Does the market value corporate impact investing and socially responsible investing?

Abstract

This study investigates the value relevance of corporate impact investing (II) and socially responsible investing (SRI) strategies. We use the presence of sustainability strengths and the absence of sustainability concerns as proxies for corporate II and SRI strategies, respectively. Analyzing data from the 1991–2015 MSCI KLD environmental, social, and governance (ESG) performance of U.S. firms and employing a system of linear equations to control for endogeneity, we find that both corporate II and SRI are negatively associated with short-term stock performance. However, the negative impact of SRI diminishes after 4 years. Our results are primarily driven by firms with weaker economic performance, smaller sizes, and lower levels of institutional ownership. Further analysis reveals that the environmental and social dimensions of sustainability performance are negatively associated with stock performance, while the governance dimension is positively associated. These findings have implications for policy, practice, and research related to II and SRI strategies and sustainability initiatives.