While corporate sustainability has been defined as an approach that creates long-term value with minimum environmental damage, there is still little understanding of the time horizon over which improved environmental performance leads to improved financial performance. We investigate the relationship between environmental and financial performance under increasing likelihood of environmental regulation. We leverage longitudinal data for 1,095 U.S. corporations from 2004 to 2008, a period of increasing activity for climate change legislation, in order to estimate the effect of greenhouse gas emissions on short- and long-term measures of financial performance. We find that during this period, improving corporate environmental performance causes a decline in an indicator of short-term financial performance, return on assets. Nonetheless, investors see the potential long-term value of improved environmental performance, manifested by an increase in Tobin’s q. These results suggest that limited uptake of proactive strategies may in part be attributable to short-term financial performance targets that guide managerial decision making.

In 2013, the energy and natural resources sector spent $359 million lobbying. Such spending is largely perceived as a strategy by industry to oppose regulation. Research has barely begun to investigate how firm-level performance on salient political issues affects corporate political strategy. In this paper, we address this issue in the context of the recent climate change policy debate in the United States. We hypothesize a U-shaped relationship between greenhouse gas (GHG) emissions and lobbying expenditures. To test our hypothesis, our study leverages novel data on firm-level GHG emissions and lobbying expenses aimed specifically at climate change legislation. Our results based on 3,194 firm-observations during a 4 year-period, suggest that both dirty and clean firms are active in lobbying, which challenges the view of adversarial corporate strategy.

Ecolabels are part of a new wave of environmental policy that emphasizes information disclosure as a tool to induce environmentally friendly behavior by both firms and consumers. Little consensus exists as to whether ecocertified products are actually better than their conventional counterparts. This study seeks to understand the link between ecocertification and product quality. We use data from three leading wine-rating publications (the Wine Advocate, Wine Enthusiast, and Wine Spectator) to assess quality for 74,148 wines produced in California between 1998 and 2009. Our results indicate that ecocertification is associated with a statistically significant increase in wine quality rating. Being ecocertified increases the scaled score of the wine by 4.1 points on average. (JEL Classifications: L15, L66, Q13, Q21, Q56)

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