Green Technology and Stock Market Performance

Of late, markets have played significant role specially in regulating pollution. This has been achieved by publishing environmental performance of industries in the form of raw materials used, production process, pollution abatement policy adopted, conservation of resources, and methodologies adopted for output use and disposal. On the basis of such information, the stock markets evaluate the environmental performance of industries through stock values. Some countries including India have started green rating of pollution prone industries.

The regulation process works as follows: Normally an investor will look into overall performance of a unit before investing in it. If its production is not efficient due to various environmental problems, this will obviously reflect on the overall performance, and hence, the financial benefits. As a result, the environmentally inefficient industrial units with weak performance are rated low compared to the units with good performance. In other words, the industrial units with bad environmental performance have significant negative impact on stock values. Though relevant to both developed and developing countries, this practice has yielded good results in developing countries by effectively regulating the pollution activities of the industrial units. Some of the studies have estimated the loss of polluting firms in the stock market to be up to 11 per cent.

Table: Performance of  Stock Markets and Polluting Industry