Most studies into the performance of socially responsible investment vehicles have focused on the performance of sustainable or socially responsible mutual funds. This research has been complemented recently by a number of studies that have examined the performance of sustainable investment indices. In both cases, the majority of studies have concluded that the returns of socially responsible investment vehicles have either underperformed, or failed to outperform, comparable market indices. Although the impact of sustainable indices to date has been limited, the (...) recent launch of sustainable indices by Dow Jones and FTSE suggests that more attention is being paid to the subject by financial markets, investors, and companies. This development raises a number of important issues which are reviewed in this article: (a) the performance of indices compared with their benchmark indices; (b) the methodologies employed in compiling the indices; and (c) the impact of the indices on companies and the investment community. The article concludes with a number of suggestions for areas that merit future research. (shrink)

Firms engage in corporate social responsibility (CSR) because they consider that some kind of competitive advantage accrues to them. We contend that resource-based perspectives (RBP) are useful to understand why firms engage in CSR activities and disclosure. From a resource-based perspective CSR is seen as providing internal or external benefits, or both. Investments in socially responsible activities may have internal benefits by helping a firm to develop new resources and capabilities which are related namely to know-how and corporate culture. In (...) effect, investing in social responsibility activities and disclosure has important consequences on the creation or depletion of fundamental intangible resources, namely those associated with employees. The external benefits of CSR are related to its effect on corporate reputation. Corporate reputation can be understood as a fundamental intangible resource which can be created or depleted as a consequence of the decisions to engage or not in social responsibility activities and disclosure. Firms with good social responsibility reputation may improve relations with external actors. They may also attract better employees or increase current employees’ motivation, morale, commitment and loyalty to the firm. This article contributes to the understanding of why CSR may be seen as having strategic value for firms and how RBP can be used in such endeavour. (shrink)

We explore the relationship between corporate sustainability, reputation, and firm value by asking whether signaling sustainability leadership through membership on a recognized sustainability index is value generating. Increasingly, stakeholders are demanding that firms demonstrate their commitment to sustainability. One signal that companies can send to stakeholders to indicate that they are sustainability leaders is membership on a recognized “best in class” sustainability index. This article explores both the short-term and the intermediary impact on North American firms of being included or (...) removed from the Dow Jones Sustainability World Index (DJSI). Our results provide evidence that being added to the DJSI results in a sustained increase in a firm’s share price, suggesting that the benefits of being included on the DJSI outweigh the costs associated with applying. This article also notes a temporary decrease in the value of firms for the first 10 days after their removal from the DJSI; however, this effect is eliminated within the next ten trading days. (shrink)

The increased scrutiny of investors regarding the non-financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of ' holding the market' against the cost of having positions in companies that are subsequently found to have questionable business practices. The availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a Socially Responsible Investment (SRI) benchmark at relatively low cost. The increasing (...) share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds. This article examines whether these incentives have been so far detectable with particular reference to the Dow Jones Sustainability Stoxx Index (DJSSI) that focuses on the European corporations with the highest CSR scores among those included in the Dow Jones Stoxx 600 Index. The aim of the article is twofold. First, we analyse the performance of the DJSSI over the period 2001-2006 compared to that of the Surrogate Complementary Index (SCI), a new benchmark that includes only the components of the DJ Stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances. Second, we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities. (shrink)

This article sets out to undertake a thorough, point-by-point examination of the theory postulated by Campbell (2007), in which an attempt is made to specify the conditions under which corporations may or may not act in socially responsible ways. In order to ensure the overall reliability of our study, and to attempt to provide a new understanding of, and greater insights into, whether corporate social responsibility (CSR) is affected by financial and institutional variables, we empirically investigate a total of 520 (...) financial firms in 34 countries, between the years 2003 and 2005. Our empirical findings are: (i) finns with larger size are more CSR minded, and the financial performance and CSR are not related; (ii) finns would actually act in more socially responsible ways to enhance their competitive advantages when the market competitiveness is more intense; (iii) financial firms in countries with stronger levels of legal enforcement tend to engage in more CSR activities; however, interestingly and rather strikingly, those finns in countries with stronger shareholder rights tend to engage in less CSR activities; and (iv) self-regulation within the financial industry has a significantly positive effect on CSR, with firms being found to act in more socially responsible ways in those countries which have more cooperative employer-employee relations, higher quality management schools, and a better macroeconomic environment. (shrink)

What motivates manufacturing companies to make costly investments in producing in an environmentally clean manner? The traditional argument is that such behaviour is value reducing, and that therefore, firms must be forced by regulation to invest in "green" production processes. A counter-argument is that firms have an incentive to make environmental investments in an attempt to attract "green" consumers and investors, hence gaining competitive advantage over their rivals. In this paper, we employ a game-theoretic approach that demonstrates that competing firms' (...) incentives to make voluntary investments in environmental "clean-up" are affected by the size of the investment costs and the extent of consumer and investor "green" awareness. We argue that an increase in green behaviour can be induced by a combination of governmental subsidies for firms that invest in environmentally clean production processes, together with an education program that promotes "green" awareness amongst consumers, investors and the managers themselves. (shrink)

This paper analyzes the impacts of index inclusions and exclusions on corporate sustainable firms by studying a sample of US stocks that are added to or deleted from the Dow Jones Sustainability World Index over the period 2002-2008. The impacts are measured in terms of stock return, risk and liquidity. We cannot find any strong evidence that announcement per se has any significant impact on stock return and risk. However, on the day of change, index inclusion (exclusion) stocks experience a (...) significant but temporary increase (decrease) in stock return. Liquidity deteriorates after the announcement day and bounces back significantly near the day of change. Systematic risk shows little change after announcements. But, idiosyncratic risk is higher after announcements. The overall results support Harris and Eitan's (The Journal of Finance 41(4), 815-829, 1986) price pressure hypothesis, which posits that event announcement does not carry information and any shift in demand (and hence the corresponding price change and liquidity change) is temporary. (shrink)

This study provides empirical evidence on how corporate sustainability performance (CSP), as proxied by membership of the Dow Jones sustainability index, is reflected in the market value of equity. Using a theoretical framework combining institutional perspectives, stake-holder theory, and resource-based perspectives, we develop a set of hypotheses that relate the market value of equity to CSP. For a sample of North American firms, our preliminary results show that CSP has significant explanatory power for stock prices over the traditional summary accounting (...) measures such as earnings and book value of equity. However, further analyses suggest that we should not focus on corporate sustainability itself. Our findings suggest that what investors really do is to penalize large profitable firms with low level of CSP. Firms with incentives to develop a high level of CSP not engaging on such strategy are, thus, penalized by the market. (shrink)

What motivates manufacturing companies to make costly investments in producing in an environmentally clean manner? The traditional argument is that such behaviour is value reducing, and that therefore, firms must be forced by regulation to invest in “green” production processes. A counter-argument is that firms have an incentive to make environmental investments in an attempt to attract “green” consumers and investors, hence gaining competitive advantage over their rivals. In this paper, we employ a game-theoretic approach that demonstrates that competing firms’ (...) incentives to make voluntary investments in environmental “clean-up” are affected by the size of the investment costs and the extent of consumer and investor “green” awareness. We argue that an increase in green behaviour can be induced by a combination of governmental subsidies for firms that invest in environmentally clean production processes, together with an education program that promotes “green” awareness amongst consumers, investors and the managers themselves. (shrink)

The goal of this paper is to examine whether business performance is affected by the adoption of practices included under the term Corporate Social Responsibility (CSR). To achieve this goal, we analyse the relation between CSR and certain accounting indicators and examine whether there exist significant differences in performance indicators between European firms that have adopted CSR and others that have not. The effects of compliance with the requirements of CSR were determined on the basis of firms included in the (...) Dow Jones Sustainability Index (DJSI), and specific accounting indicators were applied to measure performance. For the purposes of this study, we selected one group of firms belonging to the DJSI and another comprised of firms quoted on the Dow Jones Global Index (DJGI) but not on the DJSI. The sample was made up of two groups of 55 firms, studied for the period 1998–2004. Empirical analysis supports the conclusion that differences in performance exist between firms that belong to the DJSI and to the DJGI and that these differences are related to CSR practices. We find that a short-term negative impact on performance is produced. (shrink)