Environment and Financial Performance: The Case of the Canadian Oil Industry

Abstract

Environmental and social responsibility has taken center stage in the corporate world. Companies operating in polluting industries are faced with stakeholders’ growing demand for environmental governance and are expected to account publicly for their environmental and social actions in annual financial statements and sustainability reports. ISO14001 and OHSAS18001: 18001 certification systems measure environmental and social performance and foster consensus-making between companies and their stakeholders. Researchers, however, are still divided as to the significance and scope of the relationship between environmental/social and financial performance. We measure this relationship in a cross-section of businesses in the Canadian oil industry. Working with a sample of 23 certified companies consisting of six organizations identified as socially responsible by Corporate Knights magazine, a publication that issues a list of the best 50 corporate citizens in Canada, and 17 companies not recognized by the magazine, we assess the effect of certification on financial performance as measured by the companies’ ROA over five-year pre- and post-certification periods. Regressions of post-certification on pre-certification ROA are performed. The results show that certification is economically beneficial for companies, and more so for those regarded as socially and environmentally responsible.