Doctor Leïla Kamara (DBA Paris 6)
2024 Managerial Impact Prize 2024
Business Science Institute
Introduction
International regulations have continued to evolve, from the United Nations Framework Convention on Climate Change (1992) to the Paris Agreement (2016), yet the objective of reducing greenhouse gas emissions remains the same. Individuals, companies, and nations are increasingly mobilized to maintain global temperatures at 1.5°C. In this context, investors are prompted to rethink their investment models. So, what model do I propose?
Research impact(s)
The objective of my research is to address the credibility of socially responsible investments (SRI), which are often criticized by the public. The focus was to verify whether these investments genuinely generate a positive environmental impact while maintaining their financial profitability. The results indicate that the environmental performance of listed polluting companies can be positively affected in terms of CO2 emissions and resource management, as these components are increasingly subject to strict regulations and oversight. However, the impact on environmental innovation remains strongly negative, as this aspect is neither regulated nor a criterion for obtaining the SRI label.
Regarding financial returns, the stock market performance of invested polluting companies is also negatively affected, reflecting the reluctance of responsible investors to engage with these firms. Indeed, asset management companies are mobilizing through various initiatives to demonstrate their commitment to achieving the goals set by the Paris Agreement, thereby disengaging from polluting companies. For instance, the Net Zero Asset Managers Initiative, established in 2020, already includes over 300 asset management companies worldwide, including BlackRock, Amundi, and Nomura. Collectively, they represent $57.5 trillion in assets by 2024, committed to prioritizing investments in non-polluting companies, often at the expense of others. Given the significant economic risks associated with this transition, it has become essential to consider an investment model that supports polluting companies rather than abandoning them.
I propose creating an alternative diversified portfolio that combines investments in listed polluting companies implementing a proven ‘best effort’ strategy in environmental innovation. These companies will be selected based on criteria such as the urgency of climate change and the maturity of innovation within their respective markets. Additionally, the portfolio will include investments in unlisted companies (start-ups) whose core business focuses on environmental innovation, particularly in electricity generation solutions.
Research Foundations
The foundation of my study is structured around three key theories. First is Baron’s (2001) “Strategic CSR” approach, which asserts that a company can create a competitive advantage through its corporate social responsibility (CSR) strategy. This perspective led me to investigate how a 'polluting' company could differentiate itself to remain attractive in the financial market. Second is Vogel’s (2005) “Business Case for Corporate Social Responsibility,” which posits that a company can succeed not only through its core business but also by being responsible in its operations. This guided my exploration of environmental innovation and the potential benefits a company could derive from integrating it into its core development strategy. Finally, Doran's (1981) 'SMART' approach, which defines goals as Specific, Measurable, Achievable, Realistic, and Time-bound, was instrumental in structuring the proposed portfolio and defining its objectives.
Research Methodology
The methodological framework is based on a hypothetico-deductive approach, featuring a literature review centered on three themes that identify the relationships between socially responsible investment (SRI), environmental performance, and financial performance, leading to the formulation of three hypotheses. Given that impact measurement is an understudied topic, as noted by several authors such as Margolis et al. (2009) and Arjaliès et al. (2020), a fourth hypothesis emerged, proposing that SRI plays a moderating role in the relationship between environmental performance and the financial performance of the invested company. The empirical study involved conducting simple linear regressions and Seemingly Unrelated Regressions (SURE) on these four hypotheses using the STATA software tool, based on a sample of 21 funds selected through a non-probabilistic quota methodology over a three-year period, resulting in 279 observations.
Further reading
Arjaliès, D.-L., Bouchet, V., Crifo, P., & Mottis, N. (2020). La mesure d’impact et l’investissement socialement responsable (ISR) : Un tour d’horizon. In E. Tchotourian, L. Bres, & L. Geelhand de Merxem (Eds.), Zone frontières et entreprise socialement responsable – Perspective multiple : droit, administration et éthique (pp. xx-xx). Yvon Blais (Canada) & Mare.
Chevalier, F., & Kalika, M. (2023). Research in Sustainability. EMS. (Chapter 22: Socially responsible investment: the imbroglio of European regulatory changes by Leïla Kamara)
Radhouane, I., Nekhili, M., Nagati, H., & Paché, G. (2018). The impact of corporate environmental reporting on customer-related performance and market value. Management Decision, 56(7), 1630-1659. https://doi.org/10.1108/MD-01-2018-0040
Ferrari, O. (2021). Collection of articles published in l'AGEFI | Spécial COP26. Published 23 November 2021.
Key words: Socially responsible investment (SRI), sustainable investment, environmental performance, financial performance, corporate social responsibility (CSR).