Responsible Investment Index Research Articles

Creating a Responsible Renewable Energy Investment Model for the MENA Region's Low-Carbon Transition

Addressing climate change presents specific challenges for the countries of the Middle East and North Africa (MENA), particularly concerning oil production and water scarcity, but it also offers opportunities for new paths toward sustainability. The transition to low-carbon energy raises significant concerns for oil and gas producers in the MENA region, especially regarding their dependence on hydrocarbon revenues. Without proper adjustments, this transition could worsen macroeconomic imbalances and potentially threaten existing social contracts. Policymakers are working to promote various renewable energy sources and implementation strategies to mitigate the adverse effects of climate change. As a result, the development of an index capable of accurately measuring and benchmarking a country's overall sustainability and economic performance becomes essential. This index should provide a comprehensive assessment of both the current and future state of renewable energy. Additionally, it must highlight key environmental, social, governance (ESG), and economic factors within the renewable energy sector. This proposal aims to establish a composite index, referred to as the Renewable Energy Responsible Investment Index (RERII), covering 19 countries and utilizing 22 distinct metrics. The RERII trend is calculated from 2010 to 2019. The proposed index can serve as a screening tool, decision-making aid, benchmarking instrument, and guide for sustainable development.

La Sustentabilidad Empresarial, los informes de sustentabilidad, los índices sustentables y el desempeño financiero

Business sustainability is of great importance today because the context of economic crisis marked by the COVID 19 pandemic has awakened organizations, where the concept of the Triple Bottom Line is exceeded to escalate to the concept of Sustainability. The objective of this work was to outline the way in which sustainability has evolved in the business field, where indexes and reports have been established that allow sizing its impact on financial performance. A documentary investigation was carried out, developing topics such as, Bases of business sustainability, ISO Standards related to the adoption of sustainable practices in companies, Socially responsible investment indices, Evolution of sustainability reports and The relationship between business sustainability and financial performance. The findings allow us to know that sustainability has permeated companies which have adopted ISO standards, as well as sustainability reports, providing information about the sustainable practices they carry out, which allows investors to make informed decisions. It was also found that empirical research has managed to establish the existence of a positive relationship between Business Sustainability and Financial Performance, thus demonstrating the importance of adopting the former to achieve financial success.

Development of A Responsible Investment for Low Carbon Economy: Renewable Energy Responsible Investment Index and Conceptual Framework for MENA Region

Responding to climate change creates particular challenges for Middle East and North Africa (MENA) countries in terms of oil output and water scarcity, but also gives potential for new paths to sustainability. The low-carbon energy transition poses critical concerns for MENA oil and gas producers, particularly about the impact on their reliance on hydrocarbon earnings. Without adjustment, this would exacerbate macroeconomic imbalances and possibly jeopardise pre-existing social contracts. Politicians are attempting to promote a variety of renewable energy sources and implementation tactics in order to mitigate the adverse consequences of climate change. As a result, the development of an index capable of effectively measuring and benchmarking the overall sustainability and economics of a country becomes necessary. In reality, the index should be capable of reflecting a near-complete assessment of renewable energy's current and future conditions. Simultaneously, it should be capable of revealing critical ESG and economic aspects of the renewable energy business. The proposal aims to create a composite index, dubbed the Renewable Energy Responsible Investment Index (RERII). It is comprised of 19 nations and 22 distinct metrics. From 2010 to 2019, a trend in RERII is computed. The RERII suggested in this work may be utilised as a screening tool, a decision-making tool, a benchmarking tool, and a tool for guiding sustainable development.

Impact on the performance of esg indices: a comparative study in Brazil and international markets

ABSTRACT The frequent use of Socially Responsible Investment (SRI) indices by market in developed countries has motivated the investigation of the performance of portfolios using SRI indices in Brazil, where no research has been identified comparing relative performance of portfolios composed of companies with and without properly documented Environment, Social and Governance (ESG) practices. In this work we compared the performance of ESG and traditional indices for Brazil and for some reference markets in the United States, Europe and Asia through a panel data analysis for a period from May 2014 to June 2021. The results indicated that there was no significant difference in performance between the traditional and ESG indices for all the markets analysed. In addition, in order to identify the factors that could influence the performance of the ESG index portfolio in Brazil, we control for companies’ ESG practice scores, leverage, size and sector of activities in both additive and interactive models. It was found that the performance of the ESG index was positively influenced by the size and leverage of these companies. The study also shows that the industry of basic materials have a significantly effect on the ESG index.

Impact of Corporate Sustainability Performance on Financial Performance of South African Industries Via Brand Value and Competitiveness

Sustainability managers and stakeholders unanimously recognise that a single, systematic and integrated model for measuring corporate sustainability performance significantly enhances firms’ competitive advantage, profit and performance. Nevertheless, serious concerns exist in literature on the non-existence of a single, systematic and integrated model for measuring the impact of corporate sustainability performance (i.e. environmental, social, and economic) on the financial performance of South African industries via brand value/reputation and competitiveness. Thus, the objective is to develop this model by collecting qualitative and quantitative data through a census of 70 out of 74 companies of Johannesburg Stock Exchange, active in Socially Responsible Investment Index. Factor analysis was used for data reduction, Chi-square tested for association between categorical variables, and Cronbach alpha for internal consistency and reliability of instruments. Findings revealed positive impacts between environmental, social and economic aspects of corporate sustainability performance, brand value/reputation, competitiveness and financial performance. Results also showed that the elements/factors of corporate social performance like ethical behaviour, genuine community initiatives and human rights can translate to brand value/reputation. Likewise, elements/factors of brand value/reputation like competitive edge, comparative advantage, innovation, reputation, employees’ loyalty and non-market effect can translate to competitiveness and financial performance. By implication, the model can be useful to potential managers in South Africa or world for making easy and prompt decisions on past, pending and future environmental, social and economic sustainability. Hence, the research contributes to development science a single, systematic and integrated evaluation model adaptable to companies, businesses and governments/municipalities for achieving performance targets.

Information flow between BRVM and ESG stock returns: A frequency-dependent analysis

This paper seeks to analyze the information flow between the Bourse Régionale des Valeurs Mobilières (BRVM) and Environmental, Social, and Governance (ESG) stocks, focusing on the time and frequency domains. By studying these aspects, we aim to gain a deeper understanding of how information is transmitted between BRVM and ESG stocks, shedding light on the dynamics and interactions within this context. The study analyzes the decomposed daily returns of four indices: BRVM Composite Index (BRVMCI), BRVM 10 Index (BRVM10), FTSE/JSE SA All Share Index (FTSEJSE), and FTSE/JSE Top 30 Responsible Investment Index (FTSERI). We employed Rényi transfer entropy estimates to measure the information flow between the stocks returns.To ensure the robustness of the findings, the study also utilizes the Dynamic Conditional Co-variance-Generalized autoregressive Conditional Heteroscedasticity (DCC-GARCH) method. The study covers the period from June 23, 2014, to April 22, 2022. The results showed positive information flow but a mixture of significant and insignificant transfer entropies. The decomposed findings give evidence to reject the null hypothesis of no information flow in the short-and medium-terms but not in the longterm.The exchange of seemingly insignificant information among stocks presents opportunities for fund managers to diversify their portfolios across various time frames.To expedite economic growth and lower equity costs, institutional leaders should collaborate with governments to establish economic and political foundations that integrate markets. Such integration would yield benefits for both markets, but the BRVM stands to gain more due to its less developed and illiquid nature.

The Market Efficiency of Socially Responsible Indices in India

Socially Responsible Indices allow investors to invest in those companies which are deemed to be socially responsible. These indices comprise those constituent companies screened and assessed for environmental, social and governance (ESG) criteria. This paper analyses the weak form of the Efficient Market Hypothesis (EMH) for socially responsible investment indices in India. The authors used the daily closing price of two indices, Carbonex and Greenex, from June 3, 2013, to December 31, 2022. This study conducted Augmented Dickey Fuller, normality, and autocorrelation tests to analyse the randomness of prices and test whether the future price can be predicted using the past price. The weak form theory of the efficient market hypothesis is violated if the returns are not random and dependent on past returns, thereby enabling investors to gain abnormal returns by extrapolating the past data. The research results suggest that the theory of weak form of efficient market hypothesis is valid for Carbonex and Greenex, which are the socially responsible indices of India. It implies that the future movement of returns for socially responsible investment indices in India cannot be predicted from past prices. Therefore, the opportunity to gain abnormal returns is not possible.

ESG ratings and corporate financial performance in South Africa

PurposeThis paper examines the effect of ESG ratings and its dimensions (environmental, social and governance) on the financial performance of JSE-listed firms included in FTSE/JSE Responsible Investment Index.Design/methodology/approachThe paper employs panel data covering 40 JSE-listed firms included in FTSE/JSE Responsible Investment Index between 2015 and 2019. The paper employs the two-stage least squares (2SLS) instrumental variable regression technique to estimate the effect of ESG ratings and its dimensions (environmental, social and governance) on both accounting- and market-based performance indicators.FindingsThe results of the two-stage least squares instrumental estimation analysis reveal that investment in ESG initiatives improves both accounting- and market-based indicators of financial performance. Of the ESG pillars, the paper finds environmental initiatives improves firms' financial bottom line and market performance, while a firm's social and governance practices are observed to have no effect on a firm's accounting and market performance measures.Practical implicationsThe insights from this study proffers policy implications for firms' management, investors and regulatory authorities.Originality/valueAs far as the authors are concerned, this paper presents the first empirical analysis on the contribution of ESG ratings on financial performance in South Africa.

A Comparative Risk-adjusted Performance Evaluation of South African SRI Funds and the FTSE/JSE over the Covid-19 Period

Socially responsible investing is a growing investment philosophy that has gained profound interest in both the local and international context. Socially conscious investors are seeking alternative ways to make more responsible investment choices, especially since the Covid-19 pandemic. Although financial markets experienced a significant decrease owing to the pandemic, a more positive outcome was eminent by an increased demand in SRI products during this period. The aim of this study was to evaluate the performance of local SRI funds before, during and after the Covid-19 period. Comparatively evaluating the performance relative to the FTSE/JSE Responsible Investment Index and All Share Index, will assist investors (those with a heightened desire to invest responsibly) to establish if SRI funds were able to provide higher risk-adjusted returns than the comparable SRI and general equity markets. The results indicated that although larger returns were produced by SRI funds during the Covid-19 period and that significant differences were found relative to the two indices, SRI funds were not able to consistently outperform either index. Thus, socially conscious investors are likely to achieve higher risk-adjusted returns from the SRI index, although not receiving diversification benefits from investing in funds.

TESTING WEAK FORM OF EFFICIENT MARKET HYPOTHESIS ON SOCIALLY RESPONSIBLE INDICES: COMPARATIVE STUDY BETWEEN DEVELOPED AND EMERGING MARKETS

The study attempts to identify the presence of randomness in the socially responsible indices (SRI) of the stock markets of developed and emerging economies. 9 developed and 5 emerging economies were considered for the test of randomness on daily, weekly, monthly, quarterly and semiannual return of socially responsible and their benchmark indices. The Shapiro-Wilk test is used to test the data's normality, whereas the runs test and Augmented Dickey-Fuller test are used to find the randomness of the data. It has been observed that the market could be more efficient and random for all time durations. Most of the non-randomness is seen in daily and weekly returns. However, inefficiency disappears as the time frame increases. The combination of runs and ADF tests show that South Africa, Singapore, and South Korea show randomness for all time durations, whereas the same randomness pattern for Brazil, Australia, Japan, Singapore, and South Korea. Arab, Austria, Germany, Nordic, and USA are not present in daily return and randomness for all other durations for both the test combinations. India and Egypt show non-randomness in daily and weekly returns and randomness for all other durations under the first test combination. It is also observed that most socially responsible investment indices resonate with the randomness patterns of benchmark indices. Socially responsible investors such as pension funds may find the article resourceful in identifying socially responsible investment destinations and diversifying their portfolios.

Green Accounting and Green Intellectual Capital Practices: Study of The Influence of Indirect Financial Firm on Firm Value

This study aims to develop and analyze the effect of green intellectual capital, green accounting and financial performance on firm value (price book value/PBV proxy), develop and analyze the effect of green intellectual capital and green accounting on firm value (price book value/PBVproxy) mediated by the financial performance of the Indonesian Biodiversity Sustainable and Responsible Investment (SRI) Index (KEHATI) for the 2015-2020 period. Novelty in this study developed by the concept of green intellectual capital and green accounting to reduce greenhouse emisions and pollution to increase firm value. The sample used is 75 samples from 14 stocks with purposes sampling method. Data collection is obtained through an annual report published on the IDX’s official website, that is www.idx.co.id and a sustainability report. The results showed that green intellectual capital (green human capital/GHC and green relational capital/GRC) had no significant effect on firm value (PBV proxy), green intellectual capital (GHC, and GRC) had a significant positive effect on financial performance (ROA proxy), financial performance (ROA proxy) has a negative affect on firm value (PBV proxy) and financial performance (ROA) is able to mediate green intellectual capital on firm value (PBV proxy).

Green Accounting, Financial Performance toward Firm Value

This study aims to determine the significance of the effect of green accounting, financial performance on firm value (price book value proxy) on the Indonesian Biodiversity Sustainable and Responsible Investment (SRI) Index Company (KEHATI) for the 2015-2020 period. The number of samples in this study was 79 samples with the purpose of sampling method. Data collection is carried out through financial reports published on the official IDX website, at www.idx.co.id and sustainability reporting. The data analysis model used is multiple linear regression with the least squares equation. The results of this study indicate that Green Accounting has no effect on Firm Value, ROA has a significant negative effect on Firm Value. The determination test of these variables on PBV in this study was 15.6% while the remaining 84.4% was influenced by other variables that are not to be examined in this company.

The Performance of the Socially Responsible Investment Index in Indonesia

The Performance of the Socially Responsible Investment Index in Indonesia

Water-related sustainability reporting practices amongst South African mining and non-mining corporations

Globally, water resource management has emerged as an important research area and is acknowledged as a crucial factor in achieving sustainable development goals. Despite its significance, water-related sustainability disclosures regarding water and water-related risks among companies are alarmingly weak. Many companies are not effectively measuring, managing, and disclosing their water-related risks. Hence, this paper aims to analyze water-related reporting and disclosure requirements of a sample of ten South African mining and non-mining companies with a high water profile, listed on the JSE Socially Responsible Investment Index. The companies’ level of compliance on water disclosure was assessed based on their reporting in the integrated and or annual reports. The findings revealed that sampled five mining companies performed poorly in terms of disclosure across the frameworks of awareness, disclosure, management, and leadership. On the other hand, the selection of five non-mining companies grasped the severe effect of the water crisis on their businesses and performed better in all the framework categories. The average score for the selection of mining companies was 65% compared to the 93% for the non-mining companies. Stakeholders need to focus on water governance processes that require improvement to enable the stakeholders to make better decisions on water management; subsequently, this is an area that needs to be addressed in future research.

Water-Related Sustainability Reporting Practices Amongst South African Corporations

Globally, water resource management has emerged as an important research area and acknowledged to be a crucial factor towards achieving the sustainable development goals of organisations. Despite its significance, water-related sustainability disclosures regarding water and water-related risks among companies are alarmingly weak. Many companies are not effectively measuring, managing, and disclosing their water-related risks. Hence, this paper aimed to analyse water-related reporting and disclosure requirements of South African mining and non-mining companies with a high water profile, listed on the JSE’s Socially Responsible Investment Index. Using the qualitative approach, the companies’ level of compliance in terms of water disclosure was assessed. The findings revealed that mining companies performed poorly in terms of disclosure across the framework’s awareness, disclosure, management, and leadership categories. Stakeholders need to focus on water governance processes that require improvement to enable the stakeholders to make better decisions relating to water management.

Stakeholder Engagement and Financial Performance of Firms Listed on the Johannesburg Stock Exchange (JSE)

Attaining sustainable development will remain an elusive agenda if there is no effective stakeholder engagement. All stakeholders need to come on board to share and collaborate on environmental sustainability initiatives. This study investigated the relationship between stakeholder engagement and financial performance. The study area of this study was all FTSE/JSE listed firms. The researcher opted for a quantitative research approach and used a case study research design. The longitudinal design was adopted where the researcher collected panel data from 2011-2018. The sample of this study was 32 firms listed on the FTSE/JSE Responsible Investment Index. This resulted in 256 observations for the period under consideration. This study utilised secondary data, which is annual financial statements of firms listed on the JSE. Stakeholder engagement was the independent variable while the financial performance as measured by the Tobin’s Q was the dependent variable. Quantitative content analysis was used to collect data related to stakeholder engagement. Data was analysed using Panel regression analysis model. The Fixed and Random effects models were used to analyse data. The Hausman test was used to evaluate the appropriate model. The findings showed a positive but insignificant relationship between stakeholder engagement and financial performance as measured by Tobin’s Q. This suggested that stakeholder engagement does not predict market valuation of the firm. It was deduced that probably the concerned firms are sending weak signals to key stakeholders regarding their genuine commitment towards environmental sustainability initiatives. Recommendations were made for firms to send strong signals to investors which clearly show that they are genuinely committed towards environmental sustainability initiatives.

Environmental Sustainability Commitment and Financial Performance of Firms Listed on the Johannesburg Stock Exchange (JSE).

The importance of heeding the environmental sustainability commitment call cannot be underestimated. Laggards in terms of environmental sustainability commitment are likely to face fines and penalties as talks to tighten environmental legislation are now at an advanced stage globally. The current work assessed the link between environmental sustainability commitment and financial performance of firms listed on the Johannesburg Stock Exchange (JSE). The study was quantitative in nature with a case study research design. The longitudinal design was adopted where the researcher collected panel data from 2011–2018. The population of the study included all firms listed on the JSE Responsible Investment Index in South Africa. The sample constituted of 32 firms listed on the Financial Times Stock Exchange FTSE/JSE Responsible Investment Index in South Africa. The researchers employed the panel regression analysis model to analyze the data. Specifically, the Feasible Generalized Least Squares regression model was used in this study. Financial performance was treated as the dependent variable as measured by earnings per share and share price. The independent variables of the study included components of environmental sustainability such as carbon emission reduction and environmental compliance. Control variables such as firm size and liquidity were used in the study. The findings indicated that carbon emission reduction was positively and significantly related to earnings per share and share price. The findings further exhibited that environmental compliance was positively related to earnings per share and share price. It was concluded that firms can enhance their financial performance from environmental investment as all the hypotheses were supported. This study contributes practically towards shaping environmental policies and it also serves as motivation to listed companies that they can enhance both their profitability and market value from environmental investments.

Investment in hazardous solid waste reduction and financial performance of selected companies listed in the Johannesburg Stock Exchange Socially Responsible Investment Index

The study examines the influence of investment in hazardous solid waste reduction on companies' financial performance. The challenge is that investment in hazardous solid waste reduction is traditionally considered an unnecessary cost to companies, with investors critical of such an undertaking because they perceive it to have insignificant or no returns. The study sampled 64 mining and manufacturing companies listed on the Social Responsibility Investment Index of the Johannesburg Stock Exchange from 2008 to 2017. Using Panel Data analysis, the results indicate that any investment in hazardous solid waste of the sampled companies is too insignificant to explain the changes in return on assets. The results, however, show that the current ratio is sufficiently significant to influence the return on assets. The results indicate that hazardous solid waste disposal through targeted investment decreases the risk of future liabilities, for instance, environmental litigation, strikes and fines for environmental damage, and could significantly affect the return on assets. The results suggest that hazardous solid waste reduction requires a substantial long-term financial commitment for process change. An example of one such process change is the complete automation for improved efficiency. A short-term approach is ultimately detrimental to tackling long-term hazardous solid waste reduction issues.

Encouraging Sustainable Investment in South Africa: CRISA and Beyond

This chapter starts with an exposition of the context of shareholder stewardship in South Africa and the institutional investor landscape. This is followed by a discussion of the two main soft law initiatives that support shareholder stewardship in South Africa, namely the Code for Responsible Investing in South Africa (‘CRISA’) and the King IV Report on Governance for South Africa (‘King IV’). These soft law initiatives are extensively supported by hard law provisions, especially for retirement funds and their service providers, but also for other institutional actors. Brief mention is made of the social and ethics committee of certain investee companies and the FTSE/JSE Responsible Investment Index. The chapter concludes with some recommendations for the improvement of the current system.

Towards corporate transparency

PurposeThe purpose of this paper is to determine whether companies recognised for the quality of their sustainability reporting are also adopting investor relations (IR) best practices for their IR webpages. Quality communications to all stakeholder groups may then speak to organisational transparency and integrated corporate communication management (CCM).Design/methodology/approachAn ordinary least squares regression model was developed to test the hypothesis that companies with quality sustainability reporting also adopts best practices in online IR. Sustainability reporting quality was signalled by inclusion of the company in a socially responsible investment (SRI) index. IR quality was proxied by disclosure scores compiled from content analyses of investor relations webpages.FindingsThis study find that inclusion in the SRI Index was positively and significantly associated with online IR quality, while controlling for other variables associated with voluntary disclosure behaviour.Practical implicationsFor retail and institutional investors in SRI Index companies, cost of information discovery is reduced as they can use the investor relations webpages as comprehensive source.Originality/valueThis study contributes to the literature on corporate transparency by operationalising reporting “transparency” in that it considers the combined communications output to both financial and non-financial stakeholder groupings. A 2 × 2 conceptual framework for corporate disclosures is proposed that reconciles legitimacy theory and voluntary disclosure theory as motivations. It also contributes to the paucity of research on the links between public relations and investor relations in corporate communications by demonstrating a joint contribution to transparency.