Research & Projects

Do brown firms outperform green firms in the U.S. stock market, based on Trucost Environmental data on firm-level emissions and Sustainalytics ratings?

Objectives

The objective of this study is to determine whether green firms outperform brown firms in the U.S. market. To determine this, the relationship between firm performance (stock returns) and greenhouse gas (GHG) emissions (absolute, Scope 1 and Scope 2) is examined with emissions being the determinant for the “greenness” of a firm. As the existing literature in the field is not unable to reach a consensus with conflicting results, further insight is provided by this paper.

Results

As a sample of the U.S. market, S&P500 firm returns are examined and a statistically significant negative correlation between firm returns and GHG emissions has been documented. Furthermore, the same regression model is used to test an alternative way to define “greenness” through ESG ratings, finding a statistically insignificant positive correlation. The findings indicate that green firms outperform brown firms when controlled for market factors, macroeconomic factors and firm characteristics with specific definitions of greenness.