Too Costly to Disregard: The Cost Competitiveness of Environmental Operating Practices

Soyoung Yoo, Jiyong Eom and Ingoo Han
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Soyoung Yoo: College of Business, Korea Advanced Institute of Science and Technology (KAIST), Seoul 02455, Korea
Jiyong Eom: College of Business, Korea Advanced Institute of Science and Technology (KAIST), Seoul 02455, Korea
Ingoo Han: College of Business, Korea Advanced Institute of Science and Technology (KAIST), Seoul 02455, Korea

Sustainability, 2020, vol. 12, issue 15, 1-29

Abstract: Achieving the dual goal of improved environmental and financial performance has become a universal business concern. Our study distinguishes between firms’ environmental behaviors and their environmental performance, a distinction that has been largely disregarded in previous empirical studies that analyze the association between environmental performance and financial performance. As an improvement in environmental performance itself does not necessarily guarantee positive financial returns, our study pays particular attention to the value-added nature of preemptive environmental activities, investigating the effects of plant-level pollution prevention activities (PPAs) on environmental performance and financial performance in terms of cost competitiveness and market valuation. Drawing on detailed environmental information about 18,743 chemical plants in the U.S. and analyzing a multi-level panel dataset constructed bottom-up from plant-level data to their parent firms’ performance data, we find that more intensive PPAs are associated with both superior environmental performance and improved cost competitiveness but do not necessarily lead to higher market valuation. Our study illuminates the specific environmental activities and conditions linked to environmental and financial performance, thereby offering managers practical guidance in pursuing both sustainable and profitable businesses under increasingly stringent environmental standards.

Keywords: sustainable business performance; environmental information; pollution prevention activities; environmental management; financial performance; business analytics (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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