Environmental and financial performance of fossil fuel firms: a closer inspection of their interaction

Halit Gonenc, Bert Scholtens*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

96 Citations (Scopus)

Abstract

We investigate the relationship between environmental and financial performance of fossil fuel firms. To this extent, we analyze a large international sample of firms in chemicals, oil, gas, and coal with respect to several environmental indicators in relation to financial performance for the period 2002–2013. We find that these firms have significantly higher scores on environmental performance efforts than other firms. We use a simultaneous equations system to identify the direction of the relationship between environmental and financial performance of the firms. We find that environmental outperformance has no impact on financial performance for chemical firms, reduces returns and risks for coal companies, has a mixed impact on returns in oil and gas, and reduces financial risks for oil and gas firms. Financial outperformance reduces environmental performance in all fossil fuel (sub)industries investigated. Our findings mainly support the opportunistic view regarding the impact of financial returns, which holds that financial performance negatively impacts social performance. Regarding financial risk, we find support for the stakeholder perspective where good environmental performance is beneficial from a finance perspective. We conclude to substantial differences in the environmental-financial performance relationship along fossil fuel firms in different subindustries.
Original languageEnglish
Pages (from-to)307-328
Number of pages22
JournalEcological Economics
Volume132
Early online date24 Nov 2016
DOIs
Publication statusPublished - Feb 2017

Keywords

  • Environmental performance
  • Financial performance
  • Firm-level analysis
  • Fossil fuel firms
  • Corporate responsibility

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