The determinants of environmental performance and its effect on the financial performance of European-listed companies

Abstract

This study seeks to identify the factors that can simultaneously improve the environmental and financial performance of a company and determine if an improvement in the environmental performance of a company is accompanied by an improvement in its financial performance. We estimate a system of structural equations using the partial least squares approach applied to data on 351 large European-registered companies extracted from the ASSET4-Environmental, Social, and Governance database for the 2007–2015 period. The results show that the engagement of a company in environmental protection is significantly affected by the system of governance of the company and the availability of financial resources at the 1 and 5% levels, respectively. The results also show that engaging in environmental protection increases the accounting and stock exchange performance of companies. These results thus suggest that the protection of the ecosystem by companies leads to a paradigm, which can form the basis of a model of responsible governance whose goal is to create value while respecting environmental factors.