Voluntary corporate environmental initiatives and shareholder wealth

Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA's Climate Leaders,...

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Bibliographic Details
Published in:	Journal of environmental economics and management 2011-11, Vol.62 (3), p.430-445
Main Authors:	Fisher-Vanden, Karen, Thorburn, Karin S.
Format:	Article
Language:	eng
Subjects:	Air pollution Business investment Business strategies Capital expenditure Capital expenditures Carbon emissions Climate Climate change Corporate governance Corporate social responsibility Decisions Emission standards Emissions Emissions control Environmental management Environmental protection Environmentally responsible investing Financial performance Firm value Greenhouse effect Greenhouse gas emissions Greenhouse gases Investments Rates of return Shareholder wealth Shareholders wealth Stock returns Stockholders Studies U.S.A
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Summary:	Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA's Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.
ISSN:	0095-0696 1096-0449