Customer‐Driven Corporate Environmental Initiatives and Shareholder Returns

ABSTRACT As ESG considerations increasingly shape corporate and investor priorities, a central question remains: Do sustainability initiatives translate into shareholder returns? While ESG activities are often viewed as cost‐inducing, stakeholder theory suggests they can enhance financial performance by eliciting a positive response from stakeholders. This study tests that proposition by examining the impact of a customer‐driven sustainability initiative, namely, eco‐labeling, on corporate dividend policy. Our results show that firms with eco‐labeling certifications are more likely to pay dividends and exhibit higher dividend payout ratios, an effect primarily driven by improved profitability. Further analysis reveals that eco‐labeling certification has a positive impact on the dividend policy of family firms. Taken together, these findings demonstrate that customer‐led environmental initiatives not only enhance operational performance but also lead to higher and more stable shareholder returns. The evidence highlights the key role of market‐driven sustainability demands in shaping dividend outcomes and shareholder returns in an emerging market.