This chapter reveals the extent to which the companies with the best eco-efficiency indicators have found their market value positively or adversely affected. The authors will analyze whether one of the main stakeholders in business attitude and activity towards the environment (i.e., capital markets) are rewarding companies for their excellent eco-efficiency performance. The chapter will be explicitly examining the hypothesis that a higher degree of eco-efficiency is associated with a greater recognition by the stock market. The study sample will comprise a data panel from European companies indexed in the DJSWI for the years ranging from 2011-2015. The findings obtained indicate that the capital markets are giving recognition to the European companies that achieve greater eco-efficiency levels where emissions are concerned. The previous behavior will be rewarded by the capital market, which can contribute to improving its reputation, reducing its financing costs and generating wealth for its shareholders.
TopIntroduction
In spite of the wealth and prosperity generated in previous centuries thanks to industrial development, the planet has been subjected to uncontrolled environmental deterioration (Shrivastava, 1995). The damage that human activities has caused to environment, giving rise to what has come to be known as climate change, poses one of the main threats to biological diversity (Karsh & MacIver, 2010; Beever & Belant, 2012), making this one of the primary issues on an international scale. This factor conditions decision-making processes, on both a political and economic level, and has major implications for the future of the planet (McCright, Marquart-Pyatt, Shwom, Brechin, & Allen 2016). One of the main causes of this deterioration is corporate activity, because of the emission of greenhouse gases (GHG) (Moors, Mulder & Vergragt, 2005), so companies are subject to a series of pressures in order to minimise their environmental impact.
Therefore, if there is one particular question that reveals the need to make an improvement in competitiveness compatible with respect for the environment, it is climate change. Its management involves minimising the environmental impact caused by the emissions. Organisations are paying increasing attention to the fight against climate change, because its consequences not only threaten competitiveness and survival, but also serve as an opportunity to embark on new projects and strategic positioning, all of which are supervised by the genuine generators of value for a company, i.e., their stakeholders (Hoffman, 2005; Busch, 2011).
One recurring question that earlier literature has endeavoured to answer has revolved around whether the cost involved in environmental protection measures end up by damaging companies’ value, that is to say, by being detrimental to the relationship between the environmental performance (EP) and the financial performance (FP). The studies undertaken so far have yielded different findings. Such diversity is because, on many occasions, the data or measurements used have not taken into account variables associated with the eco-efficient actions of the organisations (Ekins, 2005; Henri & Journeault, 2010; Derwall, Günster, Bauer & Koedijk, 2004; Sinkin, Wright & Burnett, 2008). This work focuses on the EP measured with variables that reflect the eco-efficient actions of the organisation, i.e., utilising variables concerning emissions, with which the authors obtain a more direct relationship for the effects on FP. Although studies have already been done that examine this relationship, they have only been conducted partially, either by concentrating on only one specific type of emission (Al-Tuwaijri, Christensen & Hughes, 2004; Pogutz & Russo, 2009; Iwata & Okada, 2011; Delmas & Nairn-Birch, 2010; Busch & Hoffmann, 2011; Rahman, Rasid & Basiruddin, 2014), or, without taking into consideration the capital market perspective (Nakao, Amano, Matsumura, Genba & Nakano, 2007; Gallego-Álvarez, Segura & Martínez-Ferrero, 2015; Wagner, Van Phu, Azomahou & Wehrmeyer, 2002).
In earlier literature, the data used has generally been cross-sectional, whereas in this study a data panel has been used. A fixed-effects analysis has been conducted on a sample of 81 European companies belonging to the Dow Jones Sustainability World Index (DJSWI) for the period 2011-2015. The findings have yielded the absence of a positive and statistically significant relationship between financial profitability and eco-efficiency regarding emissions. A relationship can also be demonstrated between higher company value levels and higher inefficiency levels in terms of emissions. These findings cause even greater uncertainty about the effect on recognition that the stock market can have on the proactive environmental activities with a view to reducing emissions.