Industry Risk Moderates the Relation between Environmental and Financial Performance

Natalia Semenova () and Lars Hassel ()
Additional contact information
Natalia Semenova: Åbo Akademi University, http://www.sirp.se
Lars Hassel: Åbo Akademi University and Umeå School of Business, http://www.sirp.se

No 2008/2, Sustainable Investment and Corporate Governance Working Papers from Sustainable Investment Research Platform

Abstract: This study extends previous research on the relation between different measures of environmental and financial performance by introducing moderating effects of inherent environmental industry risk. We provide empirical evidence from the MSCI World Index U.S. companies by using the GES Investment Services® risk rating for the period 2003-2006. The inherent environmental industry risk has a significant moderating effect on the form of the relation between environmental preparedness/performance and operating performance of the companies. In high risk or polluting industries, environmental management is costly and reduces the operating performance of companies. In low risk sectors, such as banking and insurance, leading companies on environmental management are also more profitable. The paper makes a distinction between the reputational benefits of environmental preparedness and the operational gains of environmental performance when studying the effects on market value. A significant direct effect of environmental preparedness on the market value of the companies is present, while the relation between environmental performance and market value is stronger in low risk industries than in high risk industries. In low risk industries, the market value of the companies is also on average higher and more attuned to benefits to environmental performance than in high risk industries.

Keywords: Environmental risk and opportunity; financial performance; return on assets; Tobin’s Q; panel data analysis (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-09-16
New Economics Papers: this item is included in nep-agr and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhb:sicgwp:2008_002

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