Abstract
Firms pursue voluntary sustainability commitments that exceed the requirements of regulation, typically in response to requests from various stakeholders including external parties like employees or customers. Under the commonly held view of shareholder supremacy within the firm, such voluntary sustainability commitments have the potential to destroy shareholder value should the costs of voluntary sustainability exceed the benefits to shareholders. I answer the question of whether or not investors value the announcement of sustainability commitments by examining the decision to covert to 100% renewable electricity utilization and its impact on firm value using an event study methodology.
I evaluate a sample of 77 firms that have pledged to convert their manufacturing and business operations to 100% renewable electricity sources by 2050, as part of a larger organization known as the RE100. Firms that make the pledge agree to source all of their electrical power from renewable production, like solar or wind power. I find that there are significant, positive cumulative abnormal returns of +0.39% during the 3-day announcement window for firms joining the RE100 pledge. Firm level abnormal announcement returns do not vary by firm size, industry, or profitability. Firms level returns do vary by international location, with U.S. firms having slightly higher returns than their non-U.S. peers. The length of time at announcement to goal completion also does not impact abnormal returns. These findings together suggest that investors do in fact value the announcement of voluntary corporate sustainability initiatives, in particular sourcing 100% renewable electricity.