lee*, Robert W. Faff

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

215 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 pages25
JournalFinancial Review
Volume44
Issue number2
DOIs
Publication statusPublished - May 2009
Externally publishedYes

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