The Relationship Between CSP and CFP Across Industries in the US

Lukas Horn & Oliver Egger

Student thesis: Master thesis


This research investigates whether differences in the relationship between corporate social performance (CSP) and corporate financial performance (CFP) across industries explain disparities in the performance of SRI stock portfolios and their respective benchmarks. The continuous debates concerning the circumstances that lead to a distinguishable relationship between CSP and CFP, have not yielded consensus yet. We argue, in line with the literature, that CSP does not guarantee a shareholder value maximization outcome. Academic literature hints at differences across industries regarding key stakeholder needs and reputational effects; therefore, firms pursue different CSP strategies. This, in turn, leads to different relationships between CSP and CFP being observed between industries. To test this, we constructed 1638 capitalization-weighted portfolios across nine industries for the time period 2005-2018. These SRI portfolios are built using ESG, E, S, and G scores and three screening levels (40%, 60%, and 80%). By comparing the SRI portfolios to their respective benchmarks, we evaluate the relationship between CSP and CFP in different industries based on their alphas and risk-return profiles. Our findings support our hypothesis, as we find that different CSP and CFP relationships can be observed across industries. With respect to realized alphas, our empirical evidence indicates that a positive relationship can be observed in one industry, while four industries exhibit a negative relationship, one industry indicates no relationship, and three industries show mixed findings. Regarding the risk-return profiles across the industries, three exhibit a positive relationship, while four indicate a negative relationship, two indicate mixed findings.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2020
Number of pages115
SupervisorsSøren Plesner