Environmental Performance And Responsible Corporate Governance: An Empirical Note

Does it pay to be green? This question is by no means new or surprising; but what is really puzzling is that dedicated research efforts have failed to provide consistent evidence on this issue. Therefore, the ‘business case’ for sustainability is controversial, despite the fact that companies are more and more under pressure to standardize and expand their voluntary ethical practices. The research design serves the purpose of answering some of these questions: 77 large industrial European companies were included in a highly-relevant new dataset, containing aggregated greenhouse gas emission figures, as well as universally-accepted financial performance indicators. On these balanced panel data we conducted several types of analyses, tailored to capture the sign and strength of the relationship between environmental and financial performance. We also introduced an innovative measure of responsible governance, as an interaction term between board-level innovations and the level of independent assurance. Our results are mixed, largely dependent on different model specifications and the several procedures to obtain robust standard errors. As expected, there is no definitive conclusion on the aforementioned relationship. Responsible governance seems to have an insignificant contribution to real sustainability performance, as well as to the economic welfare of the firm. Overall, we support the results to be found in the prior literature, in that CSR attributes – here including emission reduction efforts – will bear higher costs, but also higher revenues, resulting in a neutral relationship between CSR activity and firm financial performance. Owing to the uniqueness of the database in use and to the complexity of the econometric analysis, our findings are another proof of the controversy surrounding the relationship between firm financial and environmental performance.