Does Firm's Environmental Footprint Mitigate the Market Reaction to COVID-19 Uncertainty?

This paper investigates how firms with high environmental performance have reacted to the feverish stock market movements caused by the COVID-19 uncertainty. Our analysis focuses on a sample of 3,869 non-financial listed companies from 21 advanced economies. We find that high environmentally sustainable practices are associated with lower market performance during the COVID-19 crisis, especially when the pandemic began to spread globally. This relation is explained by the stronger contractions in earnings and cash flows forecasts. The cost structure of firms that have already implemented environmental initiatives makes them more exposed to the unexpected global demand shock. Overall, our findings suggest that, in the short-term, periods of high uncertainty and feverish market movements negatively affect environmentally-friendly firms