Unlocking the effect of corporate environmental practices in driving firms’ financial performance

Abstract

This study examines the relationship between corporate environmental performance (ENP) and financial performance, focusing on US firms from 2001 to 2021. Environmental sustainability has become a pivotal issue facing businesses. However, empirical findings on the ENP–financial performance linkage remain mixed. The sample comprises 2,711 US firms analyzed using ordinary least squares, fixed effects, feasible generalized least squares, generalized method of moments, and quantile regression. Results reveal a significant positive relationship between ENP and firms’ financial performance. These findings are consistent across models, underscoring their robustness. This suggests investments in environmental performance can enhance profitability, valuation, and earnings. This paper contributes the empirical evidence to the academic literature on the corporate sustainability-financial performance nexus. It also offers business and policy insights into the financial merits of corporate environmental responsibility, highlighting ENP’s role in delivering sustainable growth.