Measuring risk in environmental finance

University of Western Australia, Perth City, Western Australia, Australia
Journal of Economic Surveys (Impact Factor: 1.33). 12/2007; 21(5):970-998. DOI: 10.1111/j.1467-6419.2007.00526.x
Source: RePEc


Environmental sustainability indices, such as the Dow Jones Sustainability Indexes and the Ethibel Sustainability Index, quantify the development and promotion of sustainable social, ethical and environmental values in the community. Moreover, such indices provide a benchmark for managing sustainability portfolios, and developing financial products and services that are linked to sustainable economic, environmental, social and ethical criteria. This paper reviews the existing data and risk indices in environmental finance. The main purpose of the paper is to analyse existing sustainability and ethical indices in environmental finance, and evaluate empirical environmental risk by estimating conditional volatility clustering that is inherent in these indices. Financial volatility models are estimated to analyse the underlying conditional volatility or time-varying risk that is inherent in alternative environmental sustainability indices. Volatility clustering is observed for most series, but some extreme observations are also evident. The log- and second-moment conditions suggest that valid inferences can be drawn for purposes of sensible empirical analysis. Copyright 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Ltd.

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Available from: Suhejla Hoti
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    • "Hoti et al. (2008) used the Vector ARMA‐GARCH model found that the DJSI index and the Ethibel sustainability index gave rise to spillover effect, while the only spillover effect from the Dow Jones Industrial Average to the DJSI returns was found. Hoti et al. (2007) found that five sustainability and ethical index exhibited co‐national volatility clustering and asymmetric volatility effects by using GARCH models. Obernadorfer et al. (2013) used the event study and t‐GARCH(1.1) "

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    • "In Brazil, the same study indicated that investors would pay 24% more for stocks of companies with such profile (Cavalcante et al., 2007). One explanation for such growth has been presented by Hoti et al. (2007): despite having average returns similar to those of conventional funds, the sustainability indexes are less volatile and more secure for investors during periods of economic turbulence. Nonetheless, as Capelle-Blancard and Monjon (2012) pointed out, these elements alone do not explain the exponential growth and popularity of SRI in the past decade. "
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    ABSTRACT: In the past decade, indicators have been created to assess the sustainability performance of companies listed in stock exchange markets. Academics and practitioners expect companies to benefit from being listed in such indexes, but evidence of value creation is still scarce. Since virtually all studies about the Corporate Sustainability Index (ISE) of the Sao Paulo Stock Exchange (Brazil) e the object of the present study e focused on the value of shares, we initially looked for answers in the finance theory. We collected secondary data about the financial and economic performance of companies forming the ISE's ‘theoretical portfolio’, as these kinds of indexes are also known. In a second stage, we sought additional motivations for companies to make efforts to be listed in the index. We collected additional data and interviewed representatives of key companies listed in the ISE, as well as industry leaders who chose not to participate in the selection process. The results support the main propositions of the institutional theory, as well as the ‘pays to be green’ literature e that the intangible value created by voluntary environmental initiatives, such as access to knowledge, new capabilities and reputational gain, better explain the efforts companies make to be listed in the ISE index.
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    • "With government support, financial institutions from developed countries have created many green financial products such as "green loan", "green securities", "green insurance" and so on, to satisfy market demand. Most of these green products adopt the "Equator Principles (EPs)" standards to improve management of environmental and social risks [12]. By supplying green products to enterprises promoting energy saving and pollution reduction, the financial institutions not only fulfill their social responsibility, but also share long-term economic benefits of a low carbon economy. "
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