The Implications of Corporate Social Responsibility for Investors

This paper reviews the most important academic studies on CSR and ESG to show where current research on this topic is standing. Along these lines we provide answers to the following questions: What are the effects of superior CSR on corporate financial performance? What are the effects that particular aspects of ESG have on the cost of equity or cost of debt for firms? Does CSR make sense from a strategic management perspective? Are financial markets aware of CSR?

Our compilation of papers on CSR indicates that superior ESG policies are generally related to (1) better operating performance, (2) lower cost of capital, and (3) better stock price performance.

We conclude with an outlook about the future of sustainable investment practices and sketch opportunities for institutional investors to benefit from active ownership.