The risk-return tradeoff: are sustainable investors compensated adequately?
We investigate the returns from investing according to corporate social responsibility (CSR) criteria using factor model estimations for a large sample of U.S. firms over the period 2003–2017. To identify the CSR intensity that allows investors to optimize their portfolio returns for a given amount of risk, we relate factor-adjusted portfolio ... returns to a variety of risk measures. This consideration is important as equity risks have been shown to significantly decrease with CSR. Surprisingly, our results indicate that the lowest CSR-rated portfolios are able to outperform their higher CSR-rated counterparts: Not only do they show higher factor-adjusted returns but they also deliver higher return-to-risk ratios. This indicates that equity returns in our sample decrease even more strongly than the corresponding risks with rising CSR activity.
Original publication in
The journal of asset management 24 (2023), 165-172