Responsible investing – is it worth it? A comparison of South African and United States stock markets

Abstract

In recent years, companies have been pushed towards good corporate citizenship. Consequently, responsible investment-driven capital allocation strategies have emerged as investors seek favourable sustainability exposure in their portfolios by increasingly applying non-financial factors to screen investments. However, the question of whether it is worth it in terms of risk and returns remains largely unanswered due to the mixed evidence and theoretical predictions. Accordingly, in this study, the performance of the FTSE/JSE Responsible Investment Index (RSI 113) was compared to the performance of the FTSE/JSE All Share Index (J203) in terms of returns and volatility in a GARCH framework. The comparison was extended to include the S&P 500 and S&P 500 ESG indices. The results show that there is a case to be made for responsible investment in South Africa but less so in the American market. These findings have significant implications for investors, companies and policymakers alike.

Keywords: ESG; Responsible Investing, GARCH; South Africa; United States