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The effect of environmental and social performance on the stock performance of european corporations

Ziegler, Andreas ; Schröder, Michael ; Rennings, Klaus

In: Environmental and Resource Economics, 2007, vol. 37, no. 4, p. 661-680

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    Title
    • The effect of environmental and social performance on the stock performance of european corporations
    Author
    • Ziegler, Andreas. Center for Corporate Responsibility and Sustainability at the University of Zurich, Künstlergusse 15a, 8001, Zurich, Switzerland
    • Schröder, Michael. Center for Corporate Responsibility and Sustainability at the University of Zurich, Künstlergusse 15a, 8001, Zurich, Switzerland
    • Rennings, Klaus. Center for Corporate Responsibility and Sustainability at the University of Zurich, Künstlergusse 15a, 8001, Zurich, Switzerland
    Document Type
    • Postprint
    Language
    • English
    Published in
    • Environmental and Resource Economics, 2007, vol. 37, no. 4, p. 661-680. Springer Netherlands
    Other Version
    OAI-PMH Identifier
    • oai:doc.rero.ch:316330
    Summary
    This paper examines the effect of sustainability performance of European corporations on their stock performance, measured as the average monthly stock return from 1996 to 2001. The econometric analysis is based on common empirical asset pricing models, particularly on the multifactor model according to Fama and French (1993, Journal of Financial Economics, 33:3-56). The consideration of sustainability performance is two-fold: The average sustainability performance of the industry in which a corporation operates and the relative sustainability performance of a corporation within a given industry. The main result is that the average environmental performance of the industry has a significantly positive influence on the stock performance. In contrast, the average social performance of the industry has a significantly negative influence. The variables of the relative environmental or social performance of a corporation within a given industry have no significant effect on the stock performance. As a by-product, the econometric analysis implies that some results of Fama and French (1993, 1996, The Journal of Finance, LI (1):55-84) regarding the risk factors of the multifactor model need not hold true for different observation periods, for different stock markets, and for the use of single stocks (instead of portfolios)