Assessing the greenness effort for European firms

Abstract

PurposeThe purpose of this study is twofold: first, to explore whether a linkage between environmental effects and financial performance exists; and second, to investigate whether firms displaying more environmental effort show a more significantly positive relationship between environmental performance and financial performance than those displaying less green effort.Design/methodology/approachThe study adopts correlation analysis of a sample comprising of 51 European companies from 14 industries across 15 countries to investigate the possible relationship between firm environmental performance (including three measures: sustainable value, sustainable value margin, and return to cost ratio) and financial performance.FindingsThe paper does not find a positive relationship between firm environmental performance and financial performance. Both the Pearson correlations and Spearman's rho are statistically insignificant for both the full sample and the carbon‐intensive sectors. When the lag effect on firm financial performance is considered, the result remains the same. The result suggests that corporate good guys in Europe do not necessarily reap the rewards of their green effort.Research limitations/implicationsFuture research may investigate the relationship between firm environmental efforts and financial performance across industries with different technologies and product life cycles, or industries with similar pollutions/emissions or usage pattern of natural resources, such as the petroleum industry and the transportation industry.Practical implicationsAlthough it was not possible to find a positive association between environmental performance and financial performance, still, being perceived as a green company may improve a company's image and reputation, thus attracting more talented workers and green‐conscious customers.Originality/valueThe paper provides a new perspective on the relationship between firm environmental performance and financial performance in monetary terms by taking a broader view at the environmental outcomes. While past studies only measure firm environmental performance based on damaging impacts to the environment, the research also considers the efficiency of resource use by the firm.