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Corporate environmental performance–financial performance relationship in India using eco-efficiency metrics

S. Sudha (Department of Finance and Accounting, Indian Institute of Plantation Management, Bangalore, India)

Management of Environmental Quality

ISSN: 1477-7835

Article publication date: 22 August 2020

Issue publication date: 16 October 2020

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Abstract

Purpose

The purpose of this study is to attempt to empirically examine the impact of disaggregate, eco-efficiency-based measures of corporate environmental performance (CEP) on corporate financial performance (CFP) of Indian companies. Further, recent theories contending a bidirectional causality between them is also explored.

Design/methodology/approach

Secondary data of 224 Indian S&P 500 companies from 2002 to 2011 are used to run panel data regression models for examining the impact of CEP measures on accounting-based CFP measures.

Findings

The empirical results are statistically significant and provide evidence for a positive association of eco-efficiency-based CEP metrics on CFP metrics, thereby supporting Porter's win–win hypothesis. Further, the results evidence a positive bi-directional causality between CEP and CFP for one period time lag signalling possibility of mutual reinforcement in CEP–CFP relationship.

Research limitations/implications

The study has used data for the period 2002–2011 and eco-efficiency metrics – energy, water and material efficiencies due to availability.

Practical implications

The results have implications to both corporate managers as well as policymakers across all industries for emphasizing on eco-efficiency-based (proactive) environmental sustainability initiatives to enhance both financial and environmental bottom lines.

Originality/value

The study contributes to scarce empirical literature analysing the impact of CEP on financial performance. To the best of authors's knowledge, event studies, portfolio studies and perceptual data-based empirical studies exist in India. This study is unique in that it examines long run effect of eco-efficiency-based CEP metrics which is pertinent in a rapidly growing emerging market – India, where, eco-efficiency is considered quintessential for sustainable development.

Keywords

Acknowledgements

The author is extremely thankful to both the anonymous reviewers for their constructive comments which immensely improvised this research paper; Further, the author profoundly thanks Prof. Dr. P. Duraisamy, Vice-Chancellor and Former Professor and Head, Dept. of Econometrics, University of Madras for his guidance and Dr. C. Ganeshkumar, Asst. Professor (Decision Sciences), Indian Institute of Plantation Management for his valuable feedback on the manuscript. This study is not funded by any Government/Research institution.Conflict of interest: The author declares “No conflict of interest”.

Citation

Sudha, S. (2020), "Corporate environmental performance–financial performance relationship in India using eco-efficiency metrics", Management of Environmental Quality, Vol. 31 No. 6, pp. 1497-1514. https://doi.org/10.1108/MEQ-01-2020-0011

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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