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Article
Publication date: 23 August 2013

Saeed BinMahfouz and M. Kabir Hassan

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to…

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Abstract

Purpose

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to their broader conventional counterparts. However, the impact of incorporating sustainability criteria into the traditional Sharia screening process has not so far been investigated. Therefore, the study aims to give empirical evidence as to whether or not incorporating sustainability socially responsible criteria in the traditional Sharia screening process has a significant impact on the investment characteristics of the Islamic investment portfolio.

Design/methodology/approach

The paper examines the investment characteristics of four groups of investment portfolios mainly, Dow Jones Global Index, Dow Jones Sustainability World Index, Dow Jones Islamic Market World Index and Dow Jones Islamic Market Sustainability Index. To improve the robustness of the study, the analysis was carried out at different levels. First, absolute mean return and t‐test were used to examine whether the difference between the different groups of investments is statistically significant or not. Second, risk adjusted equilibrium models, both single‐index and Fama and French multi‐index, were employed. This is to control for different risk exposure and investment style bias associated with different investment portfolios examined.

Findings

The paper finds that neither the Sharia nor the sustainability screening process seems to have an adverse impact on the performance and systematic risk of the investment portfolios compared to their unrestricted conventional counterparts. Therefore, Muslim as well as socially responsible investors can choose investments that are consistent with their value systems and beliefs without being forced to sacrifice performance or expose to higher systematic risk.

Originality/value

The study contributes to the existing literature by giving new evidence on the impact of incorporating sustainability criteria into the traditional Sharia screening process that has not so far been investigated.

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Article
Publication date: 16 August 2021

Imlak Shaikh

In recent times, sustainable investment gaining much attention within the investors’ community and it is broadly driven by environmental, social and governance (ESG…

Abstract

Purpose

In recent times, sustainable investment gaining much attention within the investors’ community and it is broadly driven by environmental, social and governance (ESG) factors. This study aims to examine the ESG-based sustainability index and economic policy uncertainty (EPU).

Design/methodology/approach

Corporate sustainability assessment procedure yields Dow Jones sustainability indexes (DJSIUS) and ESG compliant firms become a member of such indexes. To uncover the effects of policy uncertainty as follows: the study considers EPU index, equity market policy uncertainty index, economic and political events for the period 2000–2017. The authors present the study using a conditional volatility framework.

Findings

The correlation between the DJSIUS and policy uncertainty appears to be negative and statistically significant. It is apparent from the results that policy uncertainty does contain important ESG factors that explain the sustainable investment in US firms. Moreover, the stock market boom, credit crunch, Lehman collapse and fiscal crises have shown significant adverse effects on the sustainability index. More importantly, it is seen that investors’ sustainable investing considers presidential election years for portfolio planning; the uncertainty associated with the election years has also shown a negative impact on the sustainable returns.

Practical implications

First, sustainability is essential for the long-term stakeholders’ wealth maximization under governments’ policy uncertainty such as constrained resources, demographic and climate-change-policy, societal expectations, public-policies, regulatory structure. Second, EPU creates new opportunities and risks for sustainable firms and sustainable investing.

Originality/value

The study is novel in which the authors present the effects of uncertainty on socially responsible investing.

Details

Journal of Modelling in Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5664

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Book part
Publication date: 24 June 2017

Adrian Zicari

The chapter describes the recent history of Sustainability Indices in three Latin American countries: Brazil, Mexico, and Chile. In these countries, local Stock Exchanges…

Abstract

The chapter describes the recent history of Sustainability Indices in three Latin American countries: Brazil, Mexico, and Chile. In these countries, local Stock Exchanges have been recently launching their own Sustainability Indices. This ongoing trend may indicate a particular way of addressing Socially Responsible Investment (SRI) in the region. The chapter relies on secondary data, mainly documents published by the Stock Exchanges themselves, and on some selected academic and practitioner oriented articles. All three countries present some common features. In all cases, local stock markets launched Sustainability Indices, and their composition has been publicly available from the beginning. Consequently, SRI is now developing in the region in a different way from that of developed markets. The chapter is based on secondary data only. Further research may involve interviews and surveys with different stakeholders (i.e., investors, quoted companies, public officials). The illustration of a different way of developing an SRI market may help public officials and investors from other countries, either in Latin America or elsewhere, who intend to promote SRI. There are few studies on SRI in Latin America, and comparative research between different countries in the region is still rare.

Details

Corporate Social Responsibility and Corporate Governance
Type: Book
ISBN: 978-1-78714-411-8

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Article
Publication date: 3 August 2015

Minna Yu and Ronald Zhao

This paper aims to examine whether capital market rewards firms with good corporate sustainability practices in an international setting by using the Dow Jones

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Abstract

Purpose

This paper aims to examine whether capital market rewards firms with good corporate sustainability practices in an international setting by using the Dow Jones Sustainability Index (DJSI hereafter) as an integrated measure of firm sustainability performance.

Design/methodology/approach

There are two alternative theories regarding the impact of sustainability on firm value. The value-creating theory predicts that integration of environmental and social responsibility into corporate strategies and practices reduces firm risk and promotes long-term value creation. The value-destroying theory on sustainability suggests that managers may engage in socially responsible activities at the expense of shareholders. To perform empirical tests, we use a large international sample for a period of 13 years between 1999 (the first year when DJSI became available) and 2011. To control for self-selection bias and simultaneity, the authors use lagged values of sustainability performance in a robustness check.

Findings

The authors find a positive relation between sustainability performance and firm value, after controlling for variables that have been found to affect firm value in the existing literature. The test results are consistent with the value enhancing theory (as opposed to the shareholder expense theory) regarding the role of sustainability engagement in firm valuation. Furthermore, the positive impact of sustainability engagement on firm value is primarily driven by countries with strong investor protection and with high disclosure levels.

Research limitations/implications

A positive impact of sustainability performance on firm value supports the value-creating theory and rejects the value-destroying theory. Test results also suggest a more pronounced market response to corporate sustainability in countries with stronger shareholders protection and higher requirement for financial transparency.

Practical implications

Given the growing international capital market and intensifying global competition, the valuation implications of sustainability in an international context is of practical interest to management, investors and regulators worldwide.

Originality/value

First, it is an initial attempt to test an integrated measure of the “triple-bottom-line” definition of sustainability in an international setting. Second, our paper studies the international variation in market valuation of firm sustainability performance in terms of the value enhancing versus shareholder expense theories on sustainability. The authors explore the relevance of sustainability performance in relation to the investor protection and the reporting environment across countries.

Details

International Journal of Accounting and Information Management, vol. 23 no. 3
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 1 July 2005

Joan Enric Ricart, Miguel Ángel Rodríguez and Pablo Sánchez

Although an extensive body of research treats the fields of corporate governance and sustainable development separately, less attention has been paid to the interaction

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Abstract

Purpose

Although an extensive body of research treats the fields of corporate governance and sustainable development separately, less attention has been paid to the interaction between both fields. This paper attempts to bridge this gap by examining how corporate governance systems are evolving in order to integrate sustainable development thinking into them.

Design/methodology/approach

Drawing from corporate governance, sustainable development, and stakeholder theory literature, an analysis is performed of the governance systems of the 18 corporations that are leading the market sectors considered by the Dow Jones Sustainability World Index.

Findings

The results of our in‐depth analysis of the 18 cases are presented and the sustainable corporate governance model that emerges from that analysis is proposed.

Research limitations/implications

This model does not attempt to question or replace the previous recommendation and frameworks suggested in the literature on corporate governance and codes of governance. On the contrary, the model should be viewed as a way of integrating sustainable development/corporate responsibility into the fabric of already existing governance models suggested elsewhere.

Originality/value

The suggested model seems to be a good framework both for managers and for researchers because it can be used to improve the firm's governance systems as well as a guide for future research on sustainable corporate governance.

Details

Corporate Governance: The international journal of business in society, vol. 5 no. 3
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 13 April 2015

Mustafa Dah, Monzurul Hoque and Song Wang

The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of…

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1044

Abstract

Purpose

The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of rules that determines Islamic allowed activities including socially and ethically acceptable investments.

Design/methodology/approach

The authors apply four risk-adjusted methodologies and co-integration analysis to investigate whether limited asset universe Shariah investments limit investment opportunities and impose an opportunity cost on investors given the prediction of conventional portfolio theories.

Findings

In contrast to the prediction of conventional portfolio theories, the findings suggest no apparent opportunity cost for Shariah compatible investments. In particular, Dow Jones Islamic Mutual Funds do not under-perform the broader market US benchmarks nor do they have any co-integration with the broader indexes. Moreover, the authors find similar evidence in the studies of Islamic mutual funds in Saudi Arabia, Malaysia and Kuwait.

Research limitations/implications

The findings will be reinforced when the authors will look into long run performance of Shariah compliant funds in future. Using non-linear approach will add further clarity to the findings.

Practical implications

The results provide an insight suggesting that successful mutual fund managers are able to overcome Shariah restrictions and constraints through creative investment strategies. In the data set, the Amana Trust Growth fund and the Amana Trust Income fund were always the best performers with a highly significant abnormal return, no matter what the methodology was.

Social implications

The performance of Islamic funds during the approximately seven-year period covered by the study is very promising. Popularity of Islamic Investment is expected to grow as Muslim population represents about 25 percent of the world population and the possibility for the Muslim funds to be considered as viable alternative by non-Shariah abiding or non-Muslim investors. The empirical results in the paper provide evidence that lack in diversification did not constrain the performance of Islamic funds.

Originality/value

This paper applied comprehensive risk-adjusted methodologies and co-integration analysis to Islamic Funds for a seven-year period for multiple countries. The findings confirm previously obtained results and highlight the fact that constrained Islamic Funds may not under-perform as per conventional portfolio theories.

Details

Managerial Finance, vol. 41 no. 4
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 March 2015

Dafna M. DiSegni, Moshe Huly and Sagi Akron

The purpose of this paper is to statistically assess the relationship between corporate characteristics, environmental contribution and financial performance. To this end…

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5821

Abstract

Purpose

The purpose of this paper is to statistically assess the relationship between corporate characteristics, environmental contribution and financial performance. To this end, the authors compare the financial performance of all US corporations making up the Dow Jones Sustainability Indexes, being the most proactive companies in providing services and goods, while maintaining ethical responsibility and environmental sustainability.

Design/methodology/approach

Various performance measures are compared to the mean performance of the related industry, sector and market portfolio. We employ an analysis for several time horizons of the financial measures.

Findings

Analysis by the authors suggests that firms that are proactive in supporting social responsibility and environmental sustainability (SRES corporations) are characterized by significantly higher profit measures than the industry and the sector, though not higher than the entire market. They have lower short-term liquidity measures than those of the industry and related sector, and surprisingly, their long-term leverage is significantly higher. Strong SRES corporations are characterized by significantly higher managerial efficiency ratios than the respective industry and sector. Interestingly, however, the per-worker operating efficiency ratios are significantly lower than for all of the benchmarks.

Practical implications

The revealed preference of corporations can be extracted from several horizon dependent financial measures. For instance, we could infer the corporate degree of SRES from their long-term capital structure, i.e. their long-term leverages and short-term liquidity measures.

Originality/value

These results illustrate the strong relation between social and environmental sustainability, and long-term business plans in respect to the corporate capital structure.

Details

Social Responsibility Journal, vol. 11 no. 1
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 17 August 2021

Antonio Garcia-Amate, Alicia Ramírez-Orellana and Alfonso A. Rojo Ramirez

This study aims to examine the attractiveness of the regional Dow Jones Sustainability Indexes (DJSI) and several renewable energy indexes during December 31, 2010 to…

Abstract

Purpose

This study aims to examine the attractiveness of the regional Dow Jones Sustainability Indexes (DJSI) and several renewable energy indexes during December 31, 2010 to December 31, 2019. This study uses a risk-return analysis and a set of explanatory factors. Lastly, this study conducts a comparative analysis of these indexes with conventional indexes.

Design/methodology/approach

This study uses data from Eikon, a Thomson Reuters database. To analyze the indexes’ behavior, this study uses the indexes’ annual return as of December 31 for each year. Next, this study estimates the Fama and French’s five-factor model using an ordinary least squares regression for regional DJSI and renewable energy indexes.

Findings

The results show that regional DJSIs delivered returns both above and below conventional indexes. In contrast, renewable energy indexes had high betas and negative returns, making them unattractive to investors.

Practical implications

The results imply the need for public financing programs that support the transition to a sustainable economy and reduce risk and increase the return on private investment.

Social implications

This study provides insights for policymakers regarding the importance of sustainability indexes in the transition to a green economy.

Originality/value

This study contributes to the growing literature on Fama and French’s five-factor model of sustainability indexes, especially in the current context characterized by intense green political changes. In particular, this study complements the few studies that have addressed the economic implications of renewable energy indexes in markets.

Details

Sustainability Accounting, Management and Policy Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8021

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Article
Publication date: 26 August 2020

Fatma Alahouel and Nadia Loukil

This paper aims to investigate the financial uncertainty vary according to different financial assets type: conventional and Islamic.

Abstract

Purpose

This paper aims to investigate the financial uncertainty vary according to different financial assets type: conventional and Islamic.

Design/methodology/approach

Common factors are related to risk or known information. For this, the authors use general dynamic factor model to extract common variation between both types of indexes. Then they calculate stochastic volatility for each idiosyncratic component. They also carry out the study on three different family indexes respectively, Dow Jones, S&P and MSCI indexes, for the period going from January 1, 2008 to June 30, 2018. Through a comparison analysis with uncertainty index designed for conventional assets, the authors examine the similarity between the two indexes via mean, median and variance tests. They decrypt the interrelation between them by using OLS linear regression, vector autoregressive model.

Findings

The findings show that Islamic assets uncertainty is different from conventional uncertainty level. This difference can be due to the Shariah screening and the prohibition of gharar. The main findings suggest that Islamic financial uncertainty is lower than conventional one. The OLS results prove that conventional financial uncertainties have no impact on their Islamic counterparts. In addition, Islamic financial uncertainty appears to have no significant influence on conventional one exception for Dow Jones pair. Overall, the findings support the decoupling hypothesis in term of uncertainty only for SP and MSCI indexes.

Practical implications

Risk averse investors can find their claim in Shariah-compliant assets, as it offers a low level of financial uncertainty. A portfolio manager may benefit from the long run non-association in uncertainty between Islamic and conventional assets especially in time of crisis.

Originality/value

In this work, the authors measured financial uncertainty differently and take into account the specific features of each index type to improve the results quality.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 3 January 2018

Wei Rong Ang and Olaf Weber

This paper aims to analyze the market efficiency of socially responsible investment in Korea. The authors used the daily price of the Dow Jones Sustainability Index Korea…

Abstract

Purpose

This paper aims to analyze the market efficiency of socially responsible investment in Korea. The authors used the daily price of the Dow Jones Sustainability Index Korea between January 2006 and December 2015.

Design/methodology/approach

To analyze the unpredictability of the returns, the authors conducted runs tests, such as the Dickey–Fuller test, the Philip–Perron test, the variance ratio test and autocorrelation tests. These tests investigate whether the future price of socially responsible investment in Korea is dependent on its previous price. If the relationship is dependent, this will violate the theory of weak form of efficient market hypothesis which explains that the past price movements and data do not affect stock prices. Therefore, investors cannot gain any abnormal return by extrapolating the historical data.

Findings

The results suggest that the weak form of the efficient market hypothesis is not valid for the Dow Jones Sustainability Index Korea. This implies that the future price of the index is correlated with past prices. Hence, the future movement of socially responsible investment in Korea can be predicted and enables socially responsible investors to gain abnormal returns.

Originality/value

This is the first study to investigate the market efficiency of socially responsible investment in Korea.

Details

Journal of Global Responsibility, vol. 9 no. 1
Type: Research Article
ISSN: 2041-2568

Keywords

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