Thesis (MBA)--Stellenbosch University, 2011. / Corporate environmental responsibility has engaged the attention of academics, practitioners and
environmentalists for some time, creating pressure for companies to conduct business in an
environmentally greener manner. To find economic support for such conduct by South African
companies, this study aims to investigate whether superior environmental performance by South
African listed companies leads to superior financial performance.
A review of related literature identified significant diversity in research approach and methodology
as well as environmental and financial performance measures employed and therefore also in the
results obtained. Given the continuing emergence of climate change as a material issue for
business, this study utilised South African Carbon Disclosure Leadership Index (CDLI SA) ratings
as proxy for South African companies’ environmental performance. The infancy of the Carbon
Disclosure Project in South Africa does result in some data limitations which necessitated a
portfolio approach to address the research question. This approach, however, prevented explicit
consideration or judgement on the direction of causality between environmental and financial
variables. The environmental performance data limitations and the resulting need for some
assumptions resulted in this study being explorative in nature.
Using CDLI SA ratings as distinguishing environmental performance characteristic, industrymatching,
mutually-exclusive stock portfolios were constructed. Relative portfolio performance was
measured with reference to the Sharpe and Treynor ratios and a simple statistical test.
Considering the three years 2008 to 2010, the Sharpe and Treynor ratios for Environmental
Leaders and Laggards portfolios did not clearly identify either Environmental Leaders or
Environmental Laggards as superior financial performers and results also varied across industries.
There appears to be some trend emerging which sees Environmental Leaders outperforming
Environmental Laggards in more recent years for some industries, however, the short time frame
under consideration provided insufficient support for such conclusion. Statistical means testing
concluded that the mean returns of Environmental Leaders and Environmental Laggards are
similar.
Sensitivity analysis performed on the Financials sector indicated that the Sharpe and Treynor
ratios are sensitive to portfolio construction. Despite this sensitivity, statistical means testing
consistently found little evidence to infer that the mean returns of Environmental Leaders portfolios
are either higher or lower than that of Environmental Laggards portfolios.
It is suggested that the similar performance of the Environmental Leaders and Environmental
Laggards portfolios may be attributed to the use of an environmental performance measure unable
to sufficiently distinguish between environmental leaders and environmental laggards. Another
interpretation of the results could be that investors consider disclosure-based environmental
performance measures as unreliable, or less reliable as compared with outcome-based or combined measures. Finally, it may be that investors’ expectations have not yet been adjusted to
reflect the fact that climate change constitutes a materiality issue for business in the long run,
which will require companies to actively manage carbon risks.
Although there exists voluminous international research on the topic of this study, South African
research in this regard is restricted. This study adds to the existing body of South African specific
research, but is only explorative in nature; therefore areas for future research have been
recommended.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/80774 |
| Date | 12 1900 |
| Creators | Mcleod, Michelle |
| Contributors | Volschenk, J., Stellenbosch University. Faculty of Economic and Management Sciences. Graduate School of Business. |
| Publisher | Stellenbosch : Stellenbosch University |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | English |
| Type | Thesis |
| Format | xiv, 89 p. : col. ill. |
| Rights | Stellenbosch University |
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