– The purpose of this paper is to investigate the effects of the application of green standards on the companies’ financial returns. It aims at answering the following question: does the market reward or penalize the players that carry out responsible management policies toward environment?
– Using US data from 2009 to mid-2014 and employing two financial models, that is Capital Asset Pricing Model and Fama-French three-factor model, the authors first estimate the extra remuneration provided to investors. Then, the authors link this extra return to a green-based factor. The green-factor data are taken from Newsweek Green Rankings, which annually publishes an environmental ranking of the 500 biggest publicly traded companies in the USA.
– The analysis demonstrates that there exists no linear relationship between the adoption of green standards and financial returns, i.e. the “green-behavior” does not affect the remuneration required by investors. These results could be justified by the fact that the implementation of environmentally friendly standards is quite a new one.
– The results could be subject to major changes in next few years, due to the increasing attention over environmental issues.
– The paper investigates the financial profitability and the creation of economic value of a topical managerial issue, in light of the increasing importance of social responsible behavior for the companies. To the authors knowledge, this is the first paper that examines this topic.
