Energy Firms Research Articles

Corporate Social Responsibility, Financial Materiality, and the Challenges of Forced Migration

Forced migration is a critical social challenge of our time. Corporate responses to social challenges of this magnitude have inspired a growing body of literature in management and strategy. In particular, prior work has investigated companies’ responses based on specific CSR policies with high financial materiality––e.g., energy firms’ policy commitments to climate change mitigation. However, the literature has yet to understand whether and how exposure to a social challenge influences the composition of a firm’s portfolio of CSR policies, comprising both more and less financially material actions and distinct social dimensions. To address this question, this paper studies the challenges of forced migration to Europe. We propose a novel empirical strategy leveraging headquarter proximity to tragic refugee incidents as a source of variation in the salience of forced migration as perceived by companies. Employing a phenomenological approach, we show that firms more exposed to forced migration adjust their portfolios of social CSR policies by progressively increasing the adoption of less material policies, vis-à-vis more material actions. In line with the argument that firms may see such responses as a means to strengthen their ties to nonfinancial stakeholders, we then show that responses are driven by firms with higher pre-existing social performance who, according to the literature, are more prone to use CSR to manage stakeholder relationships. Finally, we also show that firms’ responses are concentrated on dimensions related to employees and communities. Our paper contributes to literatures on corporate responses to social challenges, strategic CSR, and financial materiality.

Corrigendum to “Evaluating value requirement for Industrial Product-Service System in circular economy for wind power-based renewable energy firms” [J. Clean. Prod. 340 (2022) 130689

Corrigendum to “Evaluating value requirement for Industrial Product-Service System in circular economy for wind power-based renewable energy firms” [J. Clean. Prod. 340 (2022) 130689

Understanding the investment of renewable energy firms in the face of economic policy uncertainty – Micro-evidence from listed companies in China

With the development of renewable energy, the current support for China's renewable energy industry has gradually shifted from “helping its development and expansion” to “helping it resists systemic risks and strengthens market competition”. Therefore, there is an urgent need to study how the strategic investment of renewable energy companies is affected by economic policy uncertainty. This paper first robustly explores the non-linear relationship between strategic investment and economic policy uncertainty of Chinese renewable energy enterprises. Then from the three perspectives of the relationship between the government and renewable energy enterprises, the characteristics of renewable energy enterprises, the response of the product market and financial market to renewable energy, this paper innovatively explores how different dimensions will adjust the non-linear relationship between strategic investment of renewable energy enterprises and economic policy uncertainty. The analysis in this paper closely relies on the characteristics of the renewable energy industry at this stage, so our conclusion can provide a reference for the government to formulate the development plan of renewable energy enterprises scientifically and prudently.

Research and development intensity, environmental performance, and firm value: Unraveling the nexus in the energy sector worldwide

AbstractThe lack of a focused study on the nexus of research and development (R&D) intensity, eco‐friendly practices, firm value in the energy sector, and the stakeholders' concerns for ecology motivated us to realize this study. The study sample covers the period from 2002 to 2019, resulting in 4016 firm‐year observations affiliated with 43 countries. The data were retrieved from the Thomson Reuters Eikon, and a country‐year fixed‐effects regression analysis was executed. Our empirical findings are threefold. First, the results show that energy firms' R&D intensity spurs eco‐friendly practices in three dimensions, namely, resource consumption reduction, emissions reduction, and eco‐innovation. Second, our study revealed that corporate environmental performance could induce greater firm value, implying a positive shareholders' reaction to the environmental engagement. Third, moderation analysis revealed that while R&D intensity's interaction with eco‐innovation is value‐enhancing, its interaction with resource consumption reduction and emissions reduction is not. The results are largely robust to alternative sampling, endogeneity concerns, and alternative variables measurements. The findings suggest implications for energy firms, R&D activities, and capital markets.

Geopolitical risk and renewable energy asset prices: Implications for sustainable development

This study intends to investigate the impact of geopolitical uncertainty, proxied by the geopolitical risk (GPR) index, on the volatility of renewable energy exchange traded funds (ETFs). Employing a two-state Markov regime switching model reveals that an upturn in the GPR index increases (reduces) the likelihood of being in the low (high) volatility regime. This finding could be attributed to the fact that when the geopolitical risk increases, users of crude oil, which is highly sensitive to such risk, tend to consider clean energy as a substitute for traditional energy sources. This causes a growth in the equity prices of new energy firms, further leading to a drop in the levels of volatility. Additionally, the results of generalized autoregressive conditional heteroscedasticity (GARCH) models also confirm that higher GPR implies lower risk for these green assets. The outcomes have implications to policymakers and investors participating in clean energy markets.

Does climate change surprise the profitability of energy firms? Empirical evidence from China

AbstractThe energy sector matters the sustainable development directly and is sensitive to climate change. A few empirical studies concentrate on how climate change influences firm performance. Climate change brings higher production costs and lower efficiency on the supply side and leads to beneficial sale performance and improves profit. However, it is ambiguous to the relationship of supply–demand and revenue‐cost levels, and their change is not consistent. Using panel data of 99 China‐listed firms active in the energy sector over the period 2000–2020, this study aims to identify the causal relation between climate change and the profitability of energy firms while controlling for firm‐specific and energy market‐related factors. The quantile regression results show that temperature deviation (TDEV) positively impacts the profitability of energy firms, and this impact varies at different quantiles of the profitability distribution. These findings remain unchanged by four robustness checks. Moreover, mechanism results indicate that revenue and cost have different interaction effects on the causal relation. The findings of this study can provide forward‐thinking expectations and assess climatic adaptation and risks, particularly inspired stakeholder engagements.

What do we know about the idiosyncratic risk of clean energy equities?

The COVID-19 pandemic stimulated the need to invest in clean energy firms for better returns and climate risk mitigation. This study provides a detailed overview of the impact of idiosyncratic risk (IVOL) on excess returns of 95 clean energy stocks. Overall, investors in clean energy stocks are guided by the pessimist group of investors who underprice the high IVOL stocks and demand high-risk premiums to diversify the firm-specific risk. Further, during the COVID-19 period, there is no significant relationship between clean energy excess stock returns and IVOL. During this period, clean energy stocks were exposed to higher information asymmetry, limiting the arbitrage opportunities and producing a weaker return-IVOL relation indicating that clean energy stocks reflect the properties of technology stocks. IVOL has a low level of persistence which may be helpful in forecasting. This study offers valuable insights for regulators and investors from the investment decisions, asset pricing, and diversification perspective.

The effects of digital finance and financial constraint on financial performance: Firm-level evidence from China's new energy enterprises

Sustainable development comprises two key factors: new energy and digital finance. In the case of China, given the significant investment and financing problem that confronts its new energy development plans, it remains unclear whether digital finance plays a role in the matter. In this study, panel data of 157 Chinese listed new energy companies and the digital finance index constructed by Peking University Institute of Digital Finance are analyzed via the system of generalized moment method to determine the effects of digital finance and financial constraints on a firm's financial performance. The results show that digital finance can contribute to new energy firms' financial performance, while financial constraints have a robust negative effect on the same. Further, financial constraints weaken the role of digital finance. Moreover, a heterogeneous analysis reveals the following. First, the promotion effect of digital finance is larger among small firms and non-state-owned enterprises. Second, the magnitude of the inhibition effect of financial constraints is higher among larger firms. This study elucidates the role of digital finance in promoting the development of new energy industry and bears critical policy implications.

The Impacts of Resource Endowment, and Environmental Regulations on Sustainability—Empirical Evidence Based on Data from Renewable Energy Enterprises

In today’s socio-economic context where environmental protection and sustainable development are equally important, how renewable energy enterprises can achieve sustainable development has become a topic of academic interest in recent years. This paper investigates the link between sustainable growth (SG) of renewable energy firms, resource endowment (RE), and environmental regulatory (ERs) issues through a fixed-effects model and a GMM model. Through empirical analysis, it was found that economical environmental regulations have the greatest positive impact on sustainable growth, followed by legal environmental regulations and supervised environmental regulations. Resource endowment is positively related to sustainable growth for non-state-owned renewable energy enterprises, but the negative impact on sustainable growth reflects the effect the of “resource curse”. In addition, resource endowment has a negative moderating effect on environmental regulations and sustainable growth. Thus, the most significant effect is on the relationship between economical environmental regulations and sustainable growth, followed by legal environmental regulations and supervised environmental regulations. Therefore, the flexible and concurrent application of multiple environmental policies is an important way to ensure effective regulations and promote sustainable business growth.

Environmental, social and governance (ESG) disclosure and firm performance: does national culture matter?

PurposeThe purpose of this study is to analyze the extent to which culture may affect the relationship between environmental, social and governance disclosure (ESGD) and firm performance (FP).Design/methodology/approachData for testing the hypotheses are collected from 668 firms in the energy sector worldwide over a period of eight years from 2009 to 2016. The analysis is carried out using the instrumental variables regression technique to account for endogeneity. Hofstede’s cultural dimensions of power distance (PD), masculinity (MASC), long-term orientation (LTO), uncertainty avoidance (UNCAVOID) and individualism (INDV) are used as proxies for culture.FindingsThe results show that ESGD has a significant negative impact on the profitability of energy firms. When cultural dimensions are taken into account, PD and LTO are found to significantly moderate the relationship between ESGD and FP, whereas MASC, UNCAVOID and INDV have no significant effect on the relationship between ESGD and FP.Practical implicationsThe findings of this study highlight the need for regulators to consider the importance of cultural dimensions when seeking to develop a single global standard for ESGD. In addition, regulators need to weigh both the costs and benefits of developing a global standard for it to be effective and acceptable.Social implicationsThis study emphasizes the need to take into account the cultural orientation of the society in which firms operate when devising strategies to fulfill societal expectations and achieve business goals.Originality/valueTo the best of the authors’ knowledge, this is the first study that addresses the role of culture in affecting the impact of ESGD on FP.

Effect of the COVID-19 Pandemic on Renewable Energy Firm’s Profitability and Capitalization

The COVID-19 pandemic has led many governments to impose restrictive measures that have contributed to a decline in the demand for goods and services, leading to an economic crisis. This study proves a novelty that implies a rise in the capitalization of renewable energy companies during the coronavirus pandemic. The study is based on the hypothesis that, at a time of economic crisis, the prospect of investing in clean energy has increased, through the need to protect the environment and ensure clean air. The analysis provided additional results that there is an inverse relationship between two economic indicators of firms, namely, the percentage change in profitability and capitalization of firms between 2020 and 2021. Analysis of data from companies included in TRBC Industry Name Renewable Fuels provided numerical results that show an average increase in firms’ capitalization of 86%. The study uses analysis techniques such as covariance and correlation. The results show an increase in capitalization of renewable energy companies by 150%, while there is a decrease in income by 2%. However, the capitalization of fossil fuel companies has increased, with an average growth rate of 35%. This situation in the fossil energy market is that company revenues fell by 32% while capitalization increased by 35%. It proves a bubble in the non-renewable energy market. This paper suggests that the period of coronavirus infection has seen a slowdown in economic growth in many countries around the world, but a switch to renewable energy will help improve the quality of life of the population and ensure economic growth.

Network Topology of Dynamic Credit Default Swap Curves of Energy Firms and the Role of Oil Shocks

Using network analysis on the connectedness of default factors in a credit default swap (CDS) dataset of U.S. and European energy firms, we provide the first evidence of differences in the shape and dynamics of the interconnectedness of the level, slope, and curvature, representing long-, short- and middle-term default factors, respectively. The interconnectedness of the three default factors increases during the European sovereign debt crisis (ESDC), whereas only the interconnectedness of the level factor increases during the oil price crash, and the interconnectedness of both level and slope factors spikes during COVID19. European firms contribute more to the transmission of long-term and short-term default risk from early 2011 till the beginning of the 2014–2105 oil price crash; afterwards, U.S. firms are major default transmitters despite some periods of parity with European firms. The impacts of oil demand and supply shocks on the various interconnectedness are quantile-dependent and more pronounced in the long term for the credit risk of the energy firms.

Gaining lead firm position in an emerging industry: A global production networks analysis of two Scandinavian energy firms in offshore wind power

Global production networks (GPN) research has given limited attention to lead firms’ competitive strategies in emerging project-based industries (PBIs). Informed by the industry life cycle approach, the authors develop a process-sensitive approach that unpacks the black-boxed notion of lead firms’ competitive capabilities development processes to address this gap. The approach is operationalized in the analysis of the evolutionary trajectories of Ørsted (Denmark) and Equinor (Norway) in the emerging offshore wind power industry. Analytically, the authors differentiate between lead firms’ pre-entry, entry, and post-entry scope-related and scale-related competitive capabilities development processes. They demonstrate how these processes are shaped by industry characteristics and co-evolve with broader industry developments and extra-firm dynamics. Through this novel perspective, the paper extends conventional wisdom on the role GPNs as facilitators of knowledge transfer and of local and regional capability formation and development. The authors argue that GPNs can also facilitate both knowledge transfer to and competitive capability formation by (lead) firms.

Tail risk connectedness in clean energy and oil financial market

This research investigates the connectedness and the tail risk spillover between clean energy and oil firms, from January 2011 to October 2021. To this, we use the Tail-Event driven NETworks (TENET) risk model. This approach allows for a measurement of the dynamics of tail-risk spillover for each sector and firm. Hence, we can provide a detailed picture of the existing extreme relationships within these markets. We find that the total connection between the markets varies during the period analysed, showing how the uncertainty in oil price plays a critical role in the risk dynamics for oil companies. Also, we find that relationships between energy firms tend to be intrasectoral; that is, each sector receives (emits) risk from (to) itself. These results can have important practical implications for risk management and policymakers.

Green energy transition and sustainable development of energy firms: An assessment of renewable energy policy

The development of green energy is an important tool to balance economic growth and environmental protection. Using 27,043 data observations from A-share listed companies on the Shanghai and Shenzhen stock exchanges in China during 2007–2018, this study examines the relationship between renewable energy policies and total factor productivity of energy firms. Our study shows that renewable energy policies promote the total factor productivity of energy firms and that the promotion effect from policy implementation is somewhat persistent. Our findings are robust to several measures of total factor productivity. Further study suggests that the boosting effect from implementing renewable energy policy may be overshadowed by its effects on resource allocation efficiency and technological innovation. In addition, differences in firms' type, external environment, and geographical location make the impact of renewable energy policies on total factor productivity heterogeneous. For example, renewable energy policies tend to suppress the total factor productivity of state-owned firms, large-scale firms, and firms with high equity concentration.

Does technological innovation benefit energy firms’ environmental performance? The moderating effect of government subsidies and media coverage

Technological innovation can improve the resource efficiency and accelerate the transformation of energy production mode, which offers attractive opportunities for low-carbon development of traditional energy firms. However, whether technological innovation can generate a better environmental result for traditional energy firms remains to be explored. This paper develops a panel regression model to examine the effect of technological innovation on environmental performance of energy firms based on the data of 136 energy firms in China from 2009 to 2019. The results indicate that, first, technological innovation has significantly improved energy firms’ environmental performance, increasing environmental strengths by 0.056% and decreasing carbon emissions intensity by 0.015%. Second, these effects are weaker for energy firms with more government subsidies, providing new evidence for the removal of fossil energy subsidies. Finally, negative media coverage also significantly weakened the boosting effects of technological innovation on environmental performance, revealing a “dark side” of media coverage on environmental management of energy firms. These findings have practical implications for managers and government agencies to improve environmental performance of energy firms.

The environmental and financial performance of green energy investments: European evidence

This paper investigates the environmental and financial performance of investments in energy firms. For this purpose, we form portfolios of green energy European stocks compared to their non-green counterparts from January 2008 to November 2020 and assess their environmental and financial performance. Within firms with environmental ratings, those that are green perform better in environmental terms than their non-green counterparts, although the difference has narrowed in recent years. Regarding financial performance, our results show that, in general, the green energy portfolio outperforms the market. Furthermore, within the energy sector, the green energy portfolio performs better than its non-green counterpart. Moreover, we find that the outperformance of the green portfolio is mainly due to a performance improvement in most recent years. Overall, our results show that over this period investments in green energy firms perform at least as well as their non-green energy counterparts.

Renewable energy policy, green investment, and sustainability of energy firms

Based on the demand for green development and sustainable economic growth, the most effect approach for improving the sustainability of energy firms through energy policy and green investment is an important concern for those from all walks of life. This study examines the relationship between renewable energy policies and firm sustainability in China. Using 32,267 datapoints from 2007 to 2019 for A-share listed companies in Shanghai and Shenzhen, China, our results suggest that renewable energy policies are not conducive to enhancing firm sustainability and sustainability rate; this result is inconsistent with our theoretical expectations. We further find that firm green investment promotes firm sustainability and plays a partial mediating effect in the impact of renewable energy policies on firm sustainability. In addition, the differences in firm characteristics and market environment make the impact of renewable energy policy on firm sustainability heterogeneous. Renewable energy policies mainly inhibit the sustainable development of state-owned firms, labor-intensive firms, and firms with low equity concentration.

Creating portfolios of firm-specific energy R&D investment under market uncertainty

This research determines the optimal distribution of firm-specific energy research and development (R&D) investment that balances firms’ return and risk under market-induced uncertainty. We focus on creating optimal portfolios of target firms and their optimal energy R&D investments that maximize their return on investments (ROIs) for given levels of risk. We employ a stochastic optimization framework that maximizes firms’ ROIs for energy R&D investment, measured by the ratio of the number of patents issued for energy technologies to the amount of annual energy R&D expenditures, for 78 energy firms in South Korea between 2006 and 2017. The findings from our mean-standard deviation tradeoff frontiers are summarized as follows: 1) the tradeoff ratio increases as the weights shift from 100% on maximizing expected ROI toward 100% on minimizing its standard deviation regardless of market conditions and 2) the tradeoff ratio during the downturn is higher than during the upturn. These findings suggest that firms mitigate market-induced risk with a smaller sacrifice in the expected number of issued patents when the initial weight is primarily on maximizing expected ROIs and when the market is experiencing an upturn instead of a downturn. From the distribution patterns of prioritized firms for the two extreme risk preference points along the upturn and downturn tradeoff frontiers, we find that the target firms shift under different market conditions and risk assumptions. These priority shifts highlight the importance of decision-maker flexibility in structuring firms’ portfolios to support energy R&D, depending on the governments’ risk tolerances and market conditions.

The effects of green fiscal policies and R&D investment on a firm's market value: New evidence from the renewable energy industry in China

This article investigates the influences of subsidy and tax rebate policies and R&D investment on renewable energy firms' market value improvements using the generalized method of moments (GMM) to analyze firm-level panel data from the renewable energy industry in China. Our empirical evidence confirms that government subsidies and tax rebate policies result in significant inverted U-shaped relationships with market value improvements of renewable energy firms in China at the 10% significance level. In addition, greater R&D investment boosts the positive effects of subsidies, tax rebates and research and development (R&D) investment and decreases the negative effect of the subsidies and tax rebates on renewable energy firms' market value at the 10% significance level, respectively. The combined subsidy and tax rebate policies amplify the U-type impacts on the renewable energy firms' market value improvement. Moreover, location variations have significantly differentiated impacts of subsidies, tax rebates and R&D investment on the renewable energy firms’ market value in the study period.