Does environmental materiality matter to corporate financial performance: Evidence from 34 countries

Abstract

This study examines the financial implications of corporate environmental disclosure and performance across 34 countries, with a particular focus on industry-specific materiality following the SASB accounting metrics. A multilevel regression model was applied to a global sample spanning 2015 to 2022 to investigate the firm-level impacts while controlling for country-level effects to account for the heterogeneity in business environments. The analysis revealed a positive relationship between corporate environmental performance, both overall and materiality-based, and financial performance, including ROA and Tobin's Q. Notably, better environmental performance was significantly associated with decreased capital costs, particularly the cost of equity. However, materiality-based environmental scores exhibited weaker impacts, likely due to the limited data availability and inconsistent global integration of materiality concepts. The research findings indicate that investors tend to favor companies with accountable environmental performance over those that rely solely on disclosure. These findings provide valuable insights for investors and business practitioners, emphasizing the importance of considering environmental materiality in corporate reporting and operations.