Revisiting the association between environmental performance and financial performance: Does the level of environmental orientation matter?

Abstract

In this study, we re-examine the nexus of environmental performance and financial performance by benchmarking firms relative to their industry peers based on environmental performance in a given year to identify best-in-class and worst-in-class firms. After correcting for distributional issues while using environmental performance scores (i.e., clustering scores around the median and material differences within industries and time) and financial performance ratios (i.e., the potential impact of extreme values), we find that best-in-class firms exhibit higher financial performance than their industry peers (i.e., worst-in-class and average firms). Our findings are robust to alternative measures of environmental performance (i.e., subdimensions of environmental performance) and financial performance. Finally, our results are robust to different identification strategies. Our findings present important and timely policy implications for firms, ESG fund managers and investors.

Corporate environmental information disclosure and green innovation: The moderating effect of CEO visibility

“…As enterprises with stronger innovation capabilities tend to have better operating performance than those with weaker innovation capabilities, they may be more inclined to disclose environmental information, leading to the endogeneity problem caused by reverse causality (Wooldridge, 2010). Therefore, to address potential endogeneity, in line with Choi et al (2021), Gull, Saeed, et al (2022), and Zubair et al (2020), this study uses the two‐stage least squares method (2SLS) to verify Model (1). 2SLS requires that the selected instrumental variables be strongly correlated with the independent variable and not correlated with the residual error terms (Boubakri & Ghouma, 2010).…”

“…For example, certain industries may engage in substantive green innovation to actually improve environmental issues, while others may choose to innovate strategically because they face environmental legality issues (Zhong et al, 2022). Similar to previous studies (Gull, Saeed, et al, 2022; Long et al, 2020), year effects are also included in our model. Variable definitions are shown in Table 1.…”

The impact of social responsibility on corporate financial performance in the energy sector: Evidence from Lithuania

“…To implement CSR, companies need to make decisions that can affect their CFP. The authors (Barauskaitė & Štreimikienė, 2012; Galant & Cades, 2017; Gull et al, 2022; Gupta & Das, 2022) describe the relationship between CSR and CFP in the following terms: a positive relationship indicates that socially responsible activities increase profitability. The opposite view is that CSR leads to higher costs and worse profitability.…”

Environmental, social, governance disclosure and corporate sustainable growth: Evidence from China

“…With the increase in national environmental management in recent years, environmentally sensitive industries are facing more stringent environmental regulation, and disclosure of relevant ESG information not only fails to attract stakeholders, but also may bring about a "greenwashing", which in turn is not significant for corporate sustainable growth (Ren et al, 2022). Consistent with the findings of Gull et al (2022), the best-in class companies in environmental performance have higher financial performance compared to the worst and average companies in their category.…”