The environmental and financial performance of green energy investments: European evidence

Abstract

This paper investigates the environmental and financial performance of investments in energy firms. For this purpose, we analyze portfolios of green energy European stocks compared to their non-green counterparts from January 2008 to November 2020. Within firms with environmental ratings, those that are green perform better in environmental terms than their non-green counterparts, although the difference has narrowed in recent years. Regarding financial performance, our results show that, in general, the green energy portfolio outperforms the market but compared to the non-green portfolio, the difference is only statistically significant when an energy stock index is used as the market factor. Furthermore, we find that the outperformance of the green portfolio is mainly due to a performance improvement in most recent years. Overall, our results show that over this period investments in green energy firms perform at least as well as their non-green energy counterparts.