Do Investors Value Environmental Corporate Policies? Evidence from the Australian Market

• Main Authors: Mohinesh Chandra, Alireza Tourani-Rad
• Format: Article
• Language: English
• Published: MDPI AG 2021-03-01
• Series: Journal of Risk and Financial Management
• Subjects: firm performance; environmental policies; ESG scores; SRI
• Online Access: https://www.mdpi.com/1911-8074/14/3/124

In this paper, we explore the relationship between a firm’s environmental policies and their risk-adjusted stock returns, using a sample of stock exchange-listed Australian firms over the period of 2010–2018. We observed a positive and statistically significant relationship suggesting that a firm’s environmental policies partially explain their stock performance. Moreover, we found that investors in the Australian market significantly value a companies’ efforts to reduce emissions, and that this primarily drives the investors’ observed reaction to a firm’s social corporate policies. Next, we formed portfolios and observed that portfolios formed on high environmental, social, and governance (ESG) Environmental Pillar scores consistently outperformed those formed on low-ESG Environmental Pillar scores. Overall, our results lend support to the notion that investors in the Australian market value information about a firm’s social policies.