Should risk-averse investors target the portfolios of socially responsible companies?

Abstract

Research background: Companies are required to implement Corporate Social Responsibility (CSR) policies to mitigate the adverse social and environmental effects of their activities and gain legitimacy in the eyes of society. Sustainability initiatives are costly for companies but, at the same time, they are important value-creation drivers. Retail and institutional investors are increasingly choosing portfolios based on CSR performance. However, the relationship between CSR and market beta has hardly been studied at all in the literature, and no direct comparison of the U.S. and European markets has been conducted. Purpose of the article: The two fundamental variables that define an investment are return and risk, and the appropriate risk-return combination depends on the profile of the investors. This research aims to analyze the relationship between CSR and market risk, understood as price volatility and measured by market beta in the U.S. and European markets. Methods: Companies listed in the S&P 500 and Euro Stoxx 300 indexes from 2015 to 2019 were examined using OLS regressions with instrumental variables (IV) and fixed effects panel data. Findings & value added: The results show that those companies with higher CSR have betas below the market index in the U.S. market as well as lower volatility, and are, therefore, more appropriate choices for risk-averse investors. However, this relationship was not confirmed in the European market. This difference may be justified by two reasons: 1) The non-adherence of the United States to the Kyoto Protocol, resulting in less strict legal regulations than in Europe; 2) In the U.S. market, betas are more aggressive, while in the European market they are more defensive, with little margin for reduction. This research contributes to the current state of knowledge by providing empirical evidence that social, environmental, and corporate governance sustainability practices reduce stock volatility in the U.S. capital market, which is highly relevant for private and institutional investors who make their investments based on moral criteria. The results are current and reliable since they cover a broad and recent period for two of the most important stock market indexes.

Women in monitoring positions and market risk. Are the stocks of companies with gender diverse boards less volatile?

“…The data were obtained from the Bloomberg database, which is frequently used by stock market analysts and portfolio managers. In addition, it has been used in previous scientific work ( Nadeem et al, 2019 ; Valls Martínez et al, 2022c ), which supports its reliability and the validity of the results obtained for practical investment management. After eliminating those observations for which any of the variables used were unavailable, the final sample included 1,998 observations for the United States and 1,161 for Europe.…”

Corporate Social Responsibility and Green Technology Innovation: The Moderating Role of Stakeholders

“…Investors who are in an ideal position can guide corporate capital allocation toward sustainable ends [46]. Martínez et al suggest that investors who invest according to ethical criteria prefer to invest in companies with a high level of social responsibility [47]. Dyck and Roth et al found that the higher the attention of institutional investors, the higher the CSR performance [48], resulting in improved corporate sustainability.…”

Claves del Gobierno Corporativo y Sostenibilidad: Una revisión de literatura

“…La presencia de inversores institucionales sostenibles predice positivamente la probabilidad de que las empresas ofrezcan contratos de retribución condicionados a la RSE (Valls Martínez et al, 2022) Empresas que cotizan en los índices S&P 500 y Euro Stoxx 300 de 2015 a 2019…”