IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v197y2022ics0921800922000891.html
   My bibliography  Save this article

The environmental and financial performance of green energy investments: European evidence

Author

Listed:
  • Cortez, Maria Céu
  • Andrade, Nuno
  • Silva, Florinda

Abstract

This paper investigates the environmental and financial performance of investments in energy firms. For this purpose, we form portfolios of green energy European stocks compared to their non-green counterparts from January 2008 to November 2020 and assess their environmental and financial performance. Within firms with environmental ratings, those that are green perform better in environmental terms than their non-green counterparts, although the difference has narrowed in recent years. Regarding financial performance, our results show that, in general, the green energy portfolio outperforms the market. Furthermore, within the energy sector, the green energy portfolio performs better than its non-green counterpart. Moreover, we find that the outperformance of the green portfolio is mainly due to a performance improvement in most recent years. Overall, our results show that over this period investments in green energy firms perform at least as well as their non-green energy counterparts.

Suggested Citation

  • Cortez, Maria Céu & Andrade, Nuno & Silva, Florinda, 2022. "The environmental and financial performance of green energy investments: European evidence," Ecological Economics, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolec:v:197:y:2022:i:c:s0921800922000891
    DOI: 10.1016/j.ecolecon.2022.107427
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800922000891
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ecolecon.2022.107427?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    2. repec:dau:papers:123456789/3187 is not listed on IDEAS
    3. Marie-Aude Laguna & Gunther Capelle-Blancard, 2010. "How does the stock market respond to petrochemical disasters?," Post-Print halshs-00696984, HAL.
    4. Paul Lanoie, 2008. "When And Why Does It Pay To Be Green?," CIRANO Papers 2008n-02a, CIRANO.
    5. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    6. Auke Plantinga & Bert Scholtens, 2021. "The financial impact of fossil fuel divestment," Climate Policy, Taylor & Francis Journals, vol. 21(1), pages 107-119, January.
    7. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    8. John H. Cochrane, 2011. "Presidential Address: Discount Rates," Journal of Finance, American Finance Association, vol. 66(4), pages 1047-1108, August.
    9. Alexopoulos, Thomas A., 2018. "To trust or not to trust? A comparative study of conventional and clean energy exchange-traded funds," Energy Economics, Elsevier, vol. 72(C), pages 97-107.
    10. Markus Hang & Jerome Geyer‐Klingeberg & Andreas Rathgeber & Stefan Stöckl, 2018. "Economic Development Matters: A Meta‐Regression Analysis on the Relation between Environmental Management and Financial Performance," Journal of Industrial Ecology, Yale University, vol. 22(4), pages 720-744, August.
    11. Patten, Dennis M. & Nance, Jon R., 1998. "Regulatory cost effects in a good news environment: The intra-industry reaction to the Alaskan oil spill," Journal of Accounting and Public Policy, Elsevier, vol. 17(4-5), pages 409-429.
    12. Anderloni, Luisa & Tanda, Alessandra, 2017. "Green energy companies: Stock performance and IPO returns," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 546-552.
    13. Heather Dixon-Fowler & Daniel Slater & Jonathan Johnson & Alan Ellstrand & Andrea Romi, 2013. "Beyond “Does it Pay to be Green?” A Meta-Analysis of Moderators of the CEP–CFP Relationship," Journal of Business Ethics, Springer, vol. 112(2), pages 353-366, January.
    14. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    15. Trinks, Arjan & Scholtens, Bert & Mulder, Machiel & Dam, Lammertjan, 2018. "Fossil Fuel Divestment and Portfolio Performance," Ecological Economics, Elsevier, vol. 146(C), pages 740-748.
    16. Simon Cadez & Albert Czerny & Peter Letmathe, 2019. "Stakeholder pressures and corporate climate change mitigation strategies," Business Strategy and the Environment, Wiley Blackwell, vol. 28(1), pages 1-14, January.
    17. Manuel Ammann & Christopher Bauer & Sebastian Fischer & Philipp Müller, 2019. "The impact of the Morningstar Sustainability Rating on mutual fund flows," European Financial Management, European Financial Management Association, vol. 25(3), pages 520-553, June.
    18. Clarkson, Peter M. & Li, Yue & Richardson, Gordon D. & Vasvari, Florin P., 2011. "Does it really pay to be green? Determinants and consequences of proactive environmental strategies," Journal of Accounting and Public Policy, Elsevier, vol. 30(2), pages 122-144, March.
    19. Elisabeth Albertini, 2013. "Does Environmental Management Improve Financial Performance? A Meta-Analytical Review," Post-Print halshs-01887802, HAL.
    20. Shuili Du & Edward Vieira, 2012. "Striving for Legitimacy Through Corporate Social Responsibility: Insights from Oil Companies," Journal of Business Ethics, Springer, vol. 110(4), pages 413-427, November.
    21. Fernando Muñoz & Maria Vargas & Isabel Marco, 2014. "Environmental Mutual Funds: Financial Performance and Managerial Abilities," Journal of Business Ethics, Springer, vol. 124(4), pages 551-569, November.
    22. Sueyoshi, Toshiyuki & Goto, Mika, 2009. "Can environmental investment and expenditure enhance financial performance of US electric utility firms under the clean air act amendment of 1990?," Energy Policy, Elsevier, vol. 37(11), pages 4819-4826, November.
    23. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    24. Stefano Battiston & Antoine Mandel & Irene Monasterolo & Franziska Schütze & Gabriele Visentin, 2017. "A climate stress-test of the financial system," Nature Climate Change, Nature, vol. 7(4), pages 283-288, April.
    25. Edward Freeman, R. & Evan, William M., 1990. "Corporate governance: A stakeholder interpretation," Journal of Behavioral Economics, Elsevier, vol. 19(4), pages 337-359.
    26. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    27. Reboredo, Juan C. & Quintela, Miguel & Otero, Luis A., 2017. "Do investors pay a premium for going green? Evidence from alternative energy mutual funds," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 512-520.
    28. Ferson, Wayne E & Schadt, Rudi W, 1996. "Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-461, June.
    29. Kempf, Alexander & Osthoff, Peer, 2007. "The effect of socially responsible investing on portfolio performance," CFR Working Papers 06-10, University of Cologne, Centre for Financial Research (CFR).
    30. Fama, Eugene F. & French, Kenneth R., 2007. "Disagreement, tastes, and asset prices," Journal of Financial Economics, Elsevier, vol. 83(3), pages 667-689, March.
    31. Christopherson, Jon A & Ferson, Wayne E & Glassman, Debra A, 1998. "Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance," The Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 111-142.
    32. Halcoussis, Dennis & Lowenberg, Anton D., 2019. "The effects of the fossil fuel divestment campaign on stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 669-674.
    33. Boermans, Martijn A. & Galema, Rients, 2019. "Are pension funds actively decarbonizing their portfolios?," Ecological Economics, Elsevier, vol. 161(C), pages 50-60.
    34. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    35. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    36. Bryan Schmutz & Minoo Tehrani & Lawrence Fulton & Andreas W. Rathgeber, 2020. "Dow Jones Sustainability Indices, Do They Make a Difference? The U.S. and the European Union Companies," Sustainability, MDPI, vol. 12(17), pages 1-15, August.
    37. Bohl, Martin T. & Kaufmann, Philipp & Stephan, Patrick M., 2013. "From hero to zero: Evidence of performance reversal and speculative bubbles in German renewable energy stocks," Energy Economics, Elsevier, vol. 37(C), pages 40-51.
    38. Jordan, Bradford D. & Riley, Timothy B., 2015. "Volatility and mutual fund manager skill," Journal of Financial Economics, Elsevier, vol. 118(2), pages 289-298.
    39. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    40. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 192-205, March.
    41. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    42. C. J. Adcock & M. Ceu Cortez & M. J. Rocha Armada & F. Silva, 2012. "Time varying betas and the unconditional distribution of asset returns," Quantitative Finance, Taylor & Francis Journals, vol. 12(6), pages 951-967, November.
    43. Kolk, Ans & Levy, David, 2001. "Winds of Change:: Corporate Strategy, Climate change and Oil Multinationals," European Management Journal, Elsevier, vol. 19(5), pages 501-509, October.
    44. Pedersen, Lasse Heje & Fitzgibbons, Shaun & Pomorski, Lukasz, 2021. "Responsible investing: The ESG-efficient frontier," Journal of Financial Economics, Elsevier, vol. 142(2), pages 572-597.
    45. Gonenc, Halit & Scholtens, Bert, 2017. "Environmental and Financial Performance of Fossil Fuel Firms: A Closer Inspection of their Interaction," Ecological Economics, Elsevier, vol. 132(C), pages 307-328.
    46. Popp, David & Hascic, Ivan & Medhi, Neelakshi, 2011. "Technology and the diffusion of renewable energy," Energy Economics, Elsevier, vol. 33(4), pages 648-662, July.
    47. Peter M. Clarkson & Yue Li & Matthew Pinnuck & Gordon D. Richardson, 2015. "The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme," European Accounting Review, Taylor & Francis Journals, vol. 24(3), pages 551-580, September.
    48. Alexander Kempf & Peer Osthoff, 2007. "The Effect of Socially Responsible Investing on Portfolio Performance," European Financial Management, European Financial Management Association, vol. 13(5), pages 908-922, November.
    49. Griffin, Paul A. & Jaffe, Amy Myers & Lont, David H. & Dominguez-Faus, Rosa, 2015. "Science and the stock market: Investors' recognition of unburnable carbon," Energy Economics, Elsevier, vol. 52(PA), pages 1-12.
    50. Francisco Climent & Pilar Soriano, 2011. "Green and Good? The Investment Performance of US Environmental Mutual Funds," Journal of Business Ethics, Springer, vol. 103(2), pages 275-287, October.
    51. Gbenga Ibikunle & Tom Steffen, 2017. "European Green Mutual Fund Performance: A Comparative Analysis with their Conventional and Black Peers," Journal of Business Ethics, Springer, vol. 145(2), pages 337-355, October.
    52. Humphrey, Jacquelyn E. & Li, Yong, 2021. "Who goes green: Reducing mutual fund emissions and its consequences," Journal of Banking & Finance, Elsevier, vol. 126(C).
    53. Ng, Alex & Zheng, Di, 2018. "Let's agree to disagree! On payoffs and green tastes in green energy investments," Energy Economics, Elsevier, vol. 69(C), pages 155-169.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qihang Xue & Huimin Wang & Caiquan Bai, 2023. "Local green finance policies and corporate ESG performance," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 721-749, December.
    2. Feng, Yanchao & Zhang, Juan & Geng, Yong & Jin, Shurui & Zhu, Ziyi & Liang, Zhou, 2023. "Explaining and modeling the reduction effect of low-carbon energy transition on energy intensity: Empirical evidence from global data," Energy, Elsevier, vol. 281(C).
    3. Martí-Ballester, Carmen-Pilar, 2022. "Do renewable energy mutual funds advance towards clean energy-related sustainable development goals?," Renewable Energy, Elsevier, vol. 195(C), pages 1155-1164.
    4. María Mar Miralles-Quirós & José Luis Miralles-Quirós, 2022. "Decarbonization and the Benefits of Tackling Climate Change," IJERPH, MDPI, vol. 19(13), pages 1-4, June.
    5. Mo Du & Shanglei Chai & Shu Li & Zejing Sun, 2022. "How Environmental Regulation Affects Green Investment of Heavily Polluting Enterprises: Evidence from Steel and Chemical Industries in China," Sustainability, MDPI, vol. 14(19), pages 1-14, September.
    6. Agnieszka Dembicka-Niemiec & Edyta Szafranek-Stefaniuk & Antonina Kalinichenko, 2023. "Structural and Investment Funds of the European Union as an Instrument for Creating a Low-Carbon Economy by Selected Companies of the Energy Sector in Poland," Energies, MDPI, vol. 16(4), pages 1-21, February.
    7. Konstantina Ragazou & Ioannis Passas & Alexandros Garefalakis & Eleni Zafeiriou & Grigorios Kyriakopoulos, 2022. "The Determinants of the Environmental Performance of EU Financial Institutions: An Empirical Study with a GLM Model," Energies, MDPI, vol. 15(15), pages 1-15, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    2. Patrícia Pereira & Maria Céu Cortez & Florinda Silva, 2019. "Socially responsible investing and the performance of Eurozone corporate bond portfolios," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(6), pages 1407-1422, November.
    3. Federica Ielasi & Monica Rossolini, 2019. "Responsible or Thematic? The True Nature of Sustainability-Themed Mutual Funds," Sustainability, MDPI, vol. 11(12), pages 1-17, June.
    4. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    5. Muñoz, Fernando, 2021. "Carbon-intensive industries in Socially Responsible mutual funds' portfolios," International Review of Financial Analysis, Elsevier, vol. 75(C).
    6. Liu, Xufeng & Wan, Die, 2023. "Retail investor trading and ESG pricing in China," Research in International Business and Finance, Elsevier, vol. 65(C).
    7. Du, Qianqian & Su, Wanxuan & Liang, Dawei & Wang, Luying, 2023. "How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 124(C).
    8. Alessi, Lucia & Ossola, Elisa & Panzica, Roberto, 2021. "What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures," Journal of Financial Stability, Elsevier, vol. 54(C).
    9. Roy Kouwenberg & Chenglong Zheng, 2023. "A Review of the Global Climate Finance Literature," Sustainability, MDPI, vol. 15(2), pages 1-32, January.
    10. Al Ayoubi, Khalil & Enjolras, Geoffroy, 2022. "Does disinvestment from fossil fuels reduce the financial performance of responsible sovereign wealth funds?," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    11. Avramov, Doron & Cheng, Si & Lioui, Abraham & Tarelli, Andrea, 2022. "Sustainable investing with ESG rating uncertainty," Journal of Financial Economics, Elsevier, vol. 145(2), pages 642-664.
    12. Janick Christian Mollet & Andreas Ziegler, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 208-216, November.
    13. Martí-Ballester, Carmen-Pilar, 2019. "Do European renewable energy mutual funds foster the transition to a low-carbon economy?," Renewable Energy, Elsevier, vol. 143(C), pages 1299-1309.
    14. Ho, Thang, 2022. "Climate change news sensitivity and mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 83(C).
    15. Mollet, Janick Christian & Ziegler, Andreas, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, Elsevier, vol. 23(4), pages 208-216.
    16. Jonathan Peillex & Sabri Boubaker & Breeda Comyns, 2021. "Does It Pay to Invest in Japanese Women? Evidence from the MSCI Japan Empowering Women Index," Journal of Business Ethics, Springer, vol. 170(3), pages 595-613, May.
    17. Sebastian Lobe & Christian Walkshäusl, 2016. "Vice versus virtue investing around the world," Review of Managerial Science, Springer, vol. 10(2), pages 303-344, March.
    18. Trinks, Arjan & Mulder, Machiel & Scholtens, Bert, 2020. "An Efficiency Perspective on Carbon Emissions and Financial Performance," Ecological Economics, Elsevier, vol. 175(C).
    19. Lars Hornuf & Gül Yüksel, 2022. "The Performance of Socially Responsible Investments: A Meta-Analysis," CESifo Working Paper Series 9724, CESifo.
    20. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.

    More about this item

    Keywords

    Environmental performance; Financial performance; Green energy; Green finance; Sustainable investments;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:197:y:2022:i:c:s0921800922000891. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.