Sustainable Consumption and Production, Climate Change and Firm Performance

Abstract

This article proposes and finds evidence of correlations between a company’s environmental, social, and corporate governance (ESG) score and its sustainable consumption and production and climate change initiatives. Additionally, aligned with the natural resource–based view, the authors hypothesize a positive relationship among sustainable consumption and production, climate action, and company performance. Using Trucost environmental and Paris alignment data, we find that a company’s overall ESG score is aligned with its sustainable consumption production and climate action. The environmental score is aligned, but social and governance scores are negatively related (not aligned) with a company’s sustainable consumption and production and climate action. Additionally, companies’ sustainable consumption and production and climate action offer 0.3%—0.8% annualized excess stock returns and 12.5%—20% higher return on assets (ROA) for a 1% increase in companies’ ability to meet these goals. This article provides insights for asset managers relying on ESG for investment selection and corporate managers attempting to improve their ESG score.