Socially Responsible Investing: The Robustness of the Materiality Anomaly

Abstract

In this paper we investigate the nancial performance implications of rms' commitment to sustainability e orts. We evaluate three possible explanations for the abnormal returns identi ed in portfolios constructed on the basis of material CSR-scores; traditional risk factors, an underlying "saint" factor, or asymmetric market information prior to materiality considerations becoming publicly available. We nd that abnormal returns only occur in portfolios based on sector adjusted material score change, and these returns can be fully accounted for by common risk factors, speci cally the Fama and French (2015) ve-factor model. Our results suggest that the risk-adjusted performance of rms highly committed to sustainability measures is insigni cantly di erent from rms less committed to social responsibility, regardless of materiality classi- cations used to evaluate CSR performance.