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date: 30 November 2020

Abstract and Keywords

This article analyzes theoretical studies on environmentally responsible investing, empirical studies on investor behavior, and evidence on the returns of environmentally screened investments. It also explains the implications of the values-driven and profit-seeking movements for practitioners and researchers. Values-driven investors can affect the functioning of financial markets, and ultimately persuade firms to be environmentally more responsible. It then addresses the empirical questions on the effect of values-driven investors on capital costs and stock returns. Investors in the financial market could be surprised about the value-relevance of certain information about corporate environmental performance. Recent research concludes that values-driven and profit-seeking investors co-exist. It is noted that investors fully anticipate the negative effects of poor environmental performance on firms' future cash flows, but not fully the potentially positive effects linked with strong environmental performance. It is concluded that environmentally responsible investing attracts both values-driven investors and profit-seeking investors.

Keywords: values-driven investors, profit-seeking investors, investor behavior, financial markets, capital costs, stock returns, environmentally responsible investing

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