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Corporate economic performance and sustainability indices: a study based on the Dow Jones Sustainability Index.

ABSTRACT: Sustainable investing recognizes companies' role in solving some of the major sustainability challenges globally and that companies driving impactful sustainability agendas can be best positioned to grow, and one way to do this is through inclusion into a sustainability stock-market index. Current research has investigated the financial benefits of being included into sustainable indices and has found contrasting results. To expand on existing work, we report an analysis that aims at better understanding whether there is any negative economic impact related to participation in the sustainability index DJSI. To do this, we gained data on three financial indicators (market cap, net sales, and EBITDA) on five different non-related industries (Airlines, Aluminum, Apparel, Pharmaceuticals, and Forest Products). Ten companies in each industry were selected based on market-cap, with 5 being in-index and 5 being out. Although most indices' rationale is to identify companies that are best-in-class performers in sustainability and economically, we report an unexpected conclusion of no obvious financial consequences from being part of sustainability index. Only one industry-forest products-had positive impacts of index-inclusion, and the other industries' impacts were non-consequential. This indicates that sustainability indices may promote sustainable development with no financial impact.

Supplementary information

The online version contains supplementary material available at 10.1007/s43546-022-00251-0.

SUBMITTER: Denuwara N

PROVIDER: S-EPMC9243875 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:BackgroundIn contemporary complex societies, social values like ethics, corporate social responsibility, and being respectful with the environment, among others, are becoming social requirements. Corporations are expected to fulfill them and, according to empirical evidence, an overwhelming majority aspires to good social valuation. At the same time, the maximization of market share value in the long run continues to be the central corporate goal. Making environmental and social expenses compatible with value creation is a central challenge for corporations since it implies the financial sustainability of Corporate Social Responsibility (CSR).Methods and resultsThe value creation capacity of CSR projects, mainly through innovation, is widely acknowledged in economic literature and corporate practice. This fact arouses the need of having a quantitative framework capable of summarizing the value creation capacity of the variables involved in CSR projects. With this aim we build up a sensitivity analysis of real option ratios that studies and quantifies the value creation capacity of CSR projects connected with innovation. Ratio analysis has the advantage of being scale independent. Hence, it furnishes a homogeneous framework to express the interaction of value creation variables and, thus, supports strategic thinking quantitatively. Often, CSR expenses can be regarded as preliminary projects that create the opportunity to undertake a full future project. For them, we obtain the minimum expectations scenario that makes financially sustainable a preliminary project that can be interpreted as a call option. We propose a classification of CSR projects from the decision analysis perspective following a two-fold approach: Their relationship with value creation and their links with existing corporate activities. This classification of CSR projects aims at contributing to choose the best capital budgeting method to study the financial sustainability of the project and identifying those CSR projects that fulfill the required features to be studied from the real options perspective.

Dataset Information

Corporate economic performance and sustainability indices: a study based on the Dow Jones Sustainability Index.

Supplementary information

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