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Global Standards and Ethical Stock Indexes: the case of the Dow Jones Sustainability Stoxx Index

  • Costanza Consolandi

    ()

  • Ameeta Jaiswal-Dale

    ()

  • Elisa Poggiani

    ()

  • Alessandro Vercelli

    ()

The increased scrutiny of investors regarding the non-financial aspects of corporate performance have placed portfolio managers in the position of having to weigh the benefits of “holding the market” against the cost of having positions in companies that are subsequently found to have questionable business practices. The availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a Socially Responsible Investment (SRI) benchmark at relatively low cost. The increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds. This paper examines whether these incentives have been so far detectable with particular reference to the Dow Jones Sustainability Stoxx Index (DJSSI) that focuses on the European corporations with the highest CSR scores among those included in the Dow Jones Stoxx 600 Index. The aim of the paper is twofold. First, we analyse the performance of the DJSSI over the period 2001-2006 compared to that of the Surrogate Complementary Index (SCI), a new benchmark that includes only the components of the DJ Stoxx 600 that do not belong to the ethical index in order to evaluate more correctly the size of possible divergent performances.Second, we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities.

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Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 0208.

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Date of creation: Jan 2008
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Handle: RePEc:usi:depfid:0208
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Web page: http://www.depfid.unisi.it/

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Michael C. Jensen, 2001. "Value Maximization, Stakeholder Theory, And The Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 8-21.
  3. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
  4. Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
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