Less is More: In Search of Sustainable Investment Premium

Jianglin Dennis Ding
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Jianglin Dennis Ding: Mario J. Gabelli School of Business, Roger Williams University, USA

International Journal of Economics and Financial Issues, 2024, vol. 14, issue 5, 233-241

Abstract: Considering the inconsistency among various ESG ratings from major agencies, and the conflicting research findings: from superior returns and reduced risk to indicating no significant difference or even underperformance, this study uses a single indicator instead of a complicated scoring system to examines “green†firms categorized with zero fossil fuel exposure, comparing their performance to “brown†firms with fossil fuel exposure investments. The findings indicate that market value-weighted portfolios of these "green" stocks outperform their counterparts, demonstrating potential financial benefits of sustainable investing based on a single indicator. The study employs the Fama-French three-factor model and cross-sectional analysis, showing that "green" portfolios yield higher abnormal returns and exhibit different risk profiles compared to "brown" (non-fossil-fuel-free) portfolios. The research underscores the need simply and standardize ESG metrics to enhance comparability and reliability, thereby aiding investors in making informed decisions aligned with sustainability goals.

Keywords: ESG Investing; Sustainable Finance; Fossil Fuel-Free Investments; Financial Performance (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 M14 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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