Abstract

Environmental sustainability strategies have gained traction in recent years in response to the growing awareness and demand from stakeholders to address contemporary challenges like climate change and biodiversity loss. Yet, the mechanisms through which environmental sustainability drives firm value are not sufficiently well-understood. Using a global firm-level dataset that covers 2228 firms between 2009 and 2019, this paper demonstrates that environmental sustainability drives firm value through three different mechanisms, namely building capabilities, signalling and eco-innovation. These strategies are found to exert different effects on firm value, especially across firms with low and high firm value. The findings indicate that signalling and innovation strategies have a positive and relatively homogeneous impact across all deciles of firm value, while building capabilities is only beneficial for firms with very low market value.