YieldCo's as Socially Responsible Investment Vehicles

Johnson, Daniel

Publication

YieldCo's as Socially Responsible Investment Vehicles

Johnson, Daniel

Date

2015

Additional date(s)

2015-05-01

Abstract

This study examines how YieldCo's fit within a socially responsible investment strategy and tests the validity of a long YieldCo, short parent sponsor hedge strategy. Three tests were utilized: first, YieldCo's were compared to their parent sponsor using cumulative historical (dividend-reinvested) returns. Second, the daily returns Yieldco's were compared to the daily returns of three major SRI indicies in order to derive abnormal returns. Finally, a hedge strategy involving going long a YieldCo and shorting its respective parent sponsor. On average, each YieldCo outperformed its parent by 23% from the date of IPO (31% annualized). YieldCos have outperformed the three major sustainabilty indicies. Additionally, on average, the hedged YieldCo strategy generated a positive alpha of 0.128% above the S&P 500 and a historical beta of (0.525) with a below 0.05 level of significant (p value). The implications of using YieldCos as socially responsible investments is discussed.