Understanding the Relationship between a Facility's Environmental and Financial Performance

Abstract

It is often argued that good environmental and commercial performance go hand in hand. In this chapter the links between environmental policy stringency, environmental performance and commercial performance (profitability and sales) for a sample of OECD manufacturing facilities are examined. Using a bivariate probit model for six different indicators of environmental performance (natural resource use, solid waste generation, wastewater effluent, local and regional air pollution, global pollutants, and an aggregate index) it is found that environmental performance has a positive and significant effect on both profitability and sales, indicating the potential for "win wins". However, perceived policy stringency has a negative and significant effect, thus indicating that such "win wins" are not policy-induced.

Keywords: environmental performance, financial performance, environmental policy stringency, international, OECD

JEL Classification: L21, L60, Q20, Q30, Q38, M10