Effect of environmental management systems on investor reactions to emission information

While environmental management strategies both by the firms and the regulators are converging towards proactive environmental management, the key question remains: do investors, as major stakeholders, recognize, respond and reward firms involved in such proactive environmental management and do these strategies create shareholder value? The answer is critical the sustainability of such efforts. In this paper, we analyze if relative risks of pollutant emissions, pollution preventions activities undertaken by the firm, and the characteristics of firm environmental management systems affect stock market reactions to toxic release information. Event study analysis of a panel dataset of S&P 500 firms suggests that stock market reactions partially incorporate relative risk information, and that pollution prevention efforts and externally visible features of the firm environmental management systems moderate these reactions.