6 Conclusion
CSR is a phenomenon of growing relevance in contemporary global markets. On the one hand, CSR implies a shift of focus from straightforward profit maximization to the satisfaction of interests of a wider range of stakeholders. On the other hand, by doing so it reduces the risk of conflict with stakeholders. The importance of CSR in contemporary economics is confirmed by the increasing value of assets under management that use SRI standards. A possible explanation for this upward trend (other than changes in investors’ tastes) is that, firms with high CSR scores exhibit more favorable risk characteristics. Even though it is still an open question whether and to what extent responsible investments are able to generate significantly different risk-adjusted returns, they can be used to reduce the exposure to stakeholder risk.
We add to the existing literature on SRI in three ways. Specifically, we test i) whether portfolios of firms with different scores in the various CSR domains present pricing anomalies that can be captured by introducing risk factors that account for exposure to stakeholder risk, ii) whether this risk source is priced in the cross-section of stock returns. Additionally, we conduct our analysis at the disaggregated CSR domain level by introducing domain-specific CSR test portfolios and risk factors.
