Environmental sustainability conducts and corporate performance in extractive sector

Abstract

The subject of environmental sustainability transcends geographical zones, it attracts attention at the top-most business, governmental and civil society levels because of its current visible impacts. Despite the growing concern for a sustainable ecosystem, few applied studies have been conducted to establish the relationship between environmental sustainability and corporate performance in the extractive sector (one of the most profitable of all business sectors, yet arguably the worst culprit in environmental degradation). Therefore, this research seeks to explore the relationship between environmental sustainability and corporate performance in the extractive sector. This relationship was investigated using data from 68 companies within the extractive sector in both Europe and the Americas by the technique of multiple linear regression and event studies by one-way ANOVA. Our results show a negative relationship between environmental sustainability and profit while mixed results were obtained for relationship between environmental sustainability and firm value. In the short horizon, there is a positive relationship between environmental sustainability and firm value while a negative result was obtained in a long-horizon. The pattern of the results is most likely due to the unique nature of the sector where the demand for product exceeds supply. There is monopoly power in the form of cartels, and substitutes for the sector’s products (e.g. oil, gas, and cement) are either unavailable or inadequate. Therefore, poor attention to environmental responsibilities may not necessarily affect the profit but impact negatively on corporate value of the companies within the sector in a short-term. However, in the long-term, poor sensitivity to the environment may not be sustainable.