Environmental Performance and Risk of European Firms

Jean-Michel Sahut, Eric Braune, Lubica Hikkerova and Léopold Djoutsa Wamba
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Jean-Michel Sahut: IDRAC Business School, France
Eric Braune: INSECC Business School, France
Lubica Hikkerova: IPAG Business School, France
Léopold Djoutsa Wamba: University of Dschang, Cameroon

Journal of Applied Management and Investments, 2020, vol. 9, issue 2, 85-104

Abstract: The objective of this study is to examine the relationship between environmental performance and the systematic risk of companies. Using a sample of 351 European listed companies over 2007-2015, the authors applied the technique of principal components analysis to calculate a synthetic global index of the environmental performance of companies using 71 evaluation criteria suggested by the ASSET4 database. Using this same approach, the authors calculated the sub-indices of the global index using the following dimensions suggested by ASSET4: the reduction of emissions, product innovation and the reduction of resource usage. To test the relationship between these variables and risk, he authors applied panel data regression techniques. It was found that the synthetic global index of environmental performance negatively affects the risk of the company. The decomposition of this global index into three sub-indices showed that the sub-indices related to the reduction of environmental emissions and the reduction of resource usage make it possible to significantly reduce systemic risk, whereas the sub-index related to product innovation has a rather moderate effect. Thus, environmental performance, just like governance can be considered as an insurance mechanism for the company that reduces the probability of occurrence of events, which negatively affect its cash-flow and the risk faced by investors.

Keywords: environmental performance; reduction of emissions; product innovation; resource usage; systematic risk (search for similar items in EconPapers)
JEL-codes: C21 O44 Q56 (search for similar items in EconPapers)
Date: 2020
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