The link between corporate environmental performance and corporate financial performance: A study of Swedish firms

Abstract: In light of the huge recent interest in climate change and environmental issues, this thesis aims to explore why companies invest in environmental performance. This is done by investigating the link between between corporate environmental performance (CEP) and corporate financial performance (CFP) for listed Swedish companies during the period of 2004-2007. Previous research has mainly focused on aggregated global, American or European data, despite Sweden being a leading country in terms of environmental awareness. Using a fixed effects panel data regression model, we study the effects of a corporate environment score on ROE and Tobin’s q. These measures were chosen in order to reflect the potential direct and indirect effects of environmental performance. Our results show that there is a positive relationship between both CFP indicators and corporate environmental performance. Furthermore, the results are accentuated when allowing for a lag period of one year. Thus we can conclude that investments in environmental activities are beneficial to shareholders.