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An equation with many variables: unhiding the relationship between sustainability and investment performance

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  • Benjamin Tobias Peylo
  • Stefan Schaltegger

Abstract

Financial investment performance of stock portfolios is driven by many factors of influence like portfolio diversification, quality of funds management or gravitational effects of market phases. It is, therefore, quite possible that relationships between sustainability and financial performance elude measurability because they may be overshadowed and dominated by other, more powerful or temporarily more influential factors. Using a new quantitative model for portfolio optimisation that simultaneously controls for both financial and sustainability related effects, we investigate whether and how different levels of sustainability in stock portfolios influence investment return when other factors with known influence on investment performance are neutralised. The model is applied to the German Stock Market Index Deutscher Aktienindex (DAX) for the period of 2003-2012 with regard to varying market phases. The findings show a distinct yet nonlinear relationship between sustainability and investment performance that is especially strong in phases of crisis. These results may indicate a business case for socially responsible investment (SRI) that has not yet been fully capitalised with the existing SRI instruments.

Suggested Citation

  • Benjamin Tobias Peylo & Stefan Schaltegger, 2014. "An equation with many variables: unhiding the relationship between sustainability and investment performance," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 4(2), pages 110-126, April.
    • Handle: RePEc:taf:jsustf:v:4:y:2014:i:2:p:110-126
    DOI: 10.1080/20430795.2013.837808
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    References listed on IDEAS

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    1. Marcus Wagner & Stefan Schaltegger, 2004. "The Effect of Corporate Environmental Strategy Choice and Environmental Performance on Competitiveness and Economic Performance," Post-Print hal-00279008, HAL.
    2. Wagner, Marcus & Schaltegger, Stefan, 2004. "The Effect of Corporate Environmental Strategy Choice and Environmental Performance on Competitiveness and Economic Performance:: An Empirical Study of EU Manufacturing," European Management Journal, Elsevier, vol. 22(5), pages 557-572, October.
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    Cited by:

    1. Satyabrata Aich & Ayusha Thakur & Deepanjan Nanda & Sushanta Tripathy & Hee-Cheol Kim, 2021. "Factors Affecting ESG towards Impact on Investment: A Structural Approach," Sustainability, MDPI, vol. 13(19), pages 1-14, September.
    2. Maria Carolina Rezende de Carvalho Ferreira & Vinicius Amorim Sobreiro & Herbert Kimura & Flavio Luiz de Moraes Barboza, 2016. "A systematic review of literature about finance and sustainability," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(2), pages 112-147, April.
    3. Matthew W. Sherwood & Julia L. Pollard, 2018. "The risk-adjusted return potential of integrating ESG strategies into emerging market equities," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(1), pages 26-44, January.
    4. Kertu Lääts & Oliver Lukason, 2022. "Sustainability Initiatives and Failure Risk of a Firm: How Are They Linked?," JRFM, MDPI, vol. 15(11), pages 1-14, October.
    5. Nomeda Dobrovolskienė & Rima Tamošiūnienė, 2016. "Sustainability-Oriented Financial Resource Allocation in a Project Portfolio through Multi-Criteria Decision-Making," Sustainability, MDPI, vol. 8(5), pages 1-18, May.
    6. Nomeda Dobrovolskienė & Rima Tamošiūnienė, 2015. "An Index to Measure Sustainability of a Business Project in the Construction Industry: Lithuanian Case," Sustainability, MDPI, vol. 8(1), pages 1-14, December.

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