Environmental Concerns and Financial Performance: Evidence from the EU Regulatory Framework

Abstract

We analyze the impact of carbon and greenhouse gas emissions on firms’ accounting and market performance. Over a sample of 115 non-financial firms from 9 European countries during the 2008-2016 period, our results suggest that higher volume of both country-level carbon and greenhouse emissions have, on average, a positive and statistically significant impact on firms’ accounting performance. However, no statistical effect is found in terms of stock market performance. The results are more relevant in the case of firms with higher levels of equity and higher levels of intangible assets. We document the existence of an inverse U-shaped relation between country-level greenhouse emissions and firms’ performance suggesting that, after a certain point, greenhouse gas emissions negatively affect firms’ performance. Our results are robust to different estimation technics and control variables, to the consideration of the financial crisis period, and to the inclusion of financial firms in the sample.