The impact of toxic chemical releases and their management on financial performance

Abstract

This paper examines the extent to which environmental performance affects firm profitability, where environmental performance is measured by toxic chemical releases per sales dollar and toxic chemical management (treat, recycle, or recovery) per sales dollar. Conclusions are drawn based on a sample of U.S.-based publicly-traded companies that reported to the Environmental Protection Agency's Toxics Release Inventory (TRI) program between 2001 and 2017. The results show that publicly-traded companies that reduce emissions see an increase in their Tobin's q. In addition, the effects of reducing emissions, treating toxic chemicals to minimize their environmental impact, or combusting toxic chemicals for energy, are more significant for companies that consistently fall under the mandatory reporting requirements of the TRI program. However, recycling toxic chemicals is associated with negative financial consequences for these companies.