Is it really paid for sustainable development? The economic significance of firms' green practice

Chang Liu and Bowen Deng

Sustainable Development, 2023, vol. 31, issue 2, 908-925

Abstract: Firm's green practices and sustainable development strategies are considered to have controversial impacts on its economic performance. Exploring the precise relationship between them can provide a theoretical dimension to the long‐term development of firms and the achievement of national sustainable development goals (SDGs). In this study, the authors apply the recently developed methods to test the economic significance of Chinese firms' sustainable strategies. Specifically, the authors first adopted the ESG score constructed for corporate environmental sustainability management (ESGEnv) as a proxy variable for corporate sustainability strategies and the firms' stock returns as a proxy for corporate economic effects to investigate the economic significance of firms' strategies for sustainable development. The study then confirmed that there has a positive relationship between ESGEnv and the future stock return of firms in general. Finally, the study concluded that ESGEnv can be explained by stochastic volatility, jump risk, short selling restrictions, and arbitrage risk. Furthermore, the robustness tests based on subsample and scenario grouping analysis confirmed the inconsistency in the relationship between the economic returns for the firms and the firms' green practices based their sustainable development strategies. As a result, the study contributed the literatures by clarifying the circumstances in which the firms' sustainable development strategies do have positive impacts on their economic benefits and also by providing the academy even more fuel to the already fierce debates over the firms' economic significances because of their green practices

Date: 2023
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https://doi.org/10.1002/sd.2429

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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:31:y:2023:i:2:p:908-925

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