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Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 53, Issue 4
  5. pp. 461–491

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Nerlinger, M. Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis. Credit and Capital Markets – Kredit und Kapital, 53(4), 461-491. https://doi.org/10.3790/ccm.53.4.461
Nerlinger, Martin "Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis" Credit and Capital Markets – Kredit und Kapital 53.4, 2020, 461-491. https://doi.org/10.3790/ccm.53.4.461
Nerlinger, Martin (2020): Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis, in: Credit and Capital Markets – Kredit und Kapital, vol. 53, iss. 4, 461-491, [online] https://doi.org/10.3790/ccm.53.4.461
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Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis

Nerlinger, Martin

Credit and Capital Markets – Kredit und Kapital, Vol. 53 (2020), Iss. 4 : pp. 461–491

2 Citations (CrossRef)

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Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.53.4.461
Language
English
Pages
31
Keywords

Author Details

Martin Nerlinger, University of Augsburg, Faculty of Business Administration and Economics, Chair of Finance and Banking, Universitaetsstrasse 16, 86159 Augsburg, Germany, Tel.: +49 821 598 4479.

Cited By

  1. Sustainable Finance and ESG Importance: A Systematic Literature Review and Research Agenda

    Zairis, Georgios | Liargovas, Panagiotis | Apostolopoulos, Nikolaos

    Sustainability, Vol. 16 (2024), Iss. 7 P.2878

    https://doi.org/10.3390/su16072878 [Citations: 7]

  2. A Systematic Literature Review on ESG during the COVID-19 Pandemic

    Savio, Riccardo | D’Andrassi, Edoardo | Ventimiglia, Francesca

    Sustainability, Vol. 15 (2023), Iss. 3 P.2020

    https://doi.org/10.3390/su15032020 [Citations: 18]

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  2. Alessandrini, F./Jondeau, E. (2020): ESG Investing: From Sin Stocks to Smart Beta. The Journal of Portfolio Management, Vol. 46(3), 75–94. https://doi.org/10.3905/jpm.2020.46.3.075.  Google Scholar
  3. Alsaifi, K./Elnahass, M./Salama, A. (2020): Market responses to firms’ voluntary carbon disclosure: Empirical evidence from the United Kingdom. Journal of Cleaner Production, 262, 121377. https://doi.org/10.1016/j.jclepro.2020.121377.  Google Scholar
  4. Amel-Zadeh, A./Serafeim, G. (2018): Why and How Investors Use ESG Information: Evidence from a Global Survey. Financial Analysts Journal, Vol. 74(3), 87–103. https://doi.org/10.2469/faj.v74.n3.2.  Google Scholar
  5. Ammann, M./Bauer, C./Fischer, S./Müller, P. (2019): The impact of the Morningstar Sustainability Rating on mutual fund flows. European Financial Management, Vol. 25(3), 520–553. https://doi.org/10.1111/eufm.12181.  Google Scholar
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  32. Horváthová, E. (2010): Does environmental performance affect financial performance? A meta-analysis. Ecological Economics, Vol. 70(1), 52–59. https://doi.org/10.1016/j.ecolecon.2010.04.004.  Google Scholar
  33. Hussain, N./Rigoni, U./Cavezzali, E. (2018): Does it pay to be sustainable? Looking inside the black box of the relationship between sustainability performance and financial performance. Corporate Social Responsibility and Environmental Management, Vol. 25(6), 1198–1211. https://doi.org/10.1002/csr.1631.  Google Scholar
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  45. Oberndorfer, U./Schmidt, P./Wagner, M./Ziegler, A. (2013): Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms. Journal of Environmental Economics and Management, Vol. 66(3), 497–509. https://doi.org/10.1016/j.jeem.2013.04.005.  Google Scholar
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  58. Alessandrini, F./Jondeau, E. (2020): ESG Investing: From Sin Stocks to Smart Beta. The Journal of Portfolio Management, Vol. 46(3), 75–94. https://doi.org/10.3905/jpm.2020.46.3.075.  Google Scholar
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  60. Amel-Zadeh, A./Serafeim, G. (2018): Why and How Investors Use ESG Information: Evidence from a Global Survey. Financial Analysts Journal, Vol. 74(3), 87–103. https://doi.org/10.2469/faj.v74.n3.2.  Google Scholar
  61. Ammann, M./Bauer, C./Fischer, S./Müller, P. (2019): The impact of the Morningstar Sustainability Rating on mutual fund flows. European Financial Management, Vol. 25(3), 520–553. https://doi.org/10.1111/eufm.12181.  Google Scholar
  62. Attig, N./El Ghoul, S./Guedhami, O./Suh, J. (2013): Corporate Social Responsibility and Credit Ratings. Journal of Business Ethics, Vol. 117(4), 679–694. https://doi.org/10.1007/s10551-013-1714-2.  Google Scholar
  63. Barber, B./Morse, A./Yasuda, A. (2019): Impact Investing. Working Paper. Advance online publication. https://doi.org/10.3386/w26582.  Google Scholar
  64. Barnett, M. L./Salomon, R. M. (2012): Does it pay to be really good? addressing the shape of the relationship between social and financial performance. Strategic Management Journal, Vol. 33(11), 1304–1320. https://doi.org/10.1002/smj.1980.  Google Scholar
  65. Bauer, R./Ruof, T./Smeets, P. (2019): Get Real! Individuals Prefer More Sustainable Investments. Working Paper. Advance online publication. https://doi.org/10.2139/ssrn.3287430.  Google Scholar
  66. Betti, G./Consolandi, C./Eccles, R. G. (2018): The Relationship between Investor Materiality and the Sustainable Development Goals: A Methodological Framework. Sustainability, Vol. 10(7), 2248. https://doi.org/10.3390/su10072248.  Google Scholar
  67. Bianchi, R. J./Drew, M. E. (2012): Sustainable stock indices and long-term portfolio decisions. Journal of Sustainable Finance & Investment, Vol. 2(3-4), 303–317.  Google Scholar
  68. Boehmer, E./Masumeci, J./Poulsen, A. B. (1991): Event-study methodology under conditions of event-induced variance. Journal of Financial Economics, Vol. 30(2), 253–272. https://doi.org/10.1016/0304-405X(91)90032-F.  Google Scholar
  69. Busch, T./Johnson, M./Pioch, T./Kopp, M. (2018): Consistency of Corporate Carbon Emission Data.  Google Scholar
  70. Carhart, M. M. (1997): On Persistence in Mutual Fund Performance. The Journal of Finance, Vol. 52(1), 57–82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x.  Google Scholar
  71. Carolina Rezende de Carvalho Ferreira, M./Amorim Sobreiro, V./Kimura, H./Luiz de Moraes Barboza, F. (2016): A systematic review of literature about finance and sustainability. Journal of Sustainable Finance & Investment, Vol. 6(2), 112–147. https://doi.org/10.1080/20430795.2016.1177438.  Google Scholar
  72. Ceccarelli, M./Ramelli, S./Wagner, A. F. (2020): Low-carbon Mutual Funds. Working Paper. Advance online publication. https://doi.org/10.2139/ssrn.3353239.  Google Scholar
  73. Chatterji, A. K./Durand, R./Levine, D. I./Touboul, S. (2016). Do ratings of firms converge? Implications for managers, investors and strategy researchers. Strategic Management Journal, Vol. 37(8), 1597–1614. https://doi.org/10.1002/smj.2407.  Google Scholar
  74. Chava, S. (2014): Environmental Externalities and Cost of Capital. Management Science, Vol. 60(9), 2223–2247. https://doi.org/10.1287/mnsc.2013.1863.  Google Scholar
  75. Christensen, D./Serafeim, G./Sikochi, A. (2019): Why is Corporate Virtue in The Eye of The Beholder? The Case of ESG Ratings. Working Paper.  Google Scholar
  76. De Haan, M./Dam, L./Scholtens, Bert (2012): The drivers of the relationship between corporate environmental performance and stock market returns. Journal of Sustainable Finance & Investment, Vol. 2(3–4), 338–375.  Google Scholar
  77. Eccles, R. G./Stroehle, J. (2018): Exploring Social Origins in the Construction of ESG Measures. Working Paper. Advance online publication. https://doi.org/10.2139/ssrn.3212685.  Google Scholar
  78. Edmans, A. (2011): Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics, Vol. 101(3), 621–640. https://doi.org/10.1016/j.jfineco.2011.03.021.  Google Scholar
  79. Fatemi, A./Fooladi, I./Tehranian, H. (2015): Valuation effects of corporate social responsibility. Journal of Banking & Finance, Vol. 59, 182–192. https://doi.org/10.1016/j.jbankfin.2015.04.028.  Google Scholar
  80. Fink, L. (2020): A Fundamental Reshaping of Finance: BlackRock Letter to CEOs. Retrieved from https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter.  Google Scholar
  81. Friede, G./Busch, T./Bassen, A. (2015): ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, Vol. 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917.  Google Scholar
  82. Friedman, M. (2002): Capitalism and freedom: University of Chicago press.  Google Scholar
  83. Gibson, R./Krueger, P./Riand, N./Schmidt, P. S. (2019): ESG rating disagreement and stock returns. Working Paper.  Google Scholar
  84. Görgen, M./Jacob, A./Nerlinger, M. (2021): Get green or die trying? Carbon risk integration into portfolio management. The Journal of Portfolio Management, forthcoming.  Google Scholar
  85. Görgen, M./Jacob, A./Nerlinger, M./Riordan, R./Rohleder, M./Wilkens, M. (2020): Carbon Risk. Working Paper.  Google Scholar
  86. Grewal, J./Riedl, E. J./Serafeim, G. (2019): Market Reaction to Mandatory Nonfinancial Disclosure. Management Science, Vol. 65(7), 3061–3084. https://doi.org/10.1287/mnsc.2018.3099.  Google Scholar
  87. Hartzmark, S. M./Sussman, A. B. (2019): Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows. The Journal of Finance, Vol. 74(6), 2789–2837. https://doi.org/10.1111/jofi.12841.  Google Scholar
  88. Horváthová, E. (2010): Does environmental performance affect financial performance? A meta-analysis. Ecological Economics, Vol. 70(1), 52–59. https://doi.org/10.1016/j.ecolecon.2010.04.004.  Google Scholar
  89. Hussain, N./Rigoni, U./Cavezzali, E. (2018): Does it pay to be sustainable? Looking inside the black box of the relationship between sustainability performance and financial performance. Corporate Social Responsibility and Environmental Management, Vol. 25(6), 1198–1211. https://doi.org/10.1002/csr.1631.  Google Scholar
  90. Keele, D. M./DeHart, S. (2011): Partners of USEPA Climate Leaders: an Event Study on Stock Performance. Business Strategy and the Environment, Vol. 20(8), 485–497. https://doi.org/10.1002/bse.704.  Google Scholar
  91. Kolari, J. W./Pynnönen, S. (2010): Event Study Testing with Cross-sectional Correlation of Abnormal Returns. Review of Financial Studies, Vol. 23(11), 3996–4025. https://doi.org/10.1093/rfs/hhq072.  Google Scholar
  92. Kothari, S. P./Warner, J. B. (2007): Chapter 1 – Econometrics of Event Studies. In Handbook of Empirical Corporate Finance : Handbooks in Finance (pp. 3–36). San Diego: Elsevier. https://doi.org/10.1016/B978-0-444-53265-7.50015-9.  Google Scholar
  93. Kotsantonis, S./Serafeim, G. (2019): Four Things No One Will Tell You About ESG Data. Journal of Applied Corporate Finance, Vol. 31(2), 50–58. https://doi.org/10.1111/jacf.12346.  Google Scholar
  94. Krueger, P. (2015): Corporate goodness and shareholder wealth. Journal of Financial Economics, Vol. 115(2), 304–329. https://doi.org/10.1016/j.jfineco.2014.09.008.  Google Scholar
  95. Li, F./Polychronopoulos, A. (2020): What a Difference an ESG Ratings Provider Makes!  Google Scholar
  96. López, M. V./Garcia, A./Rodriguez, L. (2007): Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index. Journal of Business Ethics, Vol. 75(3), 285–300. https://doi.org/10.1007/s10551-006-9253-8.  Google Scholar
  97. Love, I. (2011): Corporate Governance and Performance around the World: What We Know and What We Don’t. The World Bank Research Observer, Vol. 26(1), 42–70. https://doi.org/10.1093/wbro/lkp030.  Google Scholar
  98. Matsumura, E. M./Prakash, R./Vera-Muñoz, S. C. (2014): Firm-Value Effects of Carbon Emissions and Carbon Disclosures. The Accounting Review, Vol. 89(2), 695–724. https://doi.org/10.2308/accr-50629.  Google Scholar
  99. Molina-Azorín, J. F./Claver-Cortés, E./López-Gamero, M. D./Tarí, J. J. (2009): Green management and financial performance: a literature review. Management Decision, Vol. 47(7), 1080–1100. https://doi.org/10.1108/00251740910978313.  Google Scholar
  100. Monk, A. H. B./Prins, M./Rook, D. (2019): Data Defense in Sustainable Investing. Working Paper. Advance online publication. https://doi.org/10.2139/ssrn.3474072.  Google Scholar
  101. Oberndorfer, U./Schmidt, P./Wagner, M./Ziegler, A. (2013): Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms. Journal of Environmental Economics and Management, Vol. 66(3), 497–509. https://doi.org/10.1016/j.jeem.2013.04.005.  Google Scholar
  102. Porter, M. E. (1991): America s green strategy. Reader in Business and the Environment, 33.  Google Scholar
  103. Porter, M. E./van der Linde, C. (1995): Toward a New Conception of the Environment-Competitiveness Relationship. Journal of Economic Perspectives, Vol. 9(4), 97–118. https://doi.org/10.1257/jep.9.4.97.  Google Scholar
  104. PRI (2019). Principles for Responsible Investment Annual Report.  Google Scholar
  105. Qontigo (2020). DAX® 50 ESG – The New Standard in German ESG Investing.  Google Scholar
  106. Ramelli, S./Wagner, A. F. (2020): Feverish Stock Price Reactions to COVID-19. Working Paper.  Google Scholar
  107. Ramiah, V./Martin, B./Moosa, I. (2013): How does the stock market react to the announcement of green policies? Journal of Banking & Finance, Vol. 37(5), 1747–1758. https://doi.org/10.1016/j.jbankfin.2013.01.012.  Google Scholar
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Abstract

The demand for sustainable investments is growing worldwide. As a result, the DAX 50 ESG was introduced in March 2020 as the first ESG index by the German stock exchange. It is promoted as the new standard for German sustainable investments. We are the first to comprehensively examine the financial and non-financial performance of the index and its constituents. Therefore, we examine the sustainability performance using both ESG criteria and the alignment of products and services with the Sustainable Development Goals. Our results show that the DAX 50 ESG may only to a limited extent be promoted as the most sustainable German index. Moreover, since inception as well as during the COVID-19 crisis, the DAX 50 ESG’s financial performance is comparatively worse. Our findings suggest that stock markets penalize the inclusion of a firm in the DAX 50 ESG in the short run, thus affecting the overall index performance. Our analysis of the DAX 50 ESG further increases investor attention to sustainable financial products and enables better investment decisions.

Table of Contents

Section Title Page Action Price
Martin Nerlinger: Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis 1
Abstract 1
I. Introduction 1
II. Data 5
III. Sustainability Performance 7
1. Conduct Dimension of Sustainability 7
a) ESG 8
b) Environment 9
c) Social 1
d) Governance 1
2. Product Dimension of Sustainability 1
a) Social 1
b) Environmental 1
IV. Financial Performance 1
1. Performance 1
a) Return 1
b) Sharpe Ratio 1
c) Alpha 1
2. Risk 1
a) Standard Deviation 1
b) Market Beta 1
c) Maximum Drawdown 2
3. Factor Exposures 2
4. Financial Performance During the COVID-19 Crisis 2
5. Short-Term Performance Effect of the Inclusion in the DAX 50 ESG 2
V. Conclusion 2
References 2

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