Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance

TLDR

Previous empirical work suggests that firms with high environmental performance tend to be profitable, but the nature of this relationship remains unclear. The study examines whether stronger environmental performance leads to better financial performance by analyzing 652 U.S. manufacturing firms from 1987 to 1996. The authors use firm‑level data on environmental and financial performance for 652 U.S.

Abstract

Summary Previous empirical work suggests that firms with high environmental performance tend to be profitable, but questions persist about the nature of the relationship. Does stronger environmental performance really lead to better financial performance, or is the observed relationship the outcome of some other underlying firm attribute? Does it pay to have cleanrunning facilities or to have facilities in relatively clean industries? To explore these questions, we analyze 652 U.S. manufacturing firms over the time period 1987–1996. Although we find evidence of an association between lower pollution and higher financial valuation, we find that a firm's fixed characteristics and strategic position might cause this association. Our findings suggest that “When does it pay to be green?” may be a more important question than “Does it pay to be green?”