The value of environmental consciousness: An empirical analysis of the relationship between pollution emissions, recycling and energy recovery, and corporate financial performance

Across the board, the manufacturing industry is going "green." Environmentally friendly firms and their products are recognized by consumers and shareholders. Many consumers indicate that their preference to purchase products includes environmental concerns. Anecdotal evidence suggests that "green" corporations have a competitive advantage, however few empirical analyses that verify these assertions exist. Statistical models are scarce because data on pollution prevention activities are limited. Because current environmental regulations require firm specific reports on pollution prevention, electronic databases are being formed, and information is becoming available. This paper examines the relationship of corporate pollution emissions, and energy recovery & source reduction (recovery) to profitability indicators of a sample of Fortune 500 firms with data from the Environmental Protection Agency's 1991-1992 Toxic Release Inventory Database. The analyses show a spurious relationship between corporate pollution emissions and recovery strategies and stock price. A significant relationship is yielded between both firm pollution and recovery and return on equity.