Value Relevance of Environmental Capital Expenditures: New Evidence from the EU/EES Electric Utilities Sector

Abstract: The electric utilities sector is one of the sector that exerts the greatest environmental impact globally, and environmental performance metrics and data are often used by investors to assess opportunities and risks among electric utility companies. In this paper, we examine whether environmental capital expenditures (ECE) are value relevant for the EU electric utilities sector. We run tests in a sample of publicly listed electric utilities firms during year 2011 to year 2015, and subsequently found that investors assign a negative value for ECE to firms that are low-polluters and a positive value for ECE for firms that are high-polluters. These findings support the notion ECE is value relevant within the European context, however the direction of ECE (conditional of polluter category) is the opposite against previous findings based on U.S. data.