Responsible Investment Research Articles

Corporate Social Responsibility and Earnings Reports: The Moderating Role of Market Volatility and Trading Opportunities

This study examines the complex relationship between corporate social responsibility (CSR) and market performance, particularly during quarterly earnings releases for NASDAQ-100 companies. It challenges the notion that ethical companies with strong social performance necessarily offer lower returns. The research explores the concept of "CSR.mv functions" (trading tools based on social responsibility) as a potential way to improve the financial performance of socially responsible investments. Interestingly, the study also finds that companies with lower CSR ratings might offer surprisingly high returns during earnings releases, suggesting unique trading opportunities in this "psychological time." These findings offer valuable insights for the scientific community interested in sustainable investing and the interplay between social responsibility and financial markets. As paper’s main contribution could be considered the study of the relationship between the moderating (independent) variables “market volatility” (MV) and “trading opportunities” (TO) and the (dependent) variable “corporate earnings reports” released by NASDAQ-100 companies in the USA (quarterly), while CSR has been investigated as a dependent variable affecting the above relationship.

How Does the Stock Market Development React to Energy Consumption? Evidence from the ARDL Panel Approach

Abstract This article examines the relationship between stock market development and energy consumption in the Gulf Cooperation Council (GCC) countries using panel data from 1971-2021 and ARDL panel and cross-section techniques. The long-term results show that market capitalization has a significant effect on oil consumption. In contrast, the value of shares traded positively and significantly influences the consumption of oil and electricity. Short-term findings indicate that the overall size of the stock market does not significantly affect electricity usage. This suggests that achieving the desired energy-saving goals may require policies that account for the influence of stock market on energy demand, rather than excluding this factor. Given these findings, policymakers in GCC countries should take into account the intricate and various effects that stock market development have on energy consumption. Accordingly, to reduce energy consumption, policies should not solely focus on energy demand and income relationships. Instead, policies should encourage improved corporate governance practices that incentivize companies to reduce their energy consumption to improve their financial performance and increase their share prices. This can be achieved by encouraging companies to invest in energy-efficient technologies and reducing their reliance on energy-intensive projects. Additionally, policymakers should consider regulating the stock market to promote environmentally responsible investments and reduce the financing of energy-intensive projects.

Assessing the role of ESG evaluation in market risk management for sovereign bond investments

ABSTRACT With the growing emphasis on responsible investing, the role of environmental, social, and governance (ESG) factors in risk management has become significant, extending to the field of sovereign bonds. This study examines the role of ESG evaluations in the risk management of sovereign bond investments. Across fifty countries, including developed and emerging countries, our findings indicate that, even after controlling each country's yield levels and fiscal conditions, nations with lower ESG scores tend to face higher market risks, notably regarding tail risk measures. This pattern is especially pronounced in the bonds of emerging countries. The research highlights that ESG evaluation of sovereign bonds can provide insight into the likelihood of unforeseen events, such as political turmoil and natural disasters, often not reflected in sovereign bond yields.

Ministério Público interagente como instrumento de superação do paradigma da cidadania sacrificial

The author Wendy Brown develops in her works the concept of sacrificial citizenship, correlating it with neoliberalism and the reduction of citizenship as a responsible investment in oneself. In this article, we seek to investigate to what extent the adoption of an Interagent Public Attorney’s Office, corroborates the overcoming of the paradigm of sacrificial citizenship and the strengthening of a participatory and inclusive democracy. In conclusive terms, the National Policy of Incentive to Self-composition within the scope of the Public Attorney’s Office is understood as an opportunity for rapprochement between parquet and civil society, with the opening of public spaces for dialogue.

Sustainable Synergy: Static and Dynamic nexus between ESG and BRICS Equity Markets

Sustainable finance has become the new frontier in global investments, redefining success beyond mere profit margins. For the BRICS economies, this paradigm shift presents both a challenge and an opportunity to reimagine their role in the evolving world of responsible investing. Therefore, this study examines the connectedness between environmental, social, and governance (ESG) leader indices and the BRICS equity markets using the TVP-VAR model. Our return and volatility connectedness results demonstrate a moderate level of transmission between ESG and conventional equity markets. Moreover, the system integration increased substantially during COVID-19 compared to pre-COVID-19, highlighting the strong impact of global events on financial market behavior. ESG (conventional) stocks predominantly emerge as net transmitters (recipients) of return and volatility shock to the system. The dynamic analysis reveals a notable increase in system connectedness, exhibiting increased transmission during an uncertain market environment. Our portfolio analysis suggests that investors should increase their investment in BRICS equity markets during COVID-19 to get higher diversification benefit, however hedging ESG with conventional stocks becomes expensive (higher hedge ratio) during a turbulent period. These results have substantial implications for portfolio management, suggesting that ESG can effectively mitigate risk and optimize portfolio performance.

Financial Strength of Agribusiness to Accelerate Responsible Investment for Sustainable Development

Objectives: Agribusiness plays a vital role in providing food security and food energy with contribution towards social and economic stability. The sustainable development goals of industry, innovation and infrastructure to build volatile innovative sustainable industries by ensuring responsible production. Responsible investment by enterprises for incorporating ESG environmental, social and governance (ESG) compliances for achieving sustainable development is contingent on financial sustainability. Methods: The study focuses on the financial strength of agribusiness to measure efficiency in building responsible investment practises for sustainable development. Result: The agribusiness companies listed in Indian recognised Stock exchange is analyzed for measuring key performance indicators of profitability, liquidity, efficiency and leverage from the period of its listing year to March 2020. Conclusion: The dramatic changes in business environment and trends influences agribusiness enterprises to adopt responsible investment for achieving invaluable sustainable competitive advantage.

What drives green banking operations in Bangladesh? Findings from PLS-SEM and BSEM

PurposeEnvironmental threats are becoming severe in developing and undeveloped countries. It urges to know how green banking operations can foster sustainable development in these regions. This study aims to provide empirical evidence of the determinants of green banking operations in Bangladesh.Design/methodology/approachBased on the socially responsible investing (SRI) theory, this study examined the hypothesized relationships using a partial least square structural equation modeling (PLS-SEM) approach. The Bayesian SEM (BSEM) through a Markov Chain Monte Carlo (MCMC) approach was also used to validate the study's first-order model.FindingsThe findings show that sustainable innovativeness, green investment and green banking policy substantially and positively change green banking operations. Notably, green investment is the most influential predictor of green banking operations, driving banks to establish sustainable economic systems within the country.Practical implicationsThe findings offer valuable guidance for scholars, financial institutions, policymakers and bank managers to develop and implement effective strategies for green banking operations. These strategies may significantly contribute to achieving the sustainable development goals (SDGs) in Bangladesh.Originality/valueThis study is ground-breaking in associating sustainable innovativeness and green banking operations from a developing country. It enriches our understanding of green banking, aligning with existing literature. Additionally, PLS-SEM and BSEM provide strong validation of the proposed theoretical model.

Assessing the Environmental Sustainability Corridor: Carbon Emissions in Relation to Gold Price, Economic Growth, Foreign Direct Investment, and Renewable Energy Consumption

The growing concerns about global warming and its perceived influence on economic sustainability require a reassessment of the environmental consequences of gold mining, with a special focus on BRICS countries: Brazil, Russia, India, China, and South Africa. This paper examines the environmental sustainability corridor, carbon emission, gold price, economic growth, foreign direct investment (FDI), and renewable energy use between 1989 and 2020. The long-run association among the variables is checked by us through the PMG technique. Our findings indicate that while the gold price, FDI, and renewable energy use decrease carbon emission, economic growth adds to the increase in carbon emissions in the long run. These findings bring out the dual challenge of promoting economic growth while managing environmental impact. The study underlines how policymakers need to provide regulatory frameworks which will encourage renewable energy and responsible foreign investment, as a means of trying to mitigate the environmental impacts of gold mining and achieve sustainable development. Our research adds to the continuing debate about how economic expansion can be balanced with environmental preservation for resource-rich countries.

Grazing for dollars: responsible investing for healthy and sustainable animal agriculture in Australia

AbstractInvestments by the global finance sector contribute to industrial-scale agriculture along with its harmful environmental impacts, making their actions significant in supporting or opposing sustainable food systems transformation. Previous research has shown that institutional investors identify animal agriculture as an important consideration with respect to environmental, social and governance (ESG) issues regarding sustainable food systems. This study aimed to explore ways in which so-called ‘responsible’ investors in Australia consider risks related to animal agriculture, and whether existing ESG metrics are ‘fit-for-purpose’ for assessing issues related to sustainable animal agriculture. Nineteen semi-structured interviews were conducted with responsible investors and relevant non-government organisations (NGOs) in Australia. We found that the responsible investment sector lacked mechanisms to recognise the inter-connections between animal agriculture and multiple environmental and social outcomes. Furthermore, we found that investors largely focused on ‘techno’ solutions to the impacts of animal agriculture, such as alternative proteins, through a ‘single issue’ lens. They rarely made connections to other relevant ‘food systems’ issues, such as health. We conclude that holistic approaches are needed to monitor and assess the impacts of animal agriculture in the investment sector and suggest that integrated ‘food systems’ metrics will be necessary to inform these approaches.

Carbon omission and financial market sustainability via government effectiveness: a cross-culture comparison of OECD and Asian emerging economies

PurposeFinancial market sustainability is gaining attention as investors and stakeholders become more aware of environmental, social and governance issues, pushing demand for responsible and ethical investment practices. Therefore, this study aims to investigate the impact of carbon (CO2) emissions from three sources, oil, gas and coal, on the stock market sustainability via effective government policies.Design/methodology/approachThe eight countries belong to two different regions of world: Asian economies such as Pakistan, India, Malaysia and China, and OECD economies such as Germany, France, the UK and the USA are selected as a sample of the study. The 22-year data from 2000 to 2022 are collected from the DataStream and the World Bank data portal for the specified countries. The generalized methods of movement (GMM) and wavelet are used as the econometric tool for the analysis.FindingsOur findings show that the CO2 emission from coal and gas significantly negatively impacts stock market sustainability, but CO2 emission from oil positively impacts stock market sustainability. Moreover, all the emerging Asian economies’ CO2 emissions from coal and gas have a much greater significant negative impact on the stock market sustainability than the OECD countries due to the critical situation. However, the government’s effective policies have a positive significant moderating impact between them, reducing the effect of CO2 emission on the stock market.Research limitations/implicationsThis study advocated strong implications for policymakers, governments and investors.Practical implicationsEffective government policies can protect the environment and make business operations suitable, leading to market financial stability. This study advocated strong implications for policymakers, governments and investors.Originality/valueThis study provides fresh evidence of the government’s effective role to control the carbon environment that provide the sustainability to the organizations with respect to OECD and emerging economy.

DOES ESG SCORE IMPACT SHARE PERFORMANCE IN ROMANIAN STOCK MARKET?

Environmental, social and governance corporate policies (ESG) will remodel the overall economy in the next years, respectively will influence the success of investment. ESG factors will drive change fundamentally in the economy that will raise some risks and opportunities for the financial sector. Therefore, it is crucial that they include responsible investment and ESG criteria in their overall business strategy. ESG policies have passed so from the early stage, in which they represented a specialized product for a restricted group of investors, to the actual stage, in which these actions have transformed into a general framework that influences the strategic thinking of the whole entity. ESG thus has an influence on growing business strategy throughout the transaction life cycle and in their portfolios. This paper explores the impact of the ESG notch on the share performance of the Romanian entities listed on the Bucharest Stock Exchange. In conclusion, incorporation of ESG factors in investment strategy may influence stock performance and attract investors interested in sustainability.

Критерії відповідності фінансового менеджменту емітента зелених облігацій

Introduction. A fundamental principle in the green bond market is the financing of projects that have a positive impact on the environment. Socially responsible investors want to be sure that the proceeds from the issuance of these securities are used as intended, and that the projects being financed contribute to the achievement of environmental goals. For this purpose, the relevant international standards have already been adopted on the green bond market. Problem Statement. In the green bond market, manipulation often occurs when the proceeds from the issuance of these securities are allocated to projects that are not actually environmentally friendly, although they are portrayed as such. Compliance of the financial management of the issuer of green bonds with generally accepted standards is always in the focus of attention of socially responsible investors. An urgent task is to measure the compliance of financial management with generally accepted standards, which will affect the future results of the issuer of green bonds in the distribution of income to achieve environmental goals. Purpose of the article is to identify the criteria for compliance of the green bond issuer's financial management with internationally recognized standards. Methods. The following research methods were used: the generalization method (when studying theoretical sources, scientific works of famous scientists and researchers on selected issues); methods of comparisons and synthesis (during the review of international acts, existing practices and standards), the method of analysis (to identify the criteria of compliance of financial management in the green bond market); logical method (for forming conclusions). Results. The article reveals the concept and features of financial management in the green bond market, examines global practices and standards for managing proceeds from the issuance of these securities. The principles and requirements that issuers of green bonds on the global and European markets should follow are summarized. On the basis of the conducted research, the criteria of compliance of financial management in the market of green bonds are singled out. Conclusions. The principles and methods contained in international standards and recommended acts on the green bond market provide a basis for measuring the compliance of the issuer's financial management with internationally recognized practices. The conducted research made it possible to single out the following criteria: 1) the ability to properly select and evaluate projects; 2) confirmation of the targeted direction of income; 3) availability of separate accounting of receipts; 4) organization of control over revenue management; 5) involvement of an independent third party in the control. Identified financial management compliance criteria make it possible to identify the green bond issuer's strengths and weaknesses for further improvement of its internal practices, increase transparency, and improve management processes and foundations. Checking the issuer of green bonds according to each of the criteria on a point basis allows establishing the general level of compliance of its financial management with the expectations of socially responsible investors.

Responsible investing: Upside potential and downside protection?

Conventional risk proxies are measured assuming that investors have symmetric risk preferences, with upside and downside deviations from the expectation being equivalently undesirable. Responsible investors, however, have dual financial aims of enhancing upside potential while reducing downside risk by actively incorporating environmental, social, and governance (ESG) aspects into the investment process. We utilize a non-symmetric option pricing research design to test whether responsible investors could live up to their ambitions. We find that those who are simply Principles for Responsible Investment (PRI) members do not deliver the desirable asymmetric performance, while financial firms with highly rated responsible investment processes can actually achieve both aims for their own shareholders: enhancing upside potentials and protecting themselves from downside risks.

The impact of institutional commitments on corporate risk-taking: Evidence from the United Nations Principles for responsible investment

Taking the institutions that signed the United Nations (UN) Principles of Responsible Investment (PRI) from 2012 to 2021 as a sample, we study whether the risk-taking of investment targets will be affected when the institutions sign the PRI. The findings demonstrate that when an institution subscribes to the PRI, it significantly decreases its investment target's degree of risk-taking. After a series of stability tests, such as surrogate variables and propensity score matching method, the main regression results in this paper remain consistent. It has been suggested through mechanism analysis that signing the PRI increases both investment efficiency and information disclosure quality thereby minimizing enterprise risk-taking behavior. Further research shows that the state-owned nature of institutions and higher media attention can reduce the risk-taking of enterprises. This paper provides a new explanatory dimension through which enterprises can reduce their level of risk-taking and offers a theoretical foundation for further expanding the impact of the PRI.

Strategic timing of corporate social responsibility investments under reputational risk

We analyze a company’s corporate social responsibility (CSR) investments from a real option perspective to determine the value of the CSR investments and the optimal time to invest in CSR, taking into account reputational risk. Previous studies on CSR investments as real options often assume that companies can invest in CSR solely at the time of maturity and that investment costs are known at the outset. Our study extends this research by incorporating realistic viewpoints: Companies can invest in CSR at multiple points in the future; postponing CSR investments may result in reputational losses; and the costs associated with such investments undergo stochastic evolution. We determine the value of CSR investments and answer the question of when to optimally invest in CSR. We examine a real-world example of the palm oil scandal involving Sinar Mas and Nestlé in 2008-2010 and explain why Nestlé repeatedly postponed investing in CSR, i.e., delayed the termination of its contract with Sinar Mas.

Socially responsible investment and fund performance: The moderating roles of mutual funds' operating environments

Mutual fund managers are increasingly inclined to demonstrate their social responsibility (SR) by adopting SR standards and integrating SR funds into investment portfolios. However, a debated question is whether the net effect of SR integration on fund performance is positive. This study proposes an inverted U-shaped relationship between SR integration and fund performance based on the trade-off between the benefits and costs associated with SR integration from the perspectives of legitimacy theory and transaction cost economics. We further hypothesise that this relationship is moderated by mutual funds' trading and regulatory environments. Our results from a sample of 1145 Chinese mutual funds support that fund performance improves with SR integration at low SR integration intensities but deteriorates as the integration increases from a medium level to a high level. Moreover, this inverted U-shaped relationship is weakened by market uncertainty but strengthened by the implementation of government-mandated SR disclosure. Our study provides practical guidance for investors, fund managers, and policymakers in striking a balance between financial performance and social responsibility.

The Role of Environment Social and Governance (ESG) Score To Cost of Debt: Evidence From ASEAN Countries*

ABSTRACTEnvironmental social governance (ESG) disclosure has become an increasingly important component in determining a company's financing cost (cost of debt‐CoD). This phenomenon could be attributed to company reputation development and the rise of socially responsible investing. We contribute to the existing literature by investigating further the causality process of ESG scores to the reduction of CoD particularly in nonfinancial companies in one of the most dynamic world regions: Association of Southeast Asian Nations (ASEAN). To meet our research objective; we applied difference‐in‐difference analysis to a dataset of 135 nonfinancial companies (that published ESG score in Bloomberg) from 6 ASEAN countries, using annual frequency data from 2012 to 2021 (1350 observations). We found that ESG does reduce CoD in the range of 21.3% (measured by interest expense) to 27.7% (measured by credit spread). Our finding is quite solid under an array of robustness checks.

Evolution and relevance of research on Environmental, Social, and Governance factors

AbstractIn the wake of a compelling societal shift and the subsequent widespread response across multiple industries, Environmental, Social, and Governance (ESG) factors have emerged as a pivotal subject in scholarly literature. To gauge the significance of these contributions and facilitate objective exploration in future research, we employ bibliometric techniques. Thus, we identify the relevant authors and journals, and depict the evolution in the themes and pillars of the intellectual framework underpinning the topic. Our analysis covers 594 articles from 2007 to 2022, divided into two distinct periods. In the first period, the pillars are centered on contextualizing theories, the impact in terms of financial‐related performance, and the ethical implications within the domain of corporate social responsibility. In the subsequent period, there is a notable progression towards reinforcing theoretical foundations. The pillars shift towards more practical implications, focusing on challenges associated with investing based on ESG criteria, guiding stakeholders in adapting to this paradigm, and addressing risks tied to its implementation. Financial performance, disclosure in reporting, and socially responsible investments remain crucial matters, and the analysis of the environmental issues outnumber social, and governance ones in both periods. We discuss the potential implications and further lines of research.

A Relationship Assessment Between Environmental Practices, Corporate Value, and CSR in Sustainability Context

AbstractThis study examines the influence of environmental performance disclosure within corporate social responsibility on company value. It assesses the impact of green intellectual capital (human, structural, and relational), green innovation (product and process), carbon emission disclosure, and eco-efficiency on Price Book Value (PBV). The sample includes 11 companies from the Sri Kehati Index 2018-2022, which apply Sustainable Responsible Investment (SRI) and ESG principles. Using multiple regression analysis, the findings reveal that green intellectual capital disclosure does not significantly affect company value. However, green innovation positively impacts PBV, suggesting its importance in enhancing corporate valuation. In contrast, carbon emission disclosure and eco-efficiency are found to negatively influence PBV. These results highlight the critical role of green innovation in driving company value while suggesting that certain environmental disclosures may lower valuations. The study provides valuable insights into how environmental practices affect corporate value within the framework of corporate social responsibility and sustainability. Keywords:Green Intellectual Capital, Green Innovation, Carbon Emissions Disclosure, Eco-Efficiency, Company Value

Integration of investor behavioral perspective and climate change in reinforcement learning for portfolio optimization

Addressing environmental impact is increasingly imperative for individual investors and large financial institutions, making it a key objective of socially responsible investing. However, there is a noticeable gap in research on integrating sustainability and low-carbon considerations into machine learning-based portfolio optimization. To meet this challenge, this study introduces a Portfolio Emissions Sentiment Attention Aware Reinforcement Learning (PESAARL) model based on the Proximal Policy Optimization (PPO) algorithm to optimize a portfolio of Dow Jones Industrial Average (DJIA) stocks. PESAARL uniquely integrates environmental impact considerations, specifically carbon footprint using the firm level scope 1 and scope 2 emissions data, alongside firm-level investor sentiment and attention, into the investment decision-making process. Through multiple experiments, PESAARL demonstrates significant advantages, in terms of financial and environmental performance, over the benchmarks.