Showing papers in "Journal of Sustainable Finance and Investment in 2015"

ESG and financial performance: aggregated evidence from more than 2000 empirical studies

Abstract: The search for a relation between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP) can be traced back to the beginning of the 1970s. Scholars and investors have published more than 2000 empirical studies and several review studies on this relation since then. The largest previous review study analyzes just a fraction of existing primary studies, making findings difficult to generalize. Thus, knowledge on the financial effects of ESG criteria remains fragmented. To overcome this shortcoming, this study extracts all provided primary and secondary data of previous academic review studies. Through doing this, the study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More impor...

Incorporating environmental criteria into credit risk management in Bangladeshi banks

Abstract: Does the integration of environmental, social and sustainability criteria in commercial credit risk assessment processes create a benefit for lenders and does it improve the prognostic validity of the credit risk prediction? Some analyses have reported that a correlation exists between commercial borrowers’ sustainability performance and credit risks. We analyzed the role that criteria pertaining to sustainability and environmental orientation play in the commercial credit risk management process in Bangladeshi banks. Our results suggest that sustainability criteria improve the prognostic validity of the credit rating process. We conclude that the sustainability a firm demonstrates influences its creditworthiness as part of its financial performance. Consequently, lenders will benefit from implementing credit risk assessment models that integrate sustainability risks. By taking sustainability issues into account, banks will be able to avoid credit defaults on the one hand and to channel commercial loans t...

Understanding mechanisms in the social investment market: what are venture philanthropy funds financing and how?

Abstract: In recent years, a social investment market with specialized intermediaries and social investors has developed with an increasing amount of available capital. This paper focuses on venture philanthropy funds as new financial intermediaries and studies some characteristics of the investees. The empirical analysis is based on a unique data set of 342 social investments from five continents over the last 17 years. Three main findings are notable. First, the investees' organizational and beneficiary characteristics determine their access to financial resources. Second, a model including investees' organizational and beneficiary characteristics strongly predicts grant versus commercial financing outcome. Third, the venture capital nature of venture philanthropy funds can be recognized from their financing instrument decision-making. Based on these findings, this paper contributes to the emerging field of social investment.

Economic development and banking sector growth in Pakistan

Abstract: This study empirically analyzes the financial and economic development in Pakistan with reference to banking sector. Time series data of Pakistani banks from 1980 to 2012 have been employed. Statistical analysis including Augmented Dickey–Fuller, Johansen co-integration, ordinary least square (OLS) regression, and Granger causality tests have been applied on the data relating four indicators (i.e. Broad Money (M2); Domestic Credit to Private Sector; Domestic Credit to by Banking Sector; and Banks Deposit Liabilities (BDL) – all taken as percentage of gross domestic product] which measured the level of financial development (FD) contributed by banking sector. The results revealed that a positive and statistically significant relationship exists between FD and economic growth. However, BDL are positive but statistically insignificant, and M2 is negative and statistically insignificant. Moreover, unidirectional and bidirectional causality have been found between the variables. Hence, there is a dire need of ...

Measuring impact in impact investing: an analysis of the predominant strength that is also its greatest weakness

Abstract: Compared to other forms of socially responsible investment, a prominent feature of impact investing is measurement of the social and environmental return (SER) that it aims to generate. Much effort has been undertaken to develop such measurements, but progress is patchy. This paper contains an overview of first principles, making explicit the subjective interpretation of SER by investors and outlining tensions around breadth of coverage; rigour in attribution of impact versus practicality and flexibility; and the very concept of ‘a return’. Interviews with impact investors covering environmental issues, social enterprises, microfinance firms, and Social Impact Bond contracts highlight three distinctive sets of practice – ‘System building’, ‘Case by case assessment', and ‘Intermediate outcome perspectives’ – as to whose gains should be counted, how to structure assessment, and what forms of assessment are viewed as legitimate. Of these, ‘System building’ approaches appear to be advancing most, but the chal...

Sustainable investment in Korea does not catch a cold when the United States sneezes

Abstract: We analyse the socially responsible investment (SRI) performance in Korea over the period January 2006 to April 2014. Our analysis shows that sustainable investment portfolio, represented by Dow Jones Sustainability Index Korea, is ranked higher than most of the conventional portfolios in Korea. We also find that there is no significant effect of the 2008 global financial crisis on the sustainable investment return and volatility and US policy uncertainty does not affect the return as well. Generally, we find relative stability during crisis and non-crisis periods. We may also conclude that by decoupling sustainable investment in Korea from US market system, “Korea does not catch a cold when the United States sneezes”. In other words, SRI in Korea can be an alternative investment opportunity for investors to consider for international diversification purpose.

Socially Responsible Investment Funds : A review of research priorities and strategic options

Abstract: This is the first literature review on Socially Responsible Investment (SRI) funds. Although SRI funds flourish, we know very little about these investment vehicles. This article reviews academic literature on SRI funds published during the past 25 years. It discusses the current state of theoretical research on SRI funds and identifies future research opportunities by analysing the characteristics, contents and methodological aspects of the literature and identifying research priorities and strategic options. Current research on SRI funds, it is shown, typically departs from a financial perspective and focuses predominantly on financial performance. In addition, most research is produced at European and North American universities, and there is little attention for social performance or discussion about the principles underlying SRI funds. We therefore argue that important future research opportunities exist with regard to the promise of SRI funds to attain both their financial and social goals.

A model for integrated capital disclosure and performance reporting: separating objects from value

Abstract: This paper introduces a conceptual model for integrated capital disclosure (ICD) and performance reporting. The paper details the design of a simplified key element taxonomy that highlights current and forecasted product, people and physical infrastructure (3Ps) resources, transactions and activities as carriers and drivers of intellectual capital (IC). We introduce object recognition and tracking technologies and suggest to separate accounting object definitions from valuation and measurement methods. Each reporting entity or organization has to report and forecast cash flows and accounting estimates, and should disclose potential IC, including risk assessment, based on the key element taxonomy. Financial capital is reconciled in a separate schedule. The taxonomy matrix allows aligned risk and integrated reporting assessments to be more focused, thereby reducing duplication in reporting. The matrix also codifies and integrates financial and sustainability (non-financial) reporting disclosures. Further st...

Capital structure of social purpose companies – a panel data analysis

Abstract: This paper examines the determinants of borrowing decisions of social enterprises. Following the streams of research dealing with for-profit firms and non-profit organisations, we apply a panel data analysis of 2228 Belgian social purpose companies over the period of 2004–2013. We find that, in their capital structures, Belgian social purpose companies show a high dependence on financial determinants such as profitability, nature of assets, growth opportunities, size, the probability of agency problem and the previous year's leverage. They also demonstrate a high susceptibility to activity domain, legal form, region and evolution over time. Our results are in line with the mainstream literature on both for-profit organisations and non-profit organisations. We conclude that the capital structure of social enterprises mixes features of both research streams.

Who captures the “green value” in the US office market?

Abstract: This research examines the effects of energy efficiency certification levels on office rental rates and lease structures to determine whether any cost benefits of green buildings are captured by landlords or remain, at least partially, with the tenant. To this aim, our analysis applies the largest and most detailed data set to date, a panel of 14,283 US office properties. Using fixed-effects and dynamic Arellano–Bond frameworks allows us to estimate the differential rental price impact of Energy Star certification both across and within buildings. The general results indicate that buildings with higher levels of energy efficiency achieve higher gross rents allowing landlords to benefit from the premium. However, improved energy efficiency over time is also linked to a slower growth of rental prices as some of the benefit is passed onto tenants. Interestingly, the cost-saving benefit of energy efficiency appears to have the strongest impact on rental rates.

A push-and-pull factor model for environmental management accounting: a contingency perspective

Abstract: In order to further develop the theoretical basis of environmental management accounting (EMA), a contingency perspective is used in this paper to explain the initial implementation and design of EMA in firms, based on internalities as well as externalities. Nine variables have been identified to impact EMA either via push or pull mechanisms. A integrative model of these pull and push factors is the outcome of two large-scale triangulated case studies that were conducted within the global companies Borealis Group and Puma SE based on exemplary cases. Interviews with sustainability representatives and a discourse analysis of related press and media releases are included for triangulation. All the collected data were coded into nine a-priori variables, previously identified in a meta-analysis of existing literature. The following factors have a push influence on EMA: location, interdependence, availability of resources, ownership and control as well as uncertainty. In contrast, only three variables pull EMA...

Electric utility regulation and investment in green energy resources

Abstract: Electric utility investment in end-use efficiency and renewable energy resources is examined with current forms of Pigouvian taxes and subsidies that encourage investment in green energy resources. A model of a rate-of-return-regulated firm considers the impacts of policies on social optimality. It shows that cap-and-trade/floor-and-trade forms of Pigouvian taxes and subsidies cause electric utilities to (over) underinvest in conventional generation and (under) overinvest in green resources when the allowed rate of return (is above) equals the cost of capital. Therefore, these forms of taxes and subsidies combined with rate base rate-of-return regulation result in suboptimal investment in one type of asset or another regardless of the level of return exogenously set by regulators. Therefore, public utility investment is always suboptimal, one way or another. The form of regulation is empirically tested from stock price signals and observed by lack of investment in the electric power infrastructure and too...

Recognizing corporate citizenship: market reactions

Abstract: This research addresses whether corporations take on environmental, social and governance (ESG) integration at shareholders’ expense or whether ESG integration is a mechanism to increase shareholder value. It therefore investigates stock market reactions to recognition of good (or bad) corporate citizens using additions to (removals from) the Jantzi Social Index as a signal of good (bad) corporate citizenship. The Jantzi Index is a 60-security market index for which inclusion is based on ESG-related criteria. The study measures stock return dynamics around the announcement date of stock additions to/removals from the index. Accordingly, the findings are supportive of the view that ESG integration is a value-enhancing activity for shareholders and that the market therefore acknowledges socially responsible corporate citizens in a favourable way. It is worth noting that these findings are situated in the context of well-established capital markets comprising generally well-informed investors and are robust ...

UK pension sustainability and fund manager governance: agent duties to the principal

Abstract: Sustainable investing includes the application of non-financial (Environmental, Social and Governance (ESG)) criteria to asset selection in institutional investor portfolios (Capelle-Blancard and Mojon 2011). The article explores the implications for applying ESG screening to the institutional investors making the asset selections. Institutional investors are a heterogeneous group of investors, with fund managers specifically being some of the largest listed organisations globally (Ingley and van der Walt 2004). Whether their own corporate management duties to fiduciary governance (the G in ESG) benefiting their shareholders has any material impact on the financial returns outcomes of the pension asset management contract, and specifically whether there is a fiduciary conflict favouring of the exclusive best interest of fund management shareholders is the question addressed by the paper.