Do renewable energy incentive policies improve the performance of energy firms? Evidence from OECD countries

Natural capital inventory approach to sustainability accounting advocates accountability system that keeps stock of natural capital intact. Substituting exhaustible energy resources with renewable energies (RE) is a particular example of the 'substitutability' condition for sustainability and a key principle of the natural capital theory. This paper investigates the effects of RE incentive policies, as facilitators of 'substitutability', on the financial performance of 420 energy firms in OECD countries over 4 years (2013, 2014, 2015 and 2016). Findings reported using fixed effects panel-data modelling reveal that most RE incentive policies deployed in OECD countries stimulate improved accounting-based measures of financial performance. In addition, some incentive policies that are long-term in nature appear value relevant. Overall, the paper documents that substituting RE for fossil fuels, incentivised through RE policies, stimulates improved financial performance of energy companies in OECD countries. The significance of these results is evident in the empirical support they lend to the effectiveness of RE incentive policies, progress of global energy transition and the natural capital inventory theory. Furthermore, the results could be of benefit to policymakers, energy firms and investors.