Investigating the Sheltering Effect of Sustainability Indices During the Coronavirus Crash

Abstract

This study aims to demonstrate that making sustainability investments benefits a firm not just in terms of enhanced investor trust and visibility, but also in terms of providing a safe haven for them during difficult times. For this purpose, the abnormal returns of the companies which are listed in the Sustainability Index of Borsa Istanbul are compared with the rest of the companies during the “Coronavirus crash” which took hold of every financial market in the world. To determine if the businesses represented by the BIST SI are less impacted by the Covid-19 crash than the rest, an independent samples t-test is used. The primary approach used is event study methodology, where the LNV test for the BIST100 index is applied to confirm the impact of the "event" in question. Findings show that, like other financial markets, Borsa Istanbul had a price drop in March 2020. Also, it was observed that inclusion in the Sustainability Index reduced average loss. This implies that it is reasonable to make sustainable investments and, as a result, to be included in the sustainability indexes, as inclusion has been found to be particularly helpful in reducing loss during crisis times.