Does It Pay to Be Environmentally Responsible? Investigating the Effect on the Weighted Average Cost of Capital

Corporate Social Responsibility and Environmental Management 2021

Posted: 28 Jun 2021

See all articles by Massimo Mariani

Massimo Mariani

LUM University - Department of Management

Fabio Pizzutilo

Università degli Studi di Bari “Aldo Moro”

Alessandra Caragnano

LUM Jean Monnet university

Marianna Zito

LUM Jean Monnet university

Date Written: June 16, 2021

Abstract

This research aims at investigating the effect of firms' environmental policies on the weighted average cost of capital (WACC) in order to catch capital markets' reaction towards corporate environmental commitment and effectiveness in reducing carbon emissions. We refer to the European market and analysed a sample of companies listed on the Stoxx Europe 600 Index during the timeframe 2014–2018. Our results show that capital markets have become particularly sensitive to environmental issues and therefore reward environmentally virtuous firms with a lower after tax WACC. We also argue that this effect is prominent for both high emitting and low emitting industries.

Keywords: climate change, environmental commitment, environmental policy, environmental risk, European market, sustainable development, weighted average cost of capital

JEL Classification: G30; G32; Q01; Q50; Q54

Suggested Citation

Mariani, Massimo and Pizzutilo, Fabio and Caragnano, Alessandra and Zito, Marianna, Does It Pay to Be Environmentally Responsible? Investigating the Effect on the Weighted Average Cost of Capital (June 16, 2021). Corporate Social Responsibility and Environmental Management 2021, Available at SSRN: https://ssrn.com/abstract=3868313

Massimo Mariani

LUM University - Department of Management ( email )

S.S. 100 km 18
Casamassima, 70010
Italy

Fabio Pizzutilo (Contact Author)

Università degli Studi di Bari “Aldo Moro” ( email )

largo Abbazia S. Scolastica, 53
Bari, 70124
Italy

Alessandra Caragnano

LUM Jean Monnet university

Casamassima, BA 70010
Italy

Marianna Zito

LUM Jean Monnet university

Casamassima, BA 70010
Italy

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