Responsible Investing can Provide Excess Returns in Global Equity Markets

The theme of responsible investing is gaining popularity among both academicians and practitioners. Economic stability and social well-being of future generations depends largely upon where we invest our capital and how we ensure that such capital is used in the best interest of all the stakeholders as well as in the protection or minimum destruction to the environment which nourishes us all. In this paper, we have hypothesized that such investments can generate better return that other investments, since companies which care about these aspects have better environmental practices, social policies and sound corporate governance (ESG spectrum). Our results show that investments in global equities can help investors achieve significantly higher excess return if they consider investing within the ESG spectrum. The study indicates, investors can generate excess return (Alpha) if they invest in companies which are voluntarily adopting environmental sustainability, socially oriented policies and sound governance practices than in companies that do not.