Yann Ferrat

Composition of the Jury

Abstract

This dissertation examines socially responsible investing (SRI) through the relationship between corporate social responsibility (CSR) and financial performance. The research presented is organized into two sections and four chapters, each of which addresses distinct questions. Taken together, these chapters contribute to a single objective: to understand whether SRI is profitable for investors. The first section consists of two chapters that examine the CSR risk premium in developed equity markets (Chapter 1) and emerging markets (Chapter 2), respectively. Our results show that the abnormal returns from the CSR risk premium depend on the level of investor attention to CSR and on firm size. We thus argue that the relationship between CSR and financial performance is initially positive, as observed in emerging markets and in the small-cap segment of developed countries. However, the exponential growth of SRI assets in developed countries has helped make the market more efficient with respect to CSR, and as a result, the risk premium is no longer significant, as observed in the large-cap segment. In the second section, this thesis examines the mechanisms of value creation for responsible investors. The two chapters comprising this section examine, respectively, the effect of CSR screening on SRI portfolios (Chapter 3) and the impact of materiality on the relationship between climate and financial performance (Chapter 4). In the third chapter, we show that the relationship between CSR screening and risk-adjusted portfolio returns is curvilinear. Thus, excluding companies based on CSR criteria is beneficial until the impact on financial diversification outweighs the benefits. In the final chapter, our results suggest that the impact of climate performance on firms’ financial performance is moderated by the investment horizon and the materiality of climate considerations within industries. Indeed, climate performance has no significant effect on short-term profitability. In the long term, climate performance impacts financial performance only for firms engaged in carbon-intensive activities.