Overuse of resources, increasing shortages of food, climate change, environmental pollution as well as numerous high-profile corporate governance scandals are just a few examples to outline that unsustainable economic activities constitute a threat to humanity. As a consequence, the way we’re doing business and the way we invest will change fundamentally – we must find more sustainable solutions. The financial market crisis has also shown that it is no longer enough to simply consider the three dimensions – risk, return and liquidity. Instead, new investment aspects must find their way into the world of financial services.
A concept, which has become more integrated into capital markets over the last couple of years, is the concept of socially responsible or sustainable and responsible investments (SRI).
All around the globe, the number and diversity of market participants who offer a wide range of SRI products and services is steadily growing. In the same time,SRI is evolving and getting more and more complex. Therefore, more dedicated research is needed to make SRI more viable for investment strategies.
This paper investigates the impact of environmental, social and governance (ESG) issues on stock prices while answering the question: “Are environmental, social and governance factors relevant for asset pricing?”