Does the market reward for going green?

The purpose of this paper is to investigate the effects of the application of green standards on the companies’ financial returns. It aims at answering the following question: does the market reward or penalize the players that carry out responsible management policies toward environment? Using US data from 2009 to mid-2014 and employing two financial models, that is Capital Asset Pricing Model and Fama-French three-factor model, we first estimate the extra remuneration provided to investors. Then, we link this extra return to a green-based factor. The green-factor data are taken from Newsweek Green Rankings, which annually publishes an environmental ranking of the 500 biggest publicly traded companies in the USA. The analysis demonstrates that there exists no linear relationship between the adoption of green standards and financial returns, i.e. the “green-behavior” does not affect the remuneration required by investors. These results could be justified by the fact that the implementation of environmentally friendly standards is quite a new one.