Does It Pay to Be Environmentally Responsible? Toxic Releases and Financial Performance

Abstract

Is a corporation’s environmental responsibility consistent with its responsibility to maximize shareholder wealth? If environmentally sustainable behavior is a binding constraint on available strategies one would expect environmentally responsible firms to exhibit lower market values than corporations who are free to execute any strategies. But if there is a link between corporate environmental responsibility and shareholder wealth then one would expect environmentally responsible firms to have a higher market value. This study finds evidence of a positive relationship between financial performance as measured by Tobin’s q and environmental performance as measured by the USEtox weighting system.