Role of Industry Context in The Firm Environmental-Financial Performance Link: Evidence from the Extractive Sector

Extant studies on the impact of corporate environmental performance on firm financial performance have produced contradictory findings. Empirical findings remain inconclusive largely due to faulty theorising and methodology. One key assumption is that the evidence from a particular research can be generalised across contexts, whereas these differ from industry to industry. A good example of an industry with theoretically and methodologically valid peculiarities is the extractive sector owing to the sector’s centrality in the discourse on business role in climate change and environmental sustainability. We therefore argue for an idiographic perspective that allows theory and design that are sensitive to the industry’s idiosyncrasies. In this paper, we draw on 94 firms that involve in extractive business based on the S&P 500 index. The results show that environmental performance has no significant association with extractive firms’ financial performance. Meanwhile, results based on full data set (S&P 500 including the extractive firms) depict a significant positive relationship. This confirms our hunch regarding the idiosyncratic nature of the extractive industry, which include the non-substitutability of the industry’s products with a very high demand and low chance of consumer boycott. The study reflects the nature of the extractive sector which is characterised by cartel arrangement where most firms operate like monopolists with little or no substitute for their products. This, however, portends some disturbing insights about why some of the firms in this sector perhaps sometimes exhibit cavalier attitudes in their environmental action with little or no significant impacts on their long-term value. We discuss the theoretical and policy implications of the study.