Going green: Environmental risk management, market value and performance

This study investigates the relationship between environmental performance and market values of firms exposed to environmental risk that manage effectively to reduce it. Using a sample of 8112 US firm-year observations during 2012-2020, we document a positive relationship between firms' environmental performance and market-to-book value. Moreover, we show that this relationship holds primarily when firms are more vulnerable to environmental risk and proactively manage to reduce it. Our paper not only agrees with the previous literature showing that it pays to be good but, most importantly, shows that such an approach is reflected in higher valuation mostly when companies use sound environmental risk-control strategies. Contributions and implications are discussed.