An Examination of Financial Performance and Risk of Environmentally Friendly 'Green' Companies

Abstract

Research on environmental matters is interdisciplinary, involving business, history, sociology, and science. Taking care of the environment has long been an important issue, going back to ancient times. As part of corporate social responsibility, companies are expected to safeguard the physical environment. To be identified as “green” or “environmentally friendly” is important to all types of business. This study sought to answer two research questions. Regarding the first research question as to the impact of being green on financial performance, a high green ranking was found not to be significantly related to firm financial performance. At the same time, this means that being green does not negatively impact firm profitability. Regarding the second research question as to the relationship of being green to business risk, analysis of three risk measures provides mixed results, with two of the three measures showing no relation between green score and risk. These results indicate that, at best, being green is associated with lower risk, and at worse, being green does not negatively impact firm risk.

Keywords: environmentally friendly, green, financial performance

JEL Classification: K32, M3, M4, O13, Q2