Understanding Complexity: the Curvilinear Relationship Between Environmental Performance and Firm Performance

Abstract

The nature of the relationship between environmental performance (EP) and firm performance (FP) of corporations is a long standing and contentious issue in the literature. This study is intended to advance this debate by arguing for the existence of curvilinear relationship and empirically testing the same using survey data on UK manufacturing firms. FP is captured in terms of growth in sales and market share. Our results show evidence for a quadratic relationship-as firms improve their EP, they seem to achieve much higher levels of FP. These results are consistent with the resource-based view of a firm; as firms engage in EP activities, they are able to gain inimitable knowledge that helps in further learning to further improve performance. Based on our results, we suggest that new studies focus on strategies to extend the period of increasing returns and maximizing the benefits of the positive association between EP and FP.

Carbon disclosure and financial performance: UK environmental policy

“…The RBV theoretical lens appears to have become the dominant theory in the debate on how environmental practices are associated with FP (e.g., Hart, 1995;Hart & Ahuja, 1996;Klassen & Whybark, 1999;Ramanathan, 2018). In our study setting, it offers a supportive framework with which to analyse such relationships for two reasons (Surroca, Tribó, & Waddock, 2010).…”

Family ownership and environmental performance: The mediation effect of human resource practices

“…Within the wide range of information covered by corporate social responsibility reporting (e.g., social and environmental), strong interest has been documented in recent years in environmental information because of increased stakeholder pressure on firms' environmental performance (Ramanathan, ). Although most of the previous literature has focused on the relationship between environmental and firm performance (e.g., Han, Lin, Wang, Wang, & Jiang, ; Lee, Cin, & Lee, ; Molina‐Azorín, Claver‐Cortés, López‐Gamero, & Tarí, ; Xie, Nozawa, Yagi, Fujii, & Managi, ; Yadav, Han, & Rho, ), there is ongoing academic debate about the determinants of environmental performance (e.g., Dekker & Hasso, ).…”

The relationship between emissions reduction and financial performance: Are Portuguese companies in a sustainable development path?

“…Table results highlight that slack has a strong positive effect over FP when no quadratic terms are considered, being the interaction between GHG and slack negative and significant. The latter means that even if GHG increases FP, when combined with resource slack, EP has a positive association with FP and these results should be valuable for management decision support if their goal is to increase the image of the firm provided the raising awareness of corporate social and environmental responsibility by the general public (Ramanathan, ). However, we observe a negative and significant slack coefficient when the dependent variable is GHG, favoring the idea that resource slack decreases emissions, thus improving EP.…”