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Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital: Environmental commitment and the cost of capital

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  • Massimo Mariani
  • Fabio Pizzutilo
  • Alessandra Caragnano
  • Marianna Zito

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.

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  • Massimo Mariani & Fabio Pizzutilo & Alessandra Caragnano & Marianna Zito, 2021. "Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital: Environmental commitment and the cost of capital," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(6), pages 1854-1869, November.
    • Handle: RePEc:wly:corsem:v:28:y:2021:i:6:p:1854-1869
    DOI: 10.1002/csr.2164
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