Abstract:
Our paper investigates the relationship between nancial performance and environmental
performance. We hypothesise that nancial performance has a causal e ect on environ-
mental performance, and the relationship is positive and consistent with the stakeholder
and resource views. We collect nancial and environmental data for our key variables
from Re nitiv for the period 2001-2020. To answer our research question and test our
hypotheses, we begin with Granger causality as a preliminary test of causality and
pooled ordinary least squares regression as a simple test for the sign of the relationship.
We use two-stage least squares as our preferred approach over ordinary least squares
to address endogeneity issues and con rm the causality nding from Granger causality.
We use the Global Financial Crisis as an instrumental variable for our thesis, arguing
that it is a valid instrument for our two-stage least squares approach. Our thesis
shows the GFC having signi cant negative e ects on our nancial variables. Evidence
from our two-stage least squares approach does not support our hypothesis that the
relationship is a positive one and is in line with the neoclassical and opportunism
views of a negative relationship between nancial performance and environmental
performance. Using both Granger causality and two-stage least squares, we nd evidence
to support our hypothesis that nancial performance drives environmental performance.
Our main nding remains robust when we adopt a more restrictive de nition of the GFC.
