Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance

Abstract

Summary Previous empirical work suggests that firms with high environmental performance tend to be profitable, but questions persist about the nature of the relationship. Does stronger environmental performance really lead to better financial performance, or is the observed relationship the outcome of some other underlying firm attribute? Does it pay to have cleanrunning facilities or to have facilities in relatively clean industries? To explore these questions, we analyze 652 U.S. manufacturing firms over the time period 1987–1996. Although we find evidence of an association between lower pollution and higher financial valuation, we find that a firm's fixed characteristics and strategic position might cause this association. Our findings suggest that “When does it pay to be green?” may be a more important question than “Does it pay to be green?”

“It Pays to be Green” – A Premature Conclusion?

“…As several authors have pointed out (King andLenox 2001, Reinhardt 1999), the most relevant question is presumably not "does it pay to be green", but rather when and for whom may it pay to be green.…”

“…A variety of measures have been employed in previous studies of the relationship between environmental and economic performance. Among the more objective measures, percentage change in emissions of an aggregate of pollutants (Hart andAhuja 1996, King andLenox 2001) or an index of emissions of various pollutants (Jaggi andFreedman 1992, Wagner et al 2002) are some of the most frequently applied ones. Of course, none of these measures are fully satisfactory, and they may capture different aspects of environmental performance.…”

“…Third, 1 Overviews of the empirical literature on the relationship between environmental and economic performance at the firm level, sometimes labeled the "pays to be green"-literature, are included in e.g. Griffin and Mahon (1997), Wagner et al (2001), King and Lenox (2001) and Filbeck and Gorman (2004). it seems reasonable that the relationship between environmental and economic performance can be positive for plants with certain characteristics, but not for all plants, and for some, but not all, elements of environmental performance. Identifying the characteristics of firms for which good environmental performance is positively associated with profitability can provide important information, especially for the enforcement of environmental regulations.…”

The "Virtuous Circle" Between Corporate Social Performance and Corporate Financial Performance in the European Banking Sector

“…Other studies have established that the relationship between CSP and CFP cannot be proved due to the complex relationship between company and society (Lorraine, Collison, and Power, 2004;King and Lenox, 2001;Murray, Sinclair, Power, and Gray, 2006).…”

Factors affecting the adoption and implementation of ISO 14001/EMS in Oman: a study of SME sectors

“…Business policies nowadays have a dedicated section for environment management practices. The approach from purely looking for the economic profit is shifting towards profound management strategies (King et al, 2001). Tilley (2000) observed that instead of sector specific procedures and guidelines, the SMEs only have general information on the environment subject.…”