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What can we learn from the financial market about sustainability?

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  • Cohen Gil

    (Western Galilee Academic College Business Faculty)

Abstract

This study examines to what extent investors take into their consideration's sustainability risks of three different nature, Environmental, Social, and Corporate Governance (ESG). We use ESG risks rating and eight three nasdaq100 stocks excess return to evaluate whether those risk influence excess returns from 2016 till the end of April 2021. We find that while environmental risks negatively affects excess returns in some years, social risks are the most influential factor negatively related to excess returns for investors. Corporate Governance risks have been found to be embedded in the traditional Systematic risk factor "Beta" but we did not find any evidence for negative correlations between that kind of risk and stock's excess returns. We also find that since 2018 investors value environmental risks and punish companies that their activities harm the environment in any way. Examining three green energy exchange trade funds returns in recent years have showed that solar energy companies have achieved the highest returns to investors, followed by low-carbon and wind energy producers. Those result can insinuate about the future of green energy production methods.

Suggested Citation

  • Cohen Gil, 2022. "What can we learn from the financial market about sustainability?," Environment Systems and Decisions, Springer, vol. 42(1), pages 1-7, March.
    • Handle: RePEc:spr:envsyd:v:42:y:2022:i:1:d:10.1007_s10669-021-09835-x
    DOI: 10.1007/s10669-021-09835-x
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    References listed on IDEAS

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    1. Nizam, Esma & Ng, Adam & Dewandaru, Ginanjar & Nagayev, Ruslan & Nkoba, Malik Abdulrahman, 2019. "The impact of social and environmental sustainability on financial performance: A global analysis of the banking sector," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 35-53.
    2. Shih‐Fang Lo, 2010. "Performance evaluation for sustainable business: a profitability and marketability framework," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 17(6), pages 311-319, November.
    3. Willem Schramade, 2017. "Investing in the UN Sustainable Development Goals: Opportunities for Companies and Investors," Journal of Applied Corporate Finance, Morgan Stanley, vol. 29(2), pages 87-99, June.
    4. Natalia Ortiz-de-Mandojana & Pratima Bansal, 2016. "The long-term benefits of organizational resilience through sustainable business practices," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1615-1631, August.
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    Cited by:

    1. Anwer, Zaheer & Goodell, John W. & Migliavacca, Milena & Paltrinieri, Andrea, 2023. "Does ESG impact systemic risk? Evidencing an inverted U-shape relationship for major energy firms," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 10-25.
    2. Abraham Puente De La Vega Caceres, 2024. "Drivers of Value Creation and the Effect of ESG Risk Rating on Investor Perceptions through Financial Metrics," Sustainability, MDPI, vol. 16(13), pages 1-21, June.
    3. Shu-Ling Lin & Xiao Jin, 2023. "Does ESG Predict Systemic Banking Crises? A Computational Economics Model of Early Warning Systems with Interpretable Multi-Variable LSTM based on Mixture Attention," Mathematics, MDPI, vol. 11(2), pages 1-15, January.

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