The role of size effects in moderating the benefits of sustainable investing

Using an extensive sample of environmental, social, and governance (ESG) ratings, we reexamine the corporate social responsibility (CSR) factor premium in developed equity markets between 2007 2019 show that its extent is contingent upon size effects. Consistent with novel market equilibrium, contend exponential growth socially responsible investment (SRI) has rendered risk-adjusted returns large CSR-leading firms line or even below their lagging counterparts. In neglected effect, greater segmentation, lower efficiency, investor awareness CSR enable us to observe former equilibrium smaller corporation partition, where CSR-lagging exhibit than leading ones. We thus theorize a two-stage CSP–CFP relationship, effects are considered relevant moderator. This contention robust portfolio panel regression settings. However, our partly contradicting results existent literature emphasize divergence ESG ratings across rating agencies. JEL Classification M14; G11; G15