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Article
Investment strategies when selecting sustainable firms.
Faculty Publications
  • Todd M. Shank
  • Benjamin Shockey
SelectedWorks Author Profiles:

Todd M. Shank

Document Type
Article
Publication Date
2016
Date Issued
2016-01-01
Date Available
2016-12-09
Disciplines
Abstract

“Sustainability" is the most recent construct to describe efforts by modern corporations to include environmental, social, and economic governance considerations in business operations. Such non-financial areas of firm performance have received increased focus, especially in recent years as firms seek to differentiate themselves from competitors. Of central concern to analysts and investors is whether the emerging emphasis on sustainability is financially rewarded by market participants. Research on this question has generally supported the idea that firms with greater attention to sustainable business practices outperform their peers financially; presumably because of the perception of lesser future risk. This study examines the efficacy of passive versus active investment strategies when selecting sustainable firms for inclusion within an equity portfolio. Utilizing two groups of "sustainability-focused" firms of varying degrees, this study finds financial support for an active selection of sustainable firms on a risk-adjusted basis. Specifically, the financial performance of the Dow Jones Sustainability Index (DJSI) and a group of Sustainability Leaders are compared with the broader market over a 10-year period. Thus, it can be understood whether an investor would have received a greater risk-adjusted financial return through either (1) an active "sustainability-focused" approach, (2) a passive sustainability-focused approach, or (3) a passive broad-market approach. The evidence presented here supports efforts to identify global sustainability leaders by industry, as they collectively showed greater financial performance over the past decade than both the DJSI and the broader market. (Author)

Comments

Abstract only. Full-text article is available through licensed access provided by the publisher. Published in Financial Services Review, 25(2), 199-214. Members of the USF System may access the full-text of the article through the authenticated link provided.

Language
en_US
Publisher
Academy of Financial Services
Creative Commons License
Creative Commons Attribution-Noncommercial-No Derivative Works 4.0
Citation Information
Shank, T.M. & Shockey, B. (2016). Investment strategies when selecting sustainable firms. Financial Services Review, 25(2), 199-214.