Corporate environmental performance and stock market performance: Indian evidence on disaggregated measure of sustainability

The study addresses the emerging needs of green investing as it believes that the firms that are better equipped with mitigating and adapting climate change and its associated risk also perform better in the market. The construct of superior performance is based on the models linking environmental performance and financial performance in the literature. It aims to validate if those firms that are better equipped with adapting to climate change generate superior or equivalent market return as compared to blue chip firms, socially responsible firms, and general market portfolio. It further examines if market values disaggregated measure of sustainability, that is, environmental performance differently from others. Results of the study are consistent with the theoretical work suggesting that green investing is reflected in demand differences between green and nongreen stocks. It also establishes a link between alpha's and green investing. The results show that all green portfolios outperformed market at 1% significance level over 12-year period and various subperiods. Results also indicate that investors of Indian stock market value pure green stocks more than those stocks that are screened out based on the criteria of corporate governance, employee relations, and other social factors along with environmental factor.