The European Union’s environmental policy and long-term investments of enterprises

Abstract

PURPOSE: Current European Union efforts are focused on creating regulations that are conducive to long-term investor commitment, i.e. they are fighting short-termism on financial markets. Enterprises that implement the European Union’s environmental policy are seen to engage long-term financial resources, which should therefore dominate the structure of their assets. The primary goal of the paper is to ascertain whether a company’s high environmental performance (E-index) is positively correlated with the value of its long-term investments.

DESIGN/METHODOLOGY/APPROACH: The empirical research is carried out in two parts. The first part presents the correlation between the company’s E-index and the share of its long-term investments in total assets. For comparison, we examine these relationships with ESG, as well as the S and G scores. In the second part, we assess the character and strength of the impact of the company’s E-index on the value of its long-term investments. This study includes companies listed on 14 Western European stock exchanges, covering the period 2002 to 2019.

FINDINGS: Contrary to our assumptions, we find, first, that the environmental index is negatively related to the share of long-term investments in assets in most countries. Second, using panel dataset for the analysed European Union markets, we find evidence that the environmental index negatively affects the value of long-term investments, indicating that the current actions undertaken by the European Union have no empirical justification.

PRACTICAL IMPLICATIONS: The results of the research may be useful for researchers, practitioners, and regulators from the European Union and the European Union countries in understanding the relationship between a company’s E-index and its investments.

ORIGINALITY/VALUE: There is no research which proves that the increase in long-term investments, and thus the increase in the availability of long-term capital, is of key importance for enterprises, so our research is pioneering and unique.