Abstract
Social rating agencies implement complex filters to identify the companies with the best sustainable and social performance and help investors select the companies for their sustainable portfolios. This study analysed whether companies that are defined as ethical, sustainable and socially responsible by those agencies actually deserve this label. More specifically, the inclusion in the prestigious Dow Jones Sustainability Index (DJSI) World of companies that have been involved in controversies according to the Thomson Reuters Eikon database was studied. The results show that the inclusion of irresponsible companies in the DJSI Index is a fact. This outcome is in line with previous studies that criticise the methodologies applied by social rating agencies and those which outline the similarity of sustainable and conventional portfolios. The results may explain the contradictory conclusions regarding the performance of sustainable and conventional mutual funds in numerous studies.
Highlights
Throughout the last decades, investors have increased pressure on companies to consider the environmental and the social impact of their activities, while simultaneously maintaining economic performance and profitability [1]
Results are not unanimous, most recent studies conclude that there are no significant differences between sustainable and conventional portfolios. This is a striking result, as, theoretically, socially responsible companies have some characteristics that distinguish them from conventional ones and this difference should be reflected in the financial performance [6,7,8,9,10]
Between 2011 and 2016, the number of controversial companies included in the Dow Jones Sustainability Index (DJSI) World Index has been reduced by 40%
Summary
Throughout the last decades, investors have increased pressure on companies to consider the environmental and the social impact of their activities, while simultaneously maintaining economic performance and profitability [1]. It is one of the best known sustainable financial products It acts as a benchmark for many socially responsible investors who select the companies in their portfolio from the DJSI World components. This index applies the methodology by RobecoSAM, one of the companies with best reputation in the field of sustainable investment in the financial markets. Rather than using a complex definition, we defined as irresponsible companies those that have been involved in scandals related with activities such as environmental damage, violations of human rights, corruption, etc Companies conducting such activities should never be defined as ethical, sustainable or socially responsible and should not become components of a sustainable stock index.
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