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Less is More: In Search of Sustainable Investment Premium

Author

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  • Jianglin Dennis Ding

    (Mario J. Gabelli School of Business, Roger Williams University, USA)

Abstract

Considering the inconsistency among various ESG ratings from major agencies, and the conflicting research findings: from superior returns and reduced risk to indicating no significant difference or even underperformance, this study uses a single indicator instead of a complicated scoring system to examines “green†firms categorized with zero fossil fuel exposure, comparing their performance to “brown†firms with fossil fuel exposure investments. The findings indicate that market value-weighted portfolios of these "green" stocks outperform their counterparts, demonstrating potential financial benefits of sustainable investing based on a single indicator. The study employs the Fama-French three-factor model and cross-sectional analysis, showing that "green" portfolios yield higher abnormal returns and exhibit different risk profiles compared to "brown" (non-fossil-fuel-free) portfolios. The research underscores the need simply and standardize ESG metrics to enhance comparability and reliability, thereby aiding investors in making informed decisions aligned with sustainability goals.

Suggested Citation

  • Jianglin Dennis Ding, 2024. "Less is More: In Search of Sustainable Investment Premium," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 233-241, September.
    • Handle: RePEc:eco:journ1:2024-05-24
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    More about this item

    Keywords

    ESG Investing; Sustainable Finance; Fossil Fuel-Free Investments; Financial Performance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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