IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v42y2021ics1544612320317281.html
   My bibliography  Save this article

Does responsible investing pay during economic downturns: Evidence from the COVID-19 pandemic

Author

Listed:
  • Omura, Akihiro
  • Roca, Eduardo
  • Nakai, Miwa

Abstract

We investigate the performance of SRI/ESG investments against conventional investments during the COVID-19 pandemic. Although previous studies have examined the performance of SRI during financial crises, little is known about their performance during the COVID-19 crisis. Applying asset-pricing models, we analyze returns, abnormal returns, and the Sharpe ratio of the ESG ETFs in the US and the MSCI SRI indices for the world, the US, Japan, and Europe before and during the pandemic period vis-à-vis conventional investments. Our results confirm the greater outperformance of SRI indices during the pandemic. These findings have academic and practical implications.

Suggested Citation

  • Omura, Akihiro & Roca, Eduardo & Nakai, Miwa, 2021. "Does responsible investing pay during economic downturns: Evidence from the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317281
    DOI: 10.1016/j.frl.2020.101914
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612320317281
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2020.101914?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Steven Scalet & Thomas Kelly, 2010. "CSR Rating Agencies: What is Their Global Impact?," Journal of Business Ethics, Springer, vol. 94(1), pages 69-88, June.
    2. Helen Chiappini & Gianfranco A. Vento, 2018. "Socially Responsible Investments and their Anticyclical Attitude during Financial Turmoil Evidence from the Brexit shock," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(1), pages 1-4.
    3. Singh, Amanjot, 2020. "COVID-19 and safer investment bets," Finance Research Letters, Elsevier, vol. 36(C).
    4. Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
    5. Benson, Karen L. & Humphrey, Jacquelyn E., 2008. "Socially responsible investment funds: Investor reaction to current and past returns," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1850-1859, September.
    6. Saiful Arefeen & Koji Shimada, 2020. "Performance and Resilience of Socially Responsible Investing (SRI) and Conventional Funds during Different Shocks in 2016: Evidence from Japan," Sustainability, MDPI, vol. 12(2), pages 1-20, January.
    7. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(3), pages 387-409, July.
    8. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    9. Christophe Revelli & Jean-Laurent Viviani, 2015. "Financial performance of socially responsible investing (SRI): what have we learned? A meta-analysis," Post-Print halshs-01141295, HAL.
    10. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    11. Halbritter, Gerhard & Dorfleitner, Gregor, 2015. "The wages of social responsibility — where are they? A critical review of ESG investing," Review of Financial Economics, Elsevier, vol. 26(C), pages 25-35.
    12. Stewart Jones & Sandra van der Laan & Geoff Frost & Janice Loftus, 2008. "The Investment Performance of Socially Responsible Investment Funds in Australia," Journal of Business Ethics, Springer, vol. 80(2), pages 181-203, June.
    13. Sakurai, Yuji & Kurosaki, Tetsuo, 2020. "How has the relationship between oil and the US stock market changed after the Covid-19 crisis?," Finance Research Letters, Elsevier, vol. 37(C).
    14. Leite, Paulo & Cortez, Maria Céu, 2015. "Performance of European socially responsible funds during market crises: Evidence from France," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 132-141.
    15. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    16. Leonardo Becchetti & Rocco Ciciretti & Ambrogio Dalò & Stefano Herzel, 2015. "Socially responsible and conventional investment funds: performance comparison and the global financial crisis," Applied Economics, Taylor & Francis Journals, vol. 47(25), pages 2541-2562, May.
    17. Nofsinger, John & Varma, Abhishek, 2014. "Socially responsible funds and market crises," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 180-193.
    18. Nakai, Miwa & Yamaguchi, Keiko & Takeuchi, Kenji, 2016. "Can SRI funds better resist global financial crisis? Evidence from Japan," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 12-20.
    19. Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
    20. Cepoi, Cosmin-Octavian, 2020. "Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil," Finance Research Letters, Elsevier, vol. 36(C).
    21. Jacquelyn Humphrey & Darren Lee, 2011. "Australian Socially Responsible Funds: Performance, Risk and Screening Intensity," Journal of Business Ethics, Springer, vol. 102(4), pages 519-535, September.
    22. Basso, Antonella & Funari, Stefania, 2014. "Constant and variable returns to scale DEA models for socially responsible investment funds," European Journal of Operational Research, Elsevier, vol. 235(3), pages 775-783.
    23. Joakim Sandberg & Carmen Juravle & Ted Hedesström & Ian Hamilton, 2009. "The Heterogeneity of Socially Responsible Investment," Journal of Business Ethics, Springer, vol. 87(4), pages 519-533, July.
    24. Alexander Kempf & Peer Osthoff, 2007. "The Effect of Socially Responsible Investing on Portfolio Performance," European Financial Management, European Financial Management Association, vol. 13(5), pages 908-922, November.
    25. Rui Albuquerque & Yrjo Koskinen & Shuai Yang & Chendi Zhang, 0. "Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 593-621.
    26. Erragragui, Elias & Lagoarde-Segot, Thomas, 2016. "Solving the SRI puzzle? A note on the mainstreaming of ethical investment," Finance Research Letters, Elsevier, vol. 18(C), pages 32-42.
    27. Giuseppe Risalvato & Claudio Venezia & Federica Maggio, 2019. "Social Responsible Investments and Performance," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(1), pages 10-16, January.
    28. Rui Albuquerque & Yrjo Koskinen & Shuai Yang & Chendi Zhang, 2020. "Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 593-621.
    29. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    30. Lucía Morales & Amparo Soler-Domínguez & James Hanly, 2019. "The power of ethical investment in the context of political uncertainty," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 554-580, January.
    31. Bollen, Nicolas P. B., 2007. "Mutual Fund Attributes and Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(3), pages 683-708, September.
    32. Rui Albuquerque & Yrjö Koskinen & Chendi Zhang, 2019. "Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence," Management Science, INFORMS, vol. 65(10), pages 4451-4469, October.
    33. Shehzad, Khurram & Xiaoxing, Liu & Kazouz, Hayfa, 2020. "COVID-19’s disasters are perilous than Global Financial Crisis: A rumor or fact?," Finance Research Letters, Elsevier, vol. 36(C).
    34. Sherif, Mohamed, 2020. "The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    35. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    36. Junjie Wu & George Lodorfos & Aftab Dean & Georgios Gioulmpaxiotis, 2017. "The Market Performance of Socially Responsible Investment during Periods of the Economic Cycle – Illustrated Using the Case of FTSE," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(2), pages 238-251, March.
    37. Kempf, Alexander & Osthoff, Peer, 2007. "The effect of socially responsible investing on portfolio performance," CFR Working Papers 06-10, University of Cologne, Centre for Financial Research (CFR).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Hu, 2024. "ESG investment preference and fund vulnerability," International Review of Financial Analysis, Elsevier, vol. 91(C).
    2. Marszk, Adam & Lechman, Ewa, 2024. "What drives sustainable investing? Adoption determinants of sustainable investing exchange-traded funds in Europe," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 63-82.
    3. Simona Cosma & Paolo Cucurachi & Vincenzo Gentile & Giuseppe Rimo, 2024. "Sustainable finance disclosure regulation insights: Unveiling socially responsible funds performance during COVID‐19 pandemic and Russia–Ukraine war," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3242-3257, May.
    4. Mitsunami, Kohei & Nakai, Miwa, 2024. "Are sustainable firms more innovative? The case of China," Japan and the World Economy, Elsevier, vol. 69(C).
    5. Brzeszczyński, Janusz & Gajdka, Jerzy & Pietraszewski, Piotr & Schabek, Tomasz, 2022. "Has the risk of socially responsible investments (SRI) companies stocks changed in the COVID-19 period? International evidence," Finance Research Letters, Elsevier, vol. 49(C).
    6. Arfaoui, Nadia & Naeem, Muhammad Abubakr & Boubaker, Sabri & Mirza, Nawazish & Karim, Sitara, 2023. "Interdependence of clean energy and green markets with cryptocurrencies," Energy Economics, Elsevier, vol. 120(C).
    7. Serghei PETIGHIN, 2024. "Pandemic-resilient investment policies: lessons learned from the COVID-19 crisis," Romanian Journal of Economics, Institute of National Economy, vol. 58(1(67)), pages 117-132, June.
    8. Tenuta, Paolo & Cambrea, Domenico Rocco, 2022. "Corporate social responsibility and corporate financial performance: The role of executive directors in family firms," Finance Research Letters, Elsevier, vol. 50(C).
    9. Xin Xu & Yi Xie & Feng Xiong & Yan Li, 2022. "The Impact of COVID-19 on Investors’ Investment Intention of Sustainability-Related Investment: Evidence from China," Sustainability, MDPI, vol. 14(9), pages 1-37, April.
    10. López Prol, Javier & Kim, Kiwoong, 2022. "Risk-return performance of optimized ESG equity portfolios in the NYSE," Finance Research Letters, Elsevier, vol. 50(C).
    11. Roy Cerqueti & Rocco Ciciretti & Ambrogio Dalò & Marco Nicolosi, 2022. "Mitigating Contagion Risk by ESG Investing," Sustainability, MDPI, vol. 14(7), pages 1-13, March.
    12. Konstantinos Petridis & Nikolaos Kiosses & Ioannis Tampakoudis & Fouad Ben Abdelaziz, 2023. "Measuring the efficiency of mutual funds: Does ESG controversies score affect the mutual fund performance during the COVID-19 pandemic?," Operational Research, Springer, vol. 23(3), pages 1-29, September.
    13. Wang, Ren & Bian, Yuxiang & Xiong, Xiong, 2024. "Impact of ESG preferences on investments and emissions in a DSGE framework," Economic Modelling, Elsevier, vol. 135(C).
    14. Dumitrescu, Ariadna & Järvinen, Jesse & Zakriya, Mohammed, 2023. "Hidden Gem or Fool’s Gold: Can passive ESG ETFs outperform the benchmarks?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    15. Mirza, Nawazish & Naeem, Muhammad Abubakr & Ha Nguyen, Thi Thu & Arfaoui, Nadia & Oliyide, Johnson A., 2023. "Are sustainable investments interdependent? The international evidence," Economic Modelling, Elsevier, vol. 119(C).
    16. Perote, Javier & Vicente-Lorente, José D. & Zuñiga-Vicente, Jose Angel, 2023. "How reactive is investment in US green bonds and ESG-eligible stocks in times of crisis? Exploring the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 53(C).
    17. Balestra, Anna & Caruso, Raul & Di Domizio, Marco, 2024. "What explains the size of Sovereign Wealth Funds? A panel analysis (2008–2018)," Finance Research Letters, Elsevier, vol. 62(PB).
    18. Klinkowska, Olga & Zhao, Yuan, 2023. "Fund flows and performance: New evidence from retail and institutional SRI mutual funds," International Review of Financial Analysis, Elsevier, vol. 87(C).
    19. Díaz, Antonio & Esparcia, Carlos & López, Raquel, 2022. "The diversifying role of socially responsible investments during the COVID-19 crisis: A risk management and portfolio performance analysis," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 39-60.
    20. Fang, Fei & Parida, Sitikantha, 2022. "Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 84(C).
    21. Samreen Hamid & Asif Saeed & Umar Farooq & Faisal Alnori, 2022. "A Bibliometric Retrospection of CSR from the Lens of Finance and Economics: Towards Sustainable Development," Sustainability, MDPI, vol. 14(24), pages 1-25, December.
    22. Staněk Gyönyör, Lucie & Horváth, Matúš, 2024. "Does ESG affect stock market dependence? An empirical exploration of S&P 1200 companies shows the divergent nature of E–S–G pillars," Research in International Business and Finance, Elsevier, vol. 69(C).
    23. Budi Wahyono, 2022. "The value of political connections and Sharia compliance during the COVID-19 pandemic," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 1-28, March.
    24. Li, Rui & Zhu, Zhikai & Wang, Xiaoyan, 2023. "Pension insurance contributions and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lestari, Jenjang Sri & Frömmel, Michael, 2024. "Socially responsible investments: doing good while doing well in developed versus emerging markets?," Research in International Business and Finance, Elsevier, vol. 69(C).
    2. Vincenzo D'Apice & Giovanni Ferri & Mariantonietta Intonti, 2021. "Sustainable disclosure versus ESG intensity: Is there a cross effect between holding and SRI funds?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(5), pages 1496-1510, September.
    3. Lars Hornuf & Gül Yüksel, 2022. "The Performance of Socially Responsible Investments: A Meta-Analysis," CESifo Working Paper Series 9724, CESifo.
    4. Dan Daugaard, 2020. "Emerging new themes in environmental, social and governance investing: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1501-1530, June.
    5. Guillermo Badía & Maria C. Cortez & Luis Ferruz, 2020. "Socially responsible investing worldwide: Do markets value corporate social responsibility?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2751-2764, November.
    6. Giuseppe Maria Bifulco & Riccardo Savio & Maria Federica Izzo & Riccardo Tiscini, 2023. "Stopping or Continuing to Follow Best Practices in Terms of ESG during the COVID-19 Pandemic? An Exploratory Study of European Listed Companies," Sustainability, MDPI, vol. 15(3), pages 1-16, January.
    7. Dumitrescu, Ariadna & Järvinen, Jesse & Zakriya, Mohammed, 2023. "Hidden Gem or Fool’s Gold: Can passive ESG ETFs outperform the benchmarks?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    8. Luluk Widyawati, 2020. "A systematic literature review of socially responsible investment and environmental social governance metrics," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 619-637, February.
    9. José Luis Miralles-Quirós & María Mar Miralles-Quirós & José Manuel Nogueira, 2020. "Sustainable Development Goals and Investment Strategies: The Profitability of Using Five-Factor Fama-French Alphas," Sustainability, MDPI, vol. 12(5), pages 1-16, February.
    10. Muñoz, Fernando, 2016. "Cash flow timing skills of socially responsible mutual fund investors," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 110-124.
    11. Saiful Arefeen & Koji Shimada, 2020. "Performance and Resilience of Socially Responsible Investing (SRI) and Conventional Funds during Different Shocks in 2016: Evidence from Japan," Sustainability, MDPI, vol. 12(2), pages 1-20, January.
    12. Helen Chiappini & Gianfranco Vento & Leonardo De Palma, 2021. "The Impact of COVID-19 Lockdowns on Sustainable Indexes," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    13. Gregor Dorfleitner & Christian Kreuzer & Christian Sparrer, 2020. "ESG controversies and controversial ESG: about silent saints and small sinners," Journal of Asset Management, Palgrave Macmillan, vol. 21(5), pages 393-412, September.
    14. Iqbal Owadally & Jean-René Mwizere & Neema Kalidas & Kalyanie Murugesu & Muhammad Kashif, 2021. "Long-Term Sustainable Investment for Retirement," Sustainability, MDPI, vol. 13(9), pages 1-22, April.
    15. Sangki Lee & Insu Kim & Chung-hun Hong, 2019. "Who Values Corporate Social Responsibility in the Korean Stock Market?," Sustainability, MDPI, vol. 11(21), pages 1-14, October.
    16. Costanza Torricelli & Beatrice Bertelli, 2022. "ESG screening strategies and portfolio performance: how do they fare in periods of financial distress?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0087, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    17. Xing Chen & Bert Scholtens, 2018. "The urge to act: A comparison of active and passive socially responsible investment funds in the United States," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(6), pages 1154-1173, November.
    18. Alda, Mercedes & Vicente, Ruth, 2020. "Behavioural analysis of socially responsible investment managers: specialists versus non-specialists," Research in International Business and Finance, Elsevier, vol. 54(C).
    19. Hooi Hooi Lean & Fabio Pizzutilo & Kimberly Gleason, 2023. "Portfolio performance implications of investment in renewable energy equities: Green versus gray," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 2990-3005, November.
    20. Arnaud Gougler & Sebastian Utz, 2020. "Factor exposures and diversification: Are sustainably screened portfolios any different?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 221-249, September.

    More about this item

    Keywords

    COVID-19; ESG; SRI; MSCI; ETF; Financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317281. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.