The Potential Link between Corporate Environmental and Financial Performance: Empirical Evidence

Abstract

Environmental considerations are receiving increased attention in the corporate setting by several groups including top management, employees, regulators, environmentalists and the capital markets. Although claims are routinely made that good environmental performance should lead to good financial performance, there is considerable disagreement over whether such a linkage exists. This paper reviews the extant literature to determine whether existing empirical evidence indicates a systematic linkage between firms' environmental performance and their financial performance and what the nature of any such linkage is. Our examination of several different types of empirical studies reveals that there appears to exist a positive link between environmental performance and financial performance, but several caveats are necessary in interpreting the literature. We provide a discussion of these caveats and suggest fruitful directions for future research.

Keywords: Environmental performance, financial performance