The market for socially responsible investing : a review of the developments

This contribution explains how socially responsible investing (SRI) has evolved in the last few decades and sheds light on its latest developments. It describes different forms of SRI in the financial markets; and deliberates on the rationale for the utilization of positive and negative screenings of listed businesses and public organizations. A comprehensive literature review suggests that the providers of financial capital are increasingly allocating funds toward positive impact and sustainable investments. Therefore, this descriptive paper provides a factual summary of the proliferation of SRI products in financial markets. Afterwards it presents the opportunities and challenges facing the stakeholders of SRI. This research presents a historic overview on the growth of SRI products in the financial services industry. It clarifies that the market for responsible investing has recently led to an increase in a number of stakeholders, including; contractors, non governmental organizations (NGOs) and research firms who are involved in the scrutinization of the businesses’ environmental, social and governance (ESG) behaviors. This discursive contribution raises awareness on the screenings of positive impact and sustainable investments. The researcher contends that today’s socially responsible investors are increasingly analyzing the businesses’ non-financial performance, including their ESG credentials. In conclusion this paper puts forward future research avenues in this promising field of study.peer-reviewe

Markowitz Revisited: Social Portfolio Engineering

In recent years socially responsible investing has become an increasingly more popular subject with both private and institutional investors. At the same time, a number of scientific papers have been published on socially responsible investments (SRIs), covering a broad range of topics, from what actually defines SRIs to the financial performance of SRI funds in contrast to non-SRI funds. In this paper, we revisit Markowitz' Portfolio Selection Theory and propose a modification allowing to incorporate not only asset-specific return and risk but also a social responsibility measure into the investment decision making process. Together with a risk-free asset, this results in a three-dimensional capital allocation plane that allows investors to custom-tailor their asset allocations and incorporate all personal preferences regarding return, risk and social responsibility. We apply the model to a set of over 6,231 international stocks and find that investors opting to maximize the social impact of their investments do indeed face a statistically significant decrease in expected returns. However, the social responsibility/risk-optimal portfolio yields a statistically significant higher social responsibility rating than the return/risk-optimal portfolio

ESSAYS ON THE VALUE OF A FIRM’S ECO-FRIENDLINESS IN THE FINANCIAL ASSET MARKET

This dissertation presents three different closely related topics on the value of eco-friendliness in the financial market. The first essay attempts to estimate hedonic stock price model to find a contemporaneous relationship between stock return and firms’ environmental performance and recover the value of investor’s willingness to pay of eco-friendliness. This study follows stock and environmental performances of the 500 largest US firms from 2009 to 2012. The firms’ environmental data come from the Newsweek Green Ranking, both aggregate measures: green ranking (GR) and green score (GS), and disaggregate measures: environmental impact score (EIS), green policy and performance score (GPS), reputation survey score (RSS), and environmental disclosure score (EDS). The results show a non-linear relationship between environmental variables and stock return, i.e. upside down bowl shape or increasing in decreasing rate. That means for low green ranking firms the marginal effect is positive while for high green ranking firms the marginal effect is negative. The investor’s willingness to pay (WTP) for a greener stock for firms in the lowest 25 green ranking, on average, is 0.0096% higher stock price. The second essays attempt to determine if a firm’s environmental performance affects future systematic risk. Systematic risk measures an individual stock’s volatility relative to the market price. This study also uses the Newsweek Green Ranking’s environmental variables. The results show significant evidence of a non-linear relationship between green variables and systematic (market) risk, but the shape is not unanimous for all environmental variables. The shape of the relationship for green ranking (GR), for example, is U-shape. This means that for the firms in the bottom rank, improving rank will lower systematic (market) risk, and for the firms in the top rank improving rank will increase systematic (market) risk. On average the marginal effect for the firms in the bottom and top 25 firms are -0.2% and 0.09% respectively. The third essay is the effect of a firm’s environmental performances on a firm’s idiosyncratic risk. Idiosyncratic risk measures an individual stock’s volatility independent from the market price. This study also uses the Newsweek Green Ranking’s environmental variables. The results show significant non-linear relationships between environmental variables and idiosyncratic risk, even though there is no unanimous shape among the environmental variables. In the case of green ranking, for example, it has U-shape; for the firms in the bottom rank, improving green ranking will lower idiosyncratic risk and for firm in the top green ranking, improving green ranking will increase idiosyncratic risk. On average the marginal effect for firm in bottom and top 25 firms are -0.4% and 0.2% respectively

It Pays to Be Green: A Hedonic Stock Price Model for Environmentally Friendly Large U.S. Firms

This study attempts to estimate the non-market value of the environmental performance of a firm using a stock price model derived from Rosen’s hedonic price theory. Two different stock market models are developed to estimate the model, a basic firm’s stock market model and a modified Capital Assets Pricing Model (CAPM). The explanatory variables include risk factors, non risk stock characteristics, and corporate environmental policy, conduct and performance. This study uses Newsweek’s 2009 Green Ranking scores. The results show that risk factors, non-risk stock characteristics, and environmental scores variables are statistically significant in affecting stock price and equity return. The willingness to pay (WTP) are 3¢, 5¢, and 18¢, respectively for the green policy and performance score (GPPS), the reputation survey score (RSS), and the green score (GS). The four scores increase return on equity as much as 0.06%, 0.38%, 0.40%, and 2.06% respectively. A one point improvement in the three environmental scores is associated with an increase in an average firm’s value (market capitalization) of $17,840,820,$29,043,195, and $99,576,670 respectively.hedonics model, stock price, CAPM, Newsweek’s 2009 green ranking, Environmental Economics and Policy,

Corporate social responsibility in portfolio selection: A "goal games" against nature approach

Nowadays, there is an uprising social pressure on big companies to incorporate into their decision-making process elements of the so-called social responsibility. Among the many implications of this fact, one relevant one is the need to include this new element in classic portfolio selection models. This paper meets this challenge by formulating a model that combines goal programming with "goal games" against nature in a scenario where the social responsibility is defined through the introduction of a battery of sustainability indicators amalgamated into a synthetic index. In this way, we have obtained an efficient model that only implies solving a small number of linear programming problems. The proposed approach has been tested and illustrated by using a case study related to the selection of securities in international markets

DOES ESG SCORE HAVE AN IMPACT ON THE FINANCIAL PERFORMANCE OF ETFs

Socially responsible investing (SRI) is the inclusion of non-financial factors in the investment decision-making process. The SRI approach complements conventional investment portfolio optimization by considering environmental, social and governance factors (ESG). Responsible investing is a recent growing trend among Exchange-traded Funds (ETF). The popularity is explained by low management costs and a wide range of options. Investors can use ETFs to invest in equities, interest rates, real estate or commodities across a wide range of geographical areas and industries. The purpose of this study is to contribute to the present literature by investigating whether the inclusion of ESG parameters in the process of creating ETF portfolios affects abnormal returns over the research period 1.1.2010-31.7.2020 in the U.S market. This study utilizes Morningstar's sustainability rating based on company-specific benchmarking data collected by Sustainalytics. Following this, sustainability ratings have been used to construct different portfolios. Research is conducted by analyzing how substantially different sustainability ratings produce abnormal returns and differences between portfolios performances. For determining the alphas for the portfolios, factor models such as CAPM, Fama-French 3-factor, Carhart 4-factor, and Fama-French 5-factor are utilized. Furthermore, an analysis of risk-adjusted performance is extended by investigating the Sharpe ratio and Treynor ratio. Empirical results reveal that during the research period, each portfolio yielded negative returns. However, both the unsustainable and the sustainable portfolios underperform compared to conventional portfolios, i.e., a portfolio that includes the average score ETFs. The results of this study indicate that there is an increased risk of loss when investing in widely unsustainable or sustainable portfolios.Viimeisen vuosikymmenen aikana sosiaalisesti vastuullisesta sijoittamisesta on tullut nopeasti kasvava ilmiö rahoitusalalla. Ihmiset ovat aikaisempaa tietoisempia ympäristöasioista ja haluavat suosia vastuullisia vaihtoehtoja jokapäiväisessä elämässä, mutta myös sijoittamisessa. Vastuullisuuteen liittyvän kiinnostuksen takia on syntynyt useita sosiaalisesti vastuullisia rahastoja, indeksejä ja sijoitusstrategioita, mikä on antanut sijoittajille mahdollisuuden yhdistää henkilökohtaiset mieltymyksensä ja arvonsa sijoituspäätöksiinsä. Vastuullinen sijoittaminen onkin muodostunut viime aikoina kasvavaksi trendiksi pörssilistattujen rahastojen (ETF) keskuudessa. Rahastojen suosio selittyy alhaisilla hallintokustannuksilla ja laajalla valikoimalla. Sijoittajat voivat käyttää ETF-rahastoja sijoittaakseen osakkeisiin, korkoihin, kiinteistöihin tai hyödykkeisiin monilla eri maantieteellisillä alueilla ja toimialoilla. Tämän Pro Gradu -tutkielman tarkoituksena on laajentaa nykyistä tutkimuskirjallisuutta ja tutkia ETF-rahastojen epänormaajeja tuottoja. Tutkielmassa selvitetään, vaikuttaako ESG-parametrien sisällyttäminen ETF-portfolioiden luomisprosessiin tutkimusjakson 1.1.2010-31.7.2020 aikana Yhdysvaltojen markkinoilla. Tutkielmassa hyödynnetään Morningstarin kestävyysluokitusta, joka perustuu Sustainalyticsin keräämiin yrityskohtaisiin vertailutietoihin. Tutkielmassa analysoidaan, kuinka olennaisesti erilaiset kestävyysluokituksesta rakennetut portfoliot tuottavat epänormaalia tuottoa eli alfaa. Salkkujen alfojen määrittämiseen käytetään faktorimalleja, kuten CAPM, Fama-French 3-faktoria, Carhart 4-faktoria ja Fama-French 5-faktoria. Riskiin mukautetun suorituskyvyn analyysiä laajennetaan tutkimalla myös Sharpen ja Treynorin suhdelukuja. Tämän tutkielman empiiriset tulokset paljastavat, että tutkimusjakson aikana jokainen portfolio on tuottanut negatiivistä alfaa. Sekä erittäin vastuulliset että vastuuttomat portfoliot ovat kuitenkin heikompia kuin portfolio, joka on rakennettu edellämainittujen väliltä. Tulokset osoittavat, että rahastojen tappioriski kasvaa, kun sijoitetaan erittäin vastullisiin tai vastuuttomiin ETF-portfolioihin

A Spatiotemporal Autoregressive Price Index for the Paris Office Property Market

This paper applies the spatiotemporal hedonic approach to analysis of office transaction prices in the Paris property market (i.e. central Paris and its inner suburbs). The analysis focuses primarily on the market’s two main business districts (the CBD and the La Defense District). We find that spatial and temporal dependence effects are strongly present in these submarkets. Additionally, we propose a hybrid method for incorporating a temporal regime into the spatiotemporal autoregressive model proposed by Pace, Barry, Clapp and Rodriguez (1998). Regime switching around 1997 (i.e. in the presence of temporal heterogeneity) substantially affects the significance of spatial and temporal dependences. Finally, we build a new price index that incorporates both spatiotemporal dependences and temporal heterogeneity. This index differs strongly from the usual hedonic price indexHedonic Prices; Paris Office Property Market; Spatiotemporal Autoregressive Price Index; Temporal Heterogeneity

Measuring the social responsibility of European companies: a goal programming approach

[EN] Corporate social responsibility (CSR) can be measured by a number of different criteria, some of which are similar to each other, while others can be manifestly contrary to the general tendency. This means that some companies can obtain a good valuation in some criteria but a bad valuation in others, which makes it difficult to assess the company¿s overall CSR valuation. It is not easy to find a single measure that covers all aspects of corporate social performance. This paper aims to estimate multicriteria CSR performance through different models of goal programming and by taking into account all the dimensions that make up CSR. An illustrative example shows the result of applying these models to a database composed of 212 European companies, which enabled us to identify the most socially responsible group, regardless of the approach considered in the construction of the multicriteria performance. The results show that environmental and corporate governance dimensions are the most important elements in measuring this performanceGarcía-Martínez, G.; Guijarro, F.; Poyatos-León, JÁ. (2019). Measuring the social responsibility of European companies: a goal programming approach. International Transactions in Operational Research. 26(3). doi:10.1111/itor.12438S26

Corporate sustainability, social responsibility and environmental management

The financial industry is witnessing a consumer-driven phenomenon as today’s shareholder activists and venture capitalists are increasingly investing in financial assets that could be considered as socially responsible investments (SRI). In this light, this paper provides a background and explains how the market for responsible investments has evolved during the last few decades. At the same time, it reports that there are many researchers in the realms of business ethics that are focusing their attention on responsible investments. Therefore, this contribution reviews and appraises the extant theoretical underpinnings revolving on SRI as it engages with related debates, involving positive impact investment approaches, shareholder advocacy and engagement, sustainable investments, community investing and government controlled funds. It analyses these financial products’ contribution to societal development. Afterwards, it makes reference to socially responsible contractors and research firms that are increasingly specialising in the collection of environmental, social and governance (ESG) information, screening analyses and benchmarking of corporate responsible behaviours. This paper presents the opportunities and challenges for SRI. Finally, this research identifies future research avenues to academia in this promising field of study.peer-reviewe

Neighborhood Diversity and the Appreciation of Native- and Immigrant-Owned Homes

This paper examines the effect of neighborhood diversity on the nativity gap in homevalue appreciation in Australia. Specifically, immigrant homeowners experienced a 41.7 percent increase in median home values between 2001 and 2006, while the median value of housing owned by the native-born increased by 59.4 percent over the same period. We use a semi-parametric decomposition approach to assess the relative importance of the various determinants of home values in producing this gap. We find that the differential returns to housing wealth are not related to changes in the nature of the houses or the neighborhoods in which immigrants and native-born homeowners live. Rather, the gap stems from the fact that over time there were differential changes across groups in the hedonic prices (i.e., returns) associated with the underlying determinants of home values.International migration, home-ownership, decomposition analysis