Corporate environmentalism and financial performance: evidence from S&P BSE sustainability indices

Abstract

The study aims to assess the reaction of Indian stock market to the events of launch of SandP BSE CarbonEx and GreenEx and stock exclusion therefrom / inclusion thereto. It also attempts to advance a typology on EMPs (environmental management practices) followed by the firms listed on these indices. Further, it ascertains the relationship between corporate financial and environmental performance by deploying panel regression method. Effect of each EMP is assessed on corporate financial performance indicators viz. ROE, ROA, Tobin Q and sales growth. The analysis is conducted over a period of five years (2013-2017). The findings of event study approach revealed that abnormal returns, liquidity and volatility changes during these events were as a result of price pressures. Event study analysis discredited liquidity, downward sloping demand curve, information, and investor awareness hypotheses. Six EMPs were examined after analysing the content and typology was advanced through demonstration of inter-coder reliability, single category and individual reliability. Their coefficients exceeding 0.5 confirmed the robustness of such framework. Significant negative relationship was found between the EMPs and financial performance indicators. Because the present study is about an interface between environmental science and finance, it puts forth crucial theoretical and pragmatic implications for the managers, academicians, and theorists. With a view to generalize the findings of this research, the model advanced here needs to be tested in other contexts.