The implications of efficiency differences in sustainable development: An empirical study in the consumer product industry

Wayne Fu and Che‐Ping (Jack) Su

Business Strategy and the Environment, 2021, vol. 30, issue 5, 2489-2504

Abstract: Firms often invest in sustainable development projects to improve their environmental and societal performance. Given the broad spectrum of these projects and limited resources, managers face challenges in determining where to improve (e.g., improving water consumption and reducing carbon footprint). The study examines the connection between environmental performance and firm performance from a new angle to help managers make informed decisions. The study examines firms in the consumer product industry regarding their efficiency in the operational aspect, the resource‐related environmental aspect, and the climate‐related environmental aspect. It then employs panel data models to investigate the implications of efficiency differences across these aspects on firms' financial performance and business risk. The results indicate that the effects of these differences are adverse in general. Additionally, the relationship between the operational and environmental efficiency difference and financial performance is in an inverted‐U shape. The study contributes to the literature by offering theoretical support and empirical evidence for the balanced portfolio approach in managing multiple environmental concerns. The study findings also provide managerial guidelines for decision‐making. To gain a greater benefit, managers should aim to minimize the performance differences across multiple environmental aspects and manage a subtle balance between operational performance and environmental performance.

Date: 2021
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