Corporate sustainability and shareholder wealth-evidence from British companies and lessons from the crisis

Abstract

This study examines the impact of corporate sustainability (CS) on stock market returns for FTSE 350 companies over the period 2006-2012. We find that an investment strategy that bought shares in companies with balanced financial, social, and environmental activities would have earned an annual four-factor alpha for a value-weighted portfolio of 3.54% per year during the sample period and 2.98% above industry benchmarks. In addition, we find that CS is negatively correlated with stock return volatility, and investing in companies with CS not only generates higher returns during peak phases, but also diminishes shareholders' losses during bear phases. We have also carried out an additional, out-of-the-sample analysis for the years 2013-2015 which confirmed our results.