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

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.