The Relationship between Firms’ Environmental Performance and Financial Performance: The Case of Turkey

Abstract

In recent years, the number of firms that give importance to environmental problems such as consumption of natural resources, decline in water resources and global warming are increasing. However, the classical view of literature argues that firms’ environmental protection operations decrease the financial performance of them. For that reason, in this study, it is aimed to analyze the relationship between financial performance and environmental performance of the firms. The sample of the study consists of firms listed on Borsa Istanbul 100 index and has a climate change score declared in CDP Turkey Climate Change Report 2015. Climate change score is used for measuring environmental performance. Accounting (Return on Asset) and marketing measures (Market Value/Book Value) are used for measuring financial performance. The relationship between the environmental performance and financial performance of the firms compared with the help of correlation analysis. Findings reveal that there is a positive relation between financial performance and environmental performance. The correlation between market performance and environmental performance is weaker than the correlation between accounting performance and environmental performance. Moreover, multidimensional scaling technique is utilized to cluster the firms in terms of their financial and environmental performance. A map is formed with the help of multidimensional scaling that shows the relative positioning of the sampled firms due to their environmental performance and financial performance.