How Do Sustainability Investments Effect Financial Performance? An Instrumental Variable Approach

Abstract

This study investigates the relationship between sustainability investments and financial performance by observing a natural experiment in an industry that is saturated with firms engaging in sustainability practices: agriculture. We analyzed the financial statements of almond farms over a ten-year period to investigate financial outcomes. The findings of this study support a positive, indirect relationship between sustainability investments and financial performance through the significant increase in almond yield across farms and overtime (even when considering the endogenous relationship between investments and financial performance).