Does the market reward for going green?

Abstract

The purpose of this paper is to investigate the effects of the application of green standards on the companies’ financial returns. It aims at answering the following question: does the market reward or penalize the players that carry out responsible management policies toward environment? Using US data from 2009 to mid-2014 and employing two financial models, that is Capital Asset Pricing Model and Fama-French three-factor model, we first estimate the extra remuneration provided to investors. Then, we link this extra return to a green-based factor. The green-factor data are taken from Newsweek Green Rankings, which annually publishes an environmental ranking of the 500 biggest publicly traded companies in the USA. The analysis demonstrates that there exists no linear relationship between the adoption of green standards and financial returns, i.e. the “green-behavior” does not affect the remuneration required by investors. These results could be justified by the fact that the implementation of\ud environmentally friendly standards is quite a new one

Manager’s Dilemma: Stockholders’ and Consumers’ Responses to Corporate Environmental Efforts

“…Several academics have investigated firms' environmental efforts and examined their consequences from either the investors' perspective or consumers' perspective [3][4][5][6][7][8][9]. This study suggests that different stakeholders may have different environmental preferences, and stockholders and consumers, who represent two different groups of stakeholders, may respond differently to firms' environmental initiatives.…”

“…Puopolo et al [9] study Newsweek's green indicators on financial returns and demonstrate no linear relationship between adoption of green standards and financial returns, suggesting the implementation of environmentally-friendly standards a new phenomenon that investors have yet to acquire enough awareness to react in the stock market. A review of several prior studies indicates conflicting and inconclusive findings for the relationship between firms' social initiatives and their financial performances [31][32][33].…”

“…Academia has indicated an increasing interest in the sustainable development of firms, which has produced several studies that investigate the effects of corporate environmental efforts. While examining the economic repercussions of corporate environmental efforts, focus has been limited to the evaluation of either consumers' responses or stockholders' expectations of corporate social activities [3][4][5][6][7][8][9]. Consumers' and stockholders' perceptions of an environmental strategy may vary greatly depending on their behavior, attitude, trust, exposure, and so on, and as such, it may yield inconsistent results [10,11].…”

The Drivers of Green Investment: A Bibliometric and Systematic Review

“…Public opinion tends to have a positive effect on the growth of green investment [33]. Consumers' growing desire for "green" is highlighted by the growing demand for organic products and goods in recent years, despite the difficult financial situation [34,35]. Supplier pressure represents another significant factor that influences companies to adopt green initiatives, through their option to supply materials only to "green" organizations.…”

“…Hence, the manufacturers that choose to invest in environmentally sound technologies benefit from an entirely revamped production process and, therefore, experience a significant decrease in the energy consumption, packaging weight of products, transportation cost, and the overall production cost [69]. Consequently, in the long-term, these manufacturers obtain economic advantages such as increased corporate income and profits, superior financial and economic performance, and "financial value creation, expressed in terms of medium-and long-term stock returns" [35]. Moreover, companies that invest more resources and have the necessary capabilities to manage the impact of their activity on the environment but also comply with all environmental rules and regulations, obviously create a reputation and a considerably higher financial value in the medium and long-term [70].…”