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
Date Written: June 16, 2021
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: Suggested Citation