The Impact of Environmental Strategies and their Interaction Effects on Firm Performance

(1)

The Impact of Environmental Strategies and their

Interaction Effects on Firm Performance

Mergime Brajshori

S3012077

MScBA Strategic Innovation Management

Faculty of Economics and Business

Supervisor: prof. dr. J. Surroca,

Co-assesor: dr. W. Schoenmakers

(2)

ABSTRACT

The purpose of this paper is to build and test the underexplored field of the interaction effects of environmental strategies and their subsequent effect on corporate financial performance. Based on the findings and suggestions of existing literature, I develop three hypotheses regarding the relationship between corporate environmental strategies and firm performance. These hypotheses are tested on a sample of 166 global firms in the energy related sectors using linear regression analyses. Data for this research is obtained from ASSET4 Thomson Reuters through DataStream. In line with past literature, I show that the interaction of proactive environmental strategies namely pollution prevention and product stewardship has a positive impact on firm performance. Interestingly, the findings show that individually reactive (end of the pipe) and proactive (product stewardship, pollution prevention) strategies, neither benefit or harm a firm's financial performance. The main contribution of this study is the increased understanding of the relationship between environmental strategies and firm performance, and the unexplored effects of their interaction.

Keywords: environmental strategies; proactive environmental strategies; reactive environmental

(3)

In today´s business life, the natural environment has become a crucial component. Corporations and managers are increasingly confronted with environmental problems that have a direct impact on firms’ financial performance and sustainability. For companies, the ability to reduce their environmental impact and manage their environmental performance is a strategic issue and can contribute to improving firms competitiveness (López-Gamero et al., 2009). Growing awareness about environmental issues brought by economic activities has led to an increased social and political demand on organizations to minimize their negative impacts on the environment (Galdeano-Gomez, 2008). Thus, organizations and executives are increasingly confronted with environmental issues. This is not merely about the adoption of environmental values, but it may further have a direct impact on attaining sustainable economic success.

Thus, a fundamental question, which over the past two decades has been under discussion among many scholars refer to the performance implications of firm´s investments and deployment of environmental strategies and practices (Dam & Petkova, 2014; Rao and Holt, 2005). Environmental strategy can be divided into two categories, the environmental proactive and reactive approach (Aragon-Correa & Sharma, 2003, Hart, 1995; Mintzberg, 1989). Reactive environmental strategy is defined as one to comply with external legal pressures. Here, organizations place emphasis on pollution reduction and treatment by a so-called "end-of-pipe approach" to hold against the enforcement and enactment of environmental laws. On the contrary, the proactive environmental strategy goes beyond complying with the law and puts emphasis on process innovation and prevention of pollution at the source (Hart, 1995; Russo & Fouts, 1997). Three distinct environmental strategies are discussed in this paper, the end-of-pipe (EoP) approach which is part of the reactive environmental strategy, and pollution prevention (PP) as well as product stewardship (PS) which are part of the proactive environmental strategy.

There have been numerous conflicting findings concerning the relationship between an organization's environmental strategies and financial performance. On one side, previous research shows that there is a negative link between the adoption of both, proactive and the reactive environmental practices on financial performance (Sarkis and Cordeiro, 2001). On the other side, numerous scholars, including Hart (1997), agree that improvements in environmental performance often result in a positive financial outcome. Past research has argued for a competitive financial superiority by following either proactive or reactive environmental strategies (Donaldson and Preston, 1995; Hammar and Löfgren, 2007).

(5)

these strategies are exclusive, suggesting that engaging in one implies to not engaging in the other. This view certainly takes away the opportunity for researchers to do a comparative analysis of both strategies. Moreover, it strongly contrasts with the reality that companies engage in a wide range of environmental actions that include proactive (pollution prevention, product stewardship) as well as reactive (end-of-pipe) practices (Klassen, 2000). There is also a corresponding logic in the different environmental strategies as it may be difficult or even impossible to successfully implement a product stewardship strategy without having first made significant progress in preventing pollution. If a company tries to designate products as environmentally friendly but at the same time continues to produce great amounts of production waste and emissions, stakeholders could uncover this anomaly and destroy the company's reputation and credibility (Hart, 1995). Moreover, to entirely replace end-of-pipe activities through proactive environmental practices is surely not possible. In practice, a mixture of pro- and reactive environmental practices that are dependent on the fundamental environmental goals of a company, the technological options available, and the related costs will always exist. Therefore, if a company only implements one strategy it may miss the opportunity to benefit from the possibly existing synergies across the strategies. This suggests that environmental performance can be enhanced by pursuing these environmental activities simultaneously.

Hence, viewing the deficient research attention as well as the mixed findings, this study has the following research objectives: Firstly, to identify the respective relationship of corporate proactive (pollution prevention, product stewardship) and reactive (end of pipe) environmental strategies on firm performance. Secondly, to fill the literature gap by empirically assessing the interaction effect of corporate environmental strategies on firm performance. Therefore, the following research questions were formulated:

RQ1: What is the relationship between corporate environmental strategies and firm performance? RQ2: What are the interaction effects between the corporate environmental strategies on firm performance?

With regards to these research questions, I hypothesize that first, there will be a significant positive effect of environmental strategies (PP, PS, and EoP) on firm performance. Second, there will be a significant positive two-way interaction effect of environmental strategies (PP & PS; PP & EoP; PS & EoP) on firm performance. And third, there will be a significant positive three-way interaction effect of environmental strategies (PP & PS & EoP) on firm performance.

(6)

Lee, 2011). Secondly, I advance the environmental management literature by studying the interaction effect of environmental strategies on corporate financial performance. In line with previous findings, I found a significant and positive interaction effect of two proactive environmental strategies namely pollution prevention and product stewardship on corporate financial performance. Interestingly to note is that the individual proactive environmental strategies did not yield significant results, whereas their interaction yields positive results, suggesting that there might be a synergy between the proactive environmental practices leading firms to better financial performance. Finally, I argue that these results might provide an indirect link for the natural resource base view´s fundamental proposition that proactive environmental strategies can help organizations attain sources of competitive advantage leading to better financial performance (Hart, 1995; Hart and Dowell, 2010).

From an academic perspective, this study could enrich the extent of environmental management literature and provide useful inputs by examining the financial consequences of corporate environmental practices. From a practitioner perspective, this study offers valuable insights for executives to better manage their environmental strategies or activities alongside their desired performance objectives.

This paper is structured as follows: Chapter 2 of this paper provides a theoretical background for this study, which was used to ground the hypotheses that served as a driver for the analysis part. Chapter 3 outlines the data and explains the methodological approaches as well as the research design that were used to answer the research questions. Moreover, chapter 4 presents the empirical results of the linear regression analysis. The following chapter discussed the findings comprising theoretical and managerial implications and suggestions on areas for future research. The final chapter presents the conclusion of this study.

2. THEORETICAL BACKGROUND AND HYPOTHESES

The following section aims to provide relevant research streams on environmental strategies on organizational performance on the example of energy companies. Moreover, it shall help the reader to gain an understanding of existent discussions amongst scholars. This section is mainly built on corporate environmental management and corporate financial theory. Furthermore, it will be elaborated on the different types of corporate environmental strategies or activities, and it will be discussed how these are linked to an organization's financial performance leading to the development of three hypotheses.

2.1 Environmental Strategies

Mintzberg (1989) defines corporate environmental strategy as initiatives that contribute to the natural environment or as a set of actions that organizations take to achieve their environmental goals. Literature shows that environmental strategy can be divided into two categories, environmental proactiveness and reactiveness (Aragon-Correa & Sharma, 2003, Hart, 1995; Mintzberg, 1989).

(7)

approach" to hold against the enforcement and enactment of environmental laws. On the contrary, the proactive environmental strategy goes beyond complying with the law and puts emphasis on process innovation and prevention of pollution at the source (Hart, 1995; Russo and Fouts, 1997).

In his work, Hart (1995) presents four different types of environmental approaches, however, due to the scope of this study, one approach namely sustainable development will not be further discussed since pursuing a sustainable development strategy implies both, substantial investment and a long-term commitment to market development. Thus, there is little reason to assume that these investments result in improved short-term profits and since this paper focuses on practices to minimize firm´s environmental impact and their effect on short-term findings, this strategy will not be further discussed (Hart, 10995).

Therefore, this paper applies and discusses the following three approaches, namely: (1) pollution prevention, (2) product stewardship, and (3) end-of-pipe.

The end-of-pipe approach is part of the reactive environmental strategy, whereas, pollution prevention as well as product stewardship are part of the proactive environmental strategy. In the following sections, these environmental approaches are further explained.

2.1.1 Pollution Prevention Strategy

According to the Pollution Prevention Act of 1990, the term pollution prevention is also understood as source reduction. It entails any practice that decreases or removes the creation of pollutant through a higher degree of efficiency in the use of raw materials, water, energy, or any other resource. Pollution prevention comprises either process or product related changes that lead to a decrease in severe environmental impacts (Klassen, 2000; Schoenherr, 2012). The significance of pollution prevention is that it aims to minimize waste before it is produced rather than aiming to clean up waste after it has been produced.

Within the energy industry, environmental damages caused by processing, extraction, fuel combustion and transport, can be reduced by pollution prevention. Such pollution prevention methods comprise an increased efficiency in the use of energy and environmentally benign fuel sources (Stellman, 1998).

For the purpose of this study, pollution prevention is divided into sets of practices such as monitoring energy efficiency, use of renewable energy, initiatives to improve energy efficiency, and the implementation of an all-purpose policy regarding resource efficiency.

2.1.2 Product Stewardship Strategy

(8)

Furthermore, product stewardship involves selecting and evaluating alternative raw materials and components in the development of product and packaging in order to lengthen the product life cycle (The Northwest Product Stewardship Council, 2001). Such methods support the use of renewable, harmless, or reusable materials in product manufacturing (Drumwright, 1994). Also, it concentrates on resource and energy preservation when producing and using products (van Hamel and Cramer, 2002).

In addition, this strategy incorporates external perspectives into development processes and product design (Hart, 1997; Hart and Dowell, 2010). A common practice is the use of life-cycle assessment. This method analyses and assesses the environmental burdens associated with a product, packaging, process, and activity (Davis, 1993). It is used to assess the environmental burden induced by a production system from "cradle to grave" (Keoleian & Menerey, 1993). Consequently, this data is further used to assess what impact those energy and material usages, and environmental releases have. Accordingly, data is used to evaluate and implement corporate opportunities to improve the environment (Fava et al.,1992).

In this study, product stewardship is divided into sets of practices such as reducing the energy footprint of products during usage, as well as designing products for reuse, recycling or the reduction of environmental impacts. Lastly, this study focuses on firms´ initiatives in implementing product life-cycle assessment, environmental criteria, and eco-design.

2.1.3 End of Pipe Strategy

This approach, also defined as "pollution treatment or control" can be understood as any practices, methods, processes, technologies or equipment that are designed to collect, reduce, recycle and remove pollutants (Theodore, 1994).

End-of-pipe solutions are applied to eliminate already formed pollutants from waste, water, air, or products. This is done by treating and disposing of pollutants, and by monitoring and measuring the degree of pollution (Hellweg et al., 2005). They operate independently from the production process, and they are add-on measures to ensure compliance with environmental legislation. Moreover, the end of pipe approach does not require a firm to acquire specific skills or expertise in dealing with environmental processes or technologies (OECD, 1997).

In this study, the end of the pipe approach focuses on an initiative to reduce, reuse, recycle, substitute, phase out or compensate for any hazardous waste, wastewater, emissions, and ozone-depleting substances.

2.2 Environmental Strategies and Firm Performance

(9)

previous research shows that there is a negative link between the adoption of both, proactive and the reactive environmental practices on financial performance (Sarkis and Cordeiro, 2001). Gonzalez-Benito and Gonzalez-Gonzalez-Benito (2005) found that a number of environmental practices may impact the financial performance of companies negatively. Other scholars researched that organizational attention to environmental problems did not improve profitability of firms (Inoue and Lee, 2010). On the other side, numerous scholars, including Hart (1997), agree that improvements in environmental performance often result in a positive financial outcome. As a reaction, a great amount of empirical evidence has applied econometric methods to test the “pays to be green” hypothesis. Numerous studies using the natural resource bases view NRBV indicate that an increasing environmental performance is linked to a better financial performance. Furthermore, Russo and Fouts (1997) found that firms´ efforts towards protecting the environment are positively associated with their financial performance. In addition, López-Gamero et al. (2009) argue that environmental initiatives and practices can enhance the firm's competitiveness and can lead to better economic performance.

All in all, previous environmental literature has shown that the application of environmental practices by organizations typically results in a better environmental performance (Annandale et al., 2004; Melnyk et al., 2003; Zhu and Sarkis, 2004). A higher level of environmental performance can be achieved through reactive or proactive environmental initiatives (Henri and Journeault, 2008). Scholars such as Green et al. (2012), find strong support for a direct relationship between environmental and cost performance and claim that environmental efforts are related to improved financial performance. Therefore, since organizations enhance their environmental performance by implementing different environmental strategies and practices can result in improved financial performance.

Consequently, the following hypotheses are developed to empirically test the relationship between corporate environmental practices and firm performance:

Hypothesis 1: There will be a significant positive effect of PP (Hypothesis 1a), PS (Hypothesis 1b), and EoP (Hypothesis 1c) on firm performance.

In addressing the performance differences between environmental strategies, researchers claim that the resource-based view can be extended by stressing out the natural environment as an essential part in pursuing competitive advantage. Scholars refer to this phenomenon as the natural resource-based view (NRBV). It further outlines interconnected environmental practices, such as product stewardship and pollution prevention. Pollution prevention comprises a process-oriented method, which has its focus on eliminating pollution within internal operations (Christmann, 2000; Hoque and Clarke, 2013). This strategy is commonly seen as a basis in proactive environmental management since it is crucial for a company to have gained the resources that are needed for the implementation of a preventive approach to follow the path-dependent progression to the next strategy (Christmann, 2000; Hart, 1995).

(10)

different phases of the production processes, from sourcing to disposal up to the end of the product's life-cycle (Hart, 1995).

Integrating these two proactive strategies into the central business strategy enables organizations to create valuable and unique organizational capabilities and resources, which by having that allows organizations to achieve competitive advantage. This occurs by first, becoming more efficient in production processes, which then lowers the input and waste disposal costs, leading to an improvement of the organization's financial performance. Secondly, by differentiating their products that are produced in an environmentally responsible way or by integrating environmentally-friendly features. According to the instrumental stakeholder theory, such environmentally-friendly behavior attracts customers and other stakeholders, which results in increased revenues and improved organizational financial performance (Donaldson and Preston, 1995).

At the next step and at the end of the whole production processes lies the end of pipe approach with focuses on controlling and treating the environmental impact induced by organizational activities, to avoid the spreading and to measure the pollution level (Hammar and Löfgren, 2007). Some scholars claim that reactive environmental strategies do not just allow organizations to prevent legal risks concerning the environment, but also enable them to prevent large amounts of investments by mostly changing their current production processes and offerings as well as their organizational culture (Aragon-Correa and Rubio-Lopez, 2007). In addition, Hammar and Löfgren (2007) found that energy prices contribute to explaining firms´ implementation of end-of-pipe solutions. Also, the higher the company's energy intensity, the stronger the effect. This is an important finding that needs to be considered as the research setting of this paper includes global companies in the energy related sectors.

All in all, many scholars have in the past argued for the competitive cost advantage of implementing either proactive or reactive environmental strategies. Unexpectedly, they have not often incorporated both strategic types into the same research to examine their interaction effects on corporate financial performance. A reason for this is due to the research approach they have adopted to operationalize both strategies, meaning to treat them as being represented by the two end-points of a strategic proactiveness to strategic reactiveness continuum or scale (Sharma, 2000). However, companies might in engage in several different reactive as well as proactive environmental practices simultaneously. Despite that fact, past research assumed that these strategies are exclusive, suggesting that engaging in one implies to not engaging in the other. This approach inevitably takes away the opportunity for researchers to analyze the two strategies comparatively. Also, it strongly contradicts with the reality that organizations engage in a wide range of environmental activities that comprise proactive (preventive) and reactive (treat) measures (Klassen, 2000).

(11)

stewardship strategy without having first made significant progress in preventing pollution. If a company tries to designate products as environmentally friendly or "green", but at the same time continues to produce great amounts of production waste and emissions, it appears risky, as stakeholders (e.g. regulators, environmental groups) could easily uncover this anomaly and destroy the company's reputation and credibility (Hart, 1995). Moreover, to entirely replace end-of-pipe activities through proactive environmental measures is surely not possible. In practice, a mixture of pro- and reactive environmental activities that are dependent on the fundamental environmental goals of a company, the technological options available, and the related costs will always exist. Thus, in order ensure that care is taken on the unavoidable creation of some pollutants at the end of the production process, the end of pipe approach is crucial to phase out the remaining pollutants. Consequently, if a company only implements one strategy it may miss the chance to benefit from the existing synergies across the strategies. This suggests that environmental performance can be enhanced by pursuing these environmental activities simultaneously. Therefore, the following hypotheses have been developed to test the interaction effects of corporate environmental practices on firm performance:

Hypothesis 2: There will be a significant positive two-way interaction effect of environmental strategies (PP + PS; PP + EoP; PS + EoP) on firm performance.

Hypothesis 3: There will be a significant positive three-way interaction effect of environmental strategies (PP + PS + EoP) on firm performance.

(12)

3. METHODOLOGY

The following section serves to describe the methodological choices that were made throughout this study. This includes (1) the use of industry and sample data, (2) the way that the data was collected, as well as (3) the way the variables were constructed. The final part (4) explains the analytical strategy in order to test the hypothesis. To analyze the effect of environmental strategies in their interaction effect on firm performance a linear regression analysis was used.

3.1 Empirical Setting

The empirical setting of this study includes global companies in the energy-related sectors primarily due to the following reasons: Accidents happening at energy companies cause a much higher negative impact on regional pollution than those in other industries. One example is that only 32 energy companies out of the Global 500, released 31% of the global greenhouse gases (Moorhead and Nixon, 2015). Thus, energy-intensive industries have to assume environmental responsibility, starting with the essential practices, such as re-establishing the environmental damage and keeping it to the minimum (Jiang et al., 2018). Besides, an organization's duty toward the environment is now encompassed in the global business agenda (Arlow and Gannon, 1982). Consequently, organizational environmental initiatives are becoming more and more relevant to all enterprises globally. Therefore, this study empirically tests corporate environmental strategies and their interaction effects on firm performance for global firms in the energy-related sectors.

3.2 Data source

To conduct this research, I used a theory testing approach. This concentrates on data collected from a large sample >100 of global enterprises within the energy industry. The database from which this data was obtained is ASSET4 from Thomson Reuters through DataStream. The reason for using ASSET4 as a data source is that it provides information on environmental practices at the organizational level. This data originates from different sources, including information provided by the companies, annual reports, and media releases. Thomson Reuters analyses all the data and transforms the evaluation into the following four pillars: Economic, corporate governance, social, and environmental. These four pillars incorporate all the categories that are included in one overall score. The scores for the categories, pillars, indicators, and overall scores are calculated in the same way.

Due to the scarce availability of global data for the corporate environmental strategies that have been applied in this study (Pollution Prevention, End of Pipe, and Product Stewardship), a unique approach has been applied to construct a measurement scale by choosing ASSET4 as a data source.

3.3 Data Collection and Sample

(13)

obtained via DataStream. Then, the dependent, independent and control variables were as well retrieved from the ASSET4 database for one year starting from 01/01/2016 to 31/12/2016. Through this process, a list was created, which contained 6384 global organizations. In order to create a population of global firms in the energy-related sector, firms with a SIC code starting with 40 to 49 were collected, which resulted in a total number of 219 firms.

Next, organizations that did not meet the following required criteria were removed from the list. First of all, information on the three corporate environmental strategies namely Pollution Prevention, End of Pipe, and Product Stewardship was collected. Removing firms with missing information on these environmental scores left 197 firms. Secondly, in order to control for firm size, financial leverage, capital intensity, and the social-, economic-, and corporate governance pillar scores from ASSET4 information for these controls for the year 2016 must be present. After collecting the data for the control variables, 27 companies were identified with missing information which resulted in a total number of 170 firms. Lastly, to measure organizational performance, information has to be existent on total assets and the net profit for 2017 (1-year lag) to calculate a firm´s return on assets (ROA). After checking the list and removing four firms that were missing this data, a sample of 166 firms remained.

Due to the scarce availability of global data for the corporate environmental strategies that have been applied in this study (Pollution Prevention, End of Pipe, and Product Stewardship), a unique approach has been applied to construct a measurement scale by choosing ASSET4 as a data source.

3.4 Measurements

This part presents the measures that were used for this study. For the purpose of this study, a unique self-constructed approach was applied to create scales for the distinct corporate environmental strategies with data from ASSET4. The dependent and control variables were chosen and formulated based on existing literature.

3.4.1 Dependent Variable

ROA

(14)

3.4.2 Independent Variables

For this study, a unique approach has been applied to construct a measurement scale by choosing ASSET4 as a data source for the independent variables namely Pollution Prevention, Product Stewardship, and End of Pipe.

Each strategy consists of six subscales; therefore a combined count variable for each strategy was created resulting in three scales for the respective strategies ranging from 0-6. A company could score a minimum of "0" and a maximum of "6" in which "0" means that the company has not applied any of the six practices, and in which "6" means that the company applied all practices and received the maximum score. In the following, the three independent variables and their measures are presented.

Pollution Prevention

The term pollution prevention means source reduction and any other practices that decrease or remove the creation of pollutant through a higher degree of efficiency in the use of raw materials, water, energy, or any other resource or the protection of natural resources by conservation (Pollution Prevention Act, 1990). Within the energy industry, prevention methods comprise an increased efficiency in the use of energy and environmentally benign fuel sources (Stellman, 1998).

To measure firm´s pollution prevention efforts, past research has used an unbalanced panel data set and investigated whether firm´s made investment in clean technologies, which refer to the pollution prevention approach (Hammar and Löfgren, 2010). Several other researchers, have measured firm´s pollution prevention efforts through questionnaires (Frondel et al., 2006; González-Benito and González-Benito 2005; Sarkis and Cordeiro, 2001).

For the purpose of this study, I retrieved data from ASSET4 due to its reliability and accessibility of its data. Moreover, based on the definitions used in this paper, I divided pollution prevention into sets of practices such as monitoring energy efficiency, use of renewable energy, initiatives to improve energy efficiency, and the implementation of an all-purpose policy regarding resource efficiency. Therefore, I used six DataStream codes to measure firms' pollution prevention efforts. The data codes, their respective names, and descriptions are listed in table 1.

Table 1: ASSET4 Pollution Prevention data points

DATA CODE NAME DESCRIPTION

ENRRDP0012 Resource Efficiency Policy Elements/Energy Efficiency

Does the company have a policy to improve its energy efficiency?

ENRRDP0122 Resource Efficiency Processes/Energy Efficiency

(15)

ENRRDP0132 Resource Efficiency KPI Monitoring/Energy Efficiency

Does the company claim to use key performance indicators (KPI) or the balanced scorecard to monitor energy efficiency?

ENRRDP046 Renewable Energy Use Does the company make use of renewable energy?

ENRRDP053 Energy Efficiency Initiatives

Does the company report on specific initiatives to improve its energy efficiency?

ENRRDP0013 Resource Efficiency Policy Elements/Resource Efficiency

Does the company have a general, all-purpose policy regarding resource efficiency?

Product Stewardship

Product stewardship means taking responsibility to minimize the environmental impact of a product through all stages of the product´s life-cycle (Beaumont et al., 1993).

To my knowledge, research has yet not established a certain method to measure a firm's product stewardship initiatives. Literature rather defines the practices and activities that encompass this environmental management approach. Therefore, based on the definitions of past literature, in this study, I retrieved data from ASSET4 and selected practices such as reducing the energy footprint of products during usage; designing products for reuse, recycling or the reduction of environmental impacts. In addition, I also focus on firms´ initiatives in implementing product life-cycle assessment, environmental criteria, and eco-design.

Therefore, I used six DataStream codes to measure firms' product stewardship efforts. The data codes, their respective names, and descriptions are listed in table 2.

Table 2: ASSET4 Product Stewardship data points

DATA CODE NAME DESCRIPTION

ENPIDP0011 Product Innovation Policy Elements/Life Cycle Assessments

Does the company have a product life-cycle assessment policy?

ENPIDP0012 Environmental Product Innovation Policy Elements/Eco Design

(16)

ENPIDP019 Environmental Products Does the company report on at least one product line or service that is designed to have positive effects on the environment or which is environmentally labelled and marketed?

ENPIDP022 Energy Footprint Reduction Does the company describe initiatives in place to reduce the energy footprint of its products during their use?

ENPIDP069 Eco-Design Products Does the company report on specific products which are designed for reuse, recycling or the reduction of environmental impacts?

ENRRDP029 Materials Sourcing Environmental Criteria

Does the company claim to use environmental criteria (e.g., life cycle assessment) to source or eliminate materials?

End of Pipe

This approach, also defined as "pollution treatment or control," can be understood as practices, methods, processes, technologies or equipment, designed for collecting, reducing, recycling and removing pollution and pollutants after their creation (El-Halwagi, 2012).

Past research, has measured firms´ end of pipe approach by using an unbalanced panel data set and investigated whether firms´ made investment in end of pipe technologies (Hammar and Löfgren, 2010). Other researchers have measured firm´s pollution prevention efforts through questionnaires (Frondel et al., 2006; Sarkis and Cordeiro, 2001).

For the purpose of this study, data has been retrieved from ASSET4 due to its reliability and accessibility of its data. In this study, the end of the pipe approach focuses on an initiative to reduce, reuse, recycle, substitute, phase out or compensate for any hazardous waste, wastewater, emissions, and ozone-depleting substances. Therefore, I used six DataStream codes to measure firms' end of pipe efforts. The data codes, their respective names and descriptions are listed in table 3.

Table 3: ASSET4 End of Pipe data points

DATA CODE NAME DESCRIPTION

ENERDP028 CO2 Equivalents

Emission Reduction Production

(17)

ENERDP065 Hazardous Waste Reduction

Does the company report on initiatives to recycle, reduce, reuse, substitute, treat or phase out hazardous waste?

ENERDP066 Wastewater Reduction Does the company report on initiatives to recycle, reduce, reuse, substitute, treat or phase out wastewater (BOD, COD, TSS, POP, AOX, nitrate and nitrogen, phosphorous or metals)?

ENERDP033 NOx and SOx Emissions

Reduction

Does the company report on initiatives to reduce, reuse, recycle, substitute, or phase out SOx (sulphur oxides) or NOx (nitrogen oxides) emissions?

ENERDP030 F-Gases Emissions

Reduction

Does the company report on initiatives to recycle, reduce, reuse or phase out fluorinated gases such as HFCs (hydrofluorocarbons), PFCs (perfluorocarbons) or SF6 (sulphur hexafluoride)?

ENERDP031 Ozone-Depleting

Substances Reduction

Does the company report on initiatives to recycle, reduce, reuse or substitute ozone-depleting (CFC-11 equivalents, chlorofluorocarbon) substances?

3.4.3 Control Variables

For this research, the upcoming measures are used as controls in the analysis of financial performance.

Firm Size

(18)

Financial Leverage.

The level of debt is widely used as a proxy for organizations' risk when trying to support environmental actions. According to Davidson and Worrell (1990) leverage might impact the relationship between ROA and environmental strategies and might result in incorrect conclusions. Thus, the financial leverage of a firm is another control, used in this particular study. It is calculated as being its long-term debt over total assets (Clarkson et al., 2011).

Liquidity

Liquidity is defined as the organization's ability to transform its short-term assets into cash with the aim of meeting their day-to-day operations (Durrah et al., 2016). Moreover, it used to measure a company's ability to meet its current maturing liabilities (Okwoli and Kpelai, 2006). Researchers, such as Liargobas and Skandalis (2008), suggest that companies can use liquid assets in order to finance their investments and activities in the situation when for example external finance is not available. Thus, organizations with lower liquidity levels might have the ability to fund only one part of the anticipated investment. This control variable is applied since a firm´s liquidity might affect investment decisions in environmental activities or equipment and it is measured as the ratio between current assets and current liabilities.

Capital Intensity

An additional variable, which has been often used to examine the link between corporate environmental and corporate financial performance is a company's capital intensity (Chappie et al., 2001; Rust and Rothwell, 1995). Lubatkin and Chatterjee (1994) state that this measure might reduce business risk since companies with a high level of capital intensity has already assigned a high cash amount to fixed assets. Due to that, this paper controls for organization´s capital intensity that is measured as the capital expenditure to total sales revenue ratio (Wahba, 2008).

ASSET4 Company Scores

(19)

Social Score

This pillar score shows a firm's capacity to build loyalty and trust with employees, customers and society. This is done by the use of best management practices. Moreover, it reflects the reputation and strength of a company's license to operate. These are essential factors in determining its capability to develop long-term value with shareholders (Reuters, 2018).

Economic Score

This pillar measures a firm's capacity to develop sustainable growth and a high ROI by efficiently using its entire resources. It also reflects a firm's' overall financial strength and ability to develop long-term shareholder value by the use of best management practices (Reuters, 2018).

Corporate Governance Score

This pillar measures firm's procedures and systems, which ensure that its executives and members operate in the highest interest of its long-term shareholders. It reflects a firm's capability through the use of best practices to manage and control the rights and commitments through incentives, checks and balances in order to develop long-term shareholder value (Reuters, 2018).

3.5 Analytical Method

In order to test the hypotheses, a linear regression approach was chosen with the following regression equation: Y = b0 + bn * Xn + e

In this equation, Y represents the dependent variable ROA, b0 the intercept, bn the regression coefficient,

and e the error.

Accordingly, for hypothesis 1 the following regression model was tested:

ROA = b0 + b1 * PP + b2 * PS + b3 * EoP + e

Furthermore, to test hypothesis 2, the following interaction terms were included:

● Pollution Prevention x Product Stewardship

● Pollution Prevention x End of Pipe

● Product Stewardship x End of Pipe

Finally, in order to test the three-way interaction in hypothesis 3, the following terms were included:

● Pollution Prevention x Product Stewardship x End of Pipe

(20)

4. RESULTS

The following section provides the statistical results that derived from this study. The first section presents the descriptive statistics and correlations. The second part describes the results derived from the linear regression analysis to test the hypotheses.

To fulfill the assumption of the linear regression model the following checks were performed based on Moore et al., (2012). The dependent variable is continuous and non-censored and therefore deemed acceptable. The independent variable is ordinal but can be treated as continuous and can therefore be used in a linear regression. Moreover, the independence of observations can be assumed due to the way DataStream gathers its data. Normality was tested with PP plots and visually inspected and all variables were deemed acceptable. Except for number of employees, which was log-transformed I order to conform to the assumption. Linearity was also visually inspected and the inspection of the PP plot was acceptable. Homoscedasticity was found to not violate the assumption based on visual inspection of the Residuals vs Predicted plots. All in all, the assumption for the use of linear regression hold.

4.1 Descriptive Statistics and Correlations

In table 4 the descriptive values for the ROA and the main independent variables are presented. From the distribution of means of the three strategies, pollution prevention (PP) seems to have the highest adoption rate at 0.58. The minimum and maximum values for ROA show a good mix of companies, where some were doing well (positive ROA), whereas some less (negative ROA).

Table 4: Descriptive Statistics for main variables.

(21)

(22)

(23)

4.2 Regression Results and Hypothesis Testing

To gain insight into the relationship between the environmental strategies and ROA, a linear regression was performed. The results from the regression are shown in table 6. The explained variance for this model was 11.7% and the adjusted explained variance was <1%. The ANOVA for this model was not significant at (F(14, 149) = 1.41, p = .16). The results need to be interpreted with caution since the model does not explain much of the variance. This means that the apparent relationship between the predictors and the outcome are almost due to capitalization on chance. However, in general, it is possible that models have a low R-squared and a very small adjusted R-squared. If the R-squared value is low it is still possible to draw conclusions about how changes in the predictor values are associated with changes in the response value.

In table 6, different combinations of the leading independent variables were tested. Model 1 describes the effects of the control variables alone without the main strategies. From that, it becomes clear that leverage and capital intensity are significant control variables that should be included in all models in order to not bias the results of the environmental strategies. Model 2–4 show each main effects individually. While the main effects stay insignificant, leverage and capital intensity are significant in these models. Model 5–7 show all interactions of two strategies for each model. Model 8 shows the three-way interaction of all main effects. Model 9 shows the full model with all corporate environmental strategies and control variables.

The main effect (hypothesis 1) showed no significant effects of the respective environmental strategies and were consistently higher than alpha 0.1%. Therefore, Hypothesis 1 could not be supported since none of the strategies had a significant effect on ROA.

As for control variables, liquidity had a significant effect at (b = 0.079, t(152) = -0.2.1, p = .032), and corporate governance score at (b = -0.032, t(152) = -1.75, p = .082).

With regards to hypothesis 2, the interaction effects for (Pollution Prevention and End of Pipe) and (Product Stewardship and End of Pipe) were not significant at a 10% level, whereas a significant positive interaction was found for (Pollution Prevention and Product Stewardship) at (b = 0.46, t(152) = 1.7, p = .085). Therefore, Hypothesis 2 could partially be confirmed.

(24)

(25)

5. DISCUSSION

The following section presents an in-depth discussion of the empirical results and their interpretations. Moreover, implications of the key findings from theory and practice will be provided, which might be of use for both, researchers and managers. This section concludes by discussing the limitations of this study, and it provides suggestions for further research.

5.1 Theoretical implications

The findings of this study provide a number of important implications for existing research.

First of all, I tested whether reactive (end-of-pipe) and proactive environmental strategies (pollution prevention, product stewardship) are significantly and positively related to financial performance. Prior research found contradicting results. Some argue that there is a negative link between the adoption of both, proactive and the reactive environmental practices on financial performance (Sarkis and Cordeiro, 2001). On the other side, numerous scholars claim that improvements in environmental performance often result in a positive financial outcome (Hart, 1997; López-Gamero et al., 2009; Russo and Fouts, 199). In this study, no significant relationship between the individual environmental strategies and firm performance was found. This is in line with previous findings that claim that organizational practices to environmental problems do not improve the economic performance of firms (Inoue and Lee, 2011).

Secondly, I advance the environmental management literature by studying the interaction effect of environmental strategies on corporate financial performance. Current literature on environmental management shows that organizations who adopt environmental practices, typically experience a stronger environmental performance (Annandale et al., 2004; Melnyk et al., 2003; Zhu and Sarkis, 2004). Numerous scholars, including Hart (1997), agree that improvements in environmental performance often result in a positive financial outcome. Also, researchers have argued for a competitive financial superiority by following proactive environmental strategies (Donaldson and Preston, 1995).

(26)

environmental forces, and allow organizations to achieve competitive advantages. The fundamental resource resulting from the pollution prevention strategy is continuous improvement, which is achieved by increasing a firm's operational efficiency or by reducing compliance costs, which leads to lower overall costs. The key resource of product stewardship is integrating stakeholders, which leads to achieving and sustaining competitive advantage. Product stewardship favors incorporating environmental concerns with the aim that production and product development are aware of social and environmental issues surrounding the entire product life-cycle, from R&D to disposal. Besides, Hart (1995) foresees that as a result of the increased level of awareness of constraints that are created by the natural environment, product stewardship and pollution prevention will become an increased source of competitive advantage. At least two types of competitive advantage that can arise from these environmental strategies can be found, namely differentiation advantage and cost advantage.

Thus, integrating proactive environmental practices into the central business strategy might enable organizations to create valuable and unique organizational capabilities and resources, which by having that allows organizations to achieve competitive advantage. This occurs by first, becoming more efficient in production processes, which in turn lowers the input and waste disposal costs, leading to an improvement of the organization's financial performance from the natural-resource-based perspective. Secondly, by distinguishing their products that are produced in an environmentally responsible way or integrate environmentally-friendly features. According to the instrumental stakeholder theory, such an environmentally-friendly behavior attracts customers and other stakeholders, which results in increased revenues and eventually an improved organizational financial performance. Moreover, past research suggests that product stewardship and pollution prevention might be interconnected. Based on the resource-based view, interconnectedness means that (I) a certain capability might depend on the simultaneous presence of other resources (Barney, 1991) or (II) obtaining a certain resource depends on developing other recourses first (Dierickx & Cool, 1989) Therefore, there might be a corresponding logic in these two environmental strategies as it may be difficult or even impossible to successfully implement a product stewardship strategy without having first made significant progress in preventing pollution. If a company tries to designate products as environmentally friendly or "green", but at the same time continues to produce large amounts of production waste and emissions, it appears risky, as stakeholders (e.g. regulators, environmental groups) could uncover this anomaly and destroy the company's reputation and credibility (Hart, 1995). Therefore, if a company only implements one of the proactive environmental strategy it may miss the chance to benefit from the existing synergies between both strategies. This might also explain the reason why in this study the individual proactive strategies alone did not yield significant results, whereas their interaction by indirectly linking it to the possible development of organizational resources and capabilities leading to firm's competitive advantage and consequently to better financial performance.

(27)

explained by the NRBV, which argues that reactive environmental practices about the natural environment do not require skills or expertise in dealing with new environmental processes or technologies (Endrikat et al., 2014). This suggests that the end of pipe strategy does not lead an organization to develop organizational resources and capabilities which are a source for firms to achieve competitive advantage. Reactive environmental initiatives emphasize complying with environmental rules by implementing environmental practices at a minimum degree (Aragón-Correa et al., 2008). Contrary, corporate proactive environmental initiatives go beyond compliance by emphasizing the firm's pollution-prevention practices, redesign of current processes, and higher-order learning (Bhupendra & Sangle, 2016). Therefore, organizations that implement a reactive environmental approach respond to changing environmental regulations by managing their physical assets or by implementing and adapting their waste and pollution removal facilities more effectively. Scholars such as (Buysse and Verbeke, 2003) argue that organizations that focus on reactive environmental practices tend to give low priority to environmental issues and believe that minimal investment pays off. Therefore, it can lead to lower environmental performance and a higher risk of environmental failure. In line with this, reactive environmental methods can be seen as more of a symbolic practice than essential pre environmental initiatives. Companies implementing a more reactive method to these pressures can miss an opportunity to benefit from an organization-wide, integrated prevention strategy because they mostly react to challenges when they arise, which implies that firms will try to manage their pollution levels when they become problematic. This approach to controlling pollution may cause expenses without the guarantee that benefits can be gained.

Based on previous research on this topic, this study seems to be among the first to explore the interaction effect of proactive and reactive environmental strategies on firm´s financial performance. Empirical support provided by the findings of this study suggest that efforts to enhance the environmental performance through the interplay of product stewardship and pollution prevention initiatives can result in higher financial performance. This may be achieved by making processes more efficient and by distinguishing products that are produced in an environmentally friendly way or incorporating non-polluting features.

(28)

5.2 Practical implications

Firstly, the findings provide relevant conclusions for organizations and executives suggesting that investments in proactive environmental activities can benefit firms. The results in this paper show that such investments have the potential to enhance a firm's financial performance, which is of great relevance for firms and executives. Specifically, the findings offer useful insights to executives who may be skeptical about the potential benefits of implementing environmental strategies in their corporate strategy. The results suggest that while proactive and reactive environmental strategies alone might not yield financial performance improvements, a synergy between two proactive environmental strategies, namely pollution prevention and product stewardship is found to have a positive effect on corporate performance. Therefore, organizations should seek to pursue proactive environmental practices and initiatives, which may improve an organization's financial performance. In particular, the findings refer primarily to the implementation of pollution prevention initiatives, which focus on practices relating to increased efficiency in the use of raw materials and energy, or other policies or instruments that aim to improve energy efficiency; and product stewardship initiatives, which focus on implementing product life-cycle assessments, eco-design and other initiatives to reduce the energy footprint of products during their use.

Moreover, it is important for managers to consider the organizational resources and capabilities that can be acquired by following a proactive environmental approach. This might consequently help an organization to attain a competitive advantage. Organizations are increasingly pressured to reduce the environmental impact of their business operations. Thus, this paper provides a deeper understanding on how firms might benefit from dealing with these pressures by deploying and investing in proactive environmental practices that were discussed in this study.

This paper also indicates that there may be rewards and benefits beyond merely responding to external pressures. Organizations that adopt a more reactive approach to these pressures, might fail to benefit from these rewarding opportunities as they simply respond to challenges when they arise. This indicates that a reactive approach might incur costs without the chance of potential rewards that could be realized through the combination of pollution prevention and product stewardship initiatives.

5.3 Limitations and future research

As anticipated throughout the research phase, this study has significant limitations. A number of limitations within the current study may provide researchers with opportunities and promising directions for further research in this particular field of study.

(29)

the data employment for various periods to provide stronger tests, future researchers could analyze other cost benefits that could relate to either reactive or proactive environmental strategies.

Furthermore, the effect of environmental strategies and their interaction impact on organizational performance for firms within the energy sector was analyzed. This means that generalizability has to be taken with caution. From a methodological vantage point, an industry-by-industry study needs to be conducted in order to capture the differences in financial outcomes for proactive and reactive environmental activities across industries. Thus, future research can study a different type of industry or industries and observe whether the effects found in this study also hold for other industries.

Moreover, a limitation of this study is that the model that has been applied needs to be interpreted with caution as it does not explain much of the variance. Therefore, future research may focus on different data to construct a measurement scale for the environmental strategies that have been discussed in this study. Furthermore, the measurement scales used in this study also represent only some of the environmental principles and practices derived from the ASSET4 database. Therefore, more extant research needs to be conducted tin order to find a better fitting model. Additionally, adding different measures and practices and other control variables may more fully determine if a firm is taking environmental initiatives and how these affect the financial performance of an organization. Therefore, including additional data together with the industry categorization may provide different results, although a full industry examination yields a less homogeneous data set.

Although the various research opportunities presented might be appealing to be pursued, I suggest that it would be interesting to research the particular impacts of the environmental strategies discussed in this paper, by conducting a longitudinal analysis within various industries. This will increase and deepen the understanding of the environmental strategies and further extend the environmental management literature.

6. CONCLUSION

The aim of this study was to investigate the effects of corporate environmental strategies on organizational performance. Mainly, this research focused on the impact of reactive- (end-of-pipe-approach) and proactive environmental strategies (product stewardship and pollution prevention), and their interaction effects on organizational performance.

(30)

The main contribution of this study is the increased understanding of the relation between corporate environmental strategies and corporate financial performance, and the unexplored effects of their interaction.

(31)

7. REFERENCES

Aragón-Correa, J. A., & Sharma, S. (2003). A contingent resource-based view of proactive corporate environmental strategy. Academy of management review, 28(1), 71-88.

Aragón-Correa, J. A., Hurtado-Torres, N., Sharma, S., & García-Morales, V. J. (2008). Environmental strategy and performance in small firms: A resource-based perspective. Journal of environmental management, 86(1), 88-103.

Arlow, P., & Gannon, M. J. (1982). Social responsiveness, corporate structure, and economic performance. Academy of Management Review, 7(2), 235-241.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.

Beaumont, C., Fullsack, P., & Hamilton, J. (1992). Erosional control of active compressional orogens. In Thrust tectonics(pp. 1-18). Springer, Dordrecht.

Beaumont, J. R., Pedersen, L. M., & Whitaker, B. D. (1993). Managing the Environment Butterworth.

Beaumont JR, Pederson LM, Whitaker BD. Managing the environment. Oxford: Butterworth-Heinemann, 1993. p. 141.

Bhupendra, K. V., & Sangle, S. (2016). Pollution prevention strategy: a study of Indian firms. Journal of cleaner production, 133, 795-802.

Bryman, A., & Cramer, D. (1997). Quantitative analysis with SPSS for windows: A guide for social scientists.

Buysse, K., & Verbeke, A. (2003). Proactive environmental strategies: A stakeholder management perspective. Strategic management journal, 24(5), 453-470.

Chappie, J. S., Acharya, S., Leonard, M., Schmid, S. L., & Dyda, F. (2010). G domain dimerization controls dynamin's assembly-stimulated GTPase activity. Nature, 465(7297), 435.

(32)

Clarkson, P. M., Overell, M. B., & Chapple, L. (2011). Environmental reporting and its relation to corporate environmental performance. Abacus, 47(1), 27-60.

Craney, T. A., & Surles, J. G. (2002). Model-dependent variance inflation factor cutoff values. Quality Engineering, 14(3), 391-403.

Dam, L., & Petkova, B. N. (2014). The impact of environmental supply chain sustainability programs on shareholder wealth. International Journal of Operations & Production Management, 34(5), 586-609.

Davidson, W. N., & Worrell, D. L. (1990). A comparison and test of the use of accounting and stock market data in relating corporate social responsibility and financial performance. Akron business and economic review, 21(3), 7.

Davis, J. J. (1993). Strategies for environmental advertising. Journal of Consumer marketing, 10(2), 19-36.

de Burgos-Jiménez, J., Vázquez-Brust, D., Plaza-Úbeda, J. A., & Dijkshoorn, J. (2013). Environmental protection and financial performance: An empirical analysis in Wales. International Journal of Operations & Production Management, 33(8), 981-1018.

Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management science, 35(12), 1504-1511.

Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of management Review, 20(1), 65-91.

Drumwright, M. E. (1994). Socially responsible organizational buying: environmental concern as a noneconomic buying criterion. The Journal of Marketing, 1-19.

Durrah, O., Rahman, A. A. A., Jamil, S. A., & Ghafeer, N. A. (2016). Exploring the relationship between liquidity ratios and indicators of financial performance: An analytical study on food industrial companies listed in Amman Bursa. International Journal of Economics and Financial Issues, 6(2), 435-441.

(33)

Endrikat, J., Guenther, E., & Hoppe, H. (2014). Making sense of conflicting empirical findings: A meta-analytic review of the relationship between corporate environmental and financial performance. European Management Journal, 32(5), 735-751.

Fava, J. A., & Page, A. (1992). Application of product life-cycle assessment to product stewardship and pollution prevention programs. WATER QUALITY INTERNATIONAL'92., 26(1), 275-287.

Frondel, M., Horbach, J., & Rennings, K. (2007). End‐of‐pipe or cleaner production? An empirical comparison of environmental innovation decisions across OECD countries. Business strategy and the environment, 16(8), 571-584.

Galdeano-Gomez, E. (2008). Productivity effects of environmental performance: evidence from TFP analysis on marketing cooperatives. Applied Economics, 40(14), 1873-1888.

González-Benito, J., & González-Benito, Ó. (2005). Environmental proactivity and business performance: an empirical analysis. Omega, 33(1), 1-15.

Green Jr, K. W., Zelbst, P. J., Bhadauria, V. S., & Meacham, J. (2012). Do environmental collaboration and monitoring enhance organizational performance?. Industrial Management & Data Systems, 112(2), 186-205.

Hammar, H., & Löfgren, A. (2010). Explaining adoption of end of pipe solutions and clean technologies—determinants of firms’ investments for reducing emissions to air in four sectors in Sweden. Energy Policy, 38(7), 3644-3651.

Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of management review, 20(4), 986-1014.

Hart, S. L. (1997). Beyond greening: strategies for a sustainable world. Harvard business review, 75(1), 66-77.

(34)

Hellweg, S., Doka, G., Finnveden, G., & Hungerbühler, K. (2005). Assessing the Eco‐efficiency of End‐ of‐Pipe Technologies with the Environmental Cost Efficiency Indicator. Journal of Industrial Ecology, 9(4), 189-203.

Henri, J. F., & Journeault, M. (2010). Eco-control: The influence of management control systems on environmental and economic performance. Accounting, Organizations and Society, 35(1), 63-80.

Henriques, I., & Sadorsky, P. (1996). The determinants of an environmentally responsive firm: an empirical approach. Journal of environmental economics and management, 30(3), 381-395.

Hoque, A., & Clarke, A. (2013). Greening of industries in Bangladesh: pollution prevention practices. Journal of Cleaner Production, 51, 47-56.

Hsu, C. W., Kuo, T. C., Chen, S. H., & Hu, A. H. (2013). Using DEMATEL to develop a carbon management model of supplier selection in green supply chain management. Journal of cleaner production, 56, 164-172.

Inoue, Y., & Lee, S. (2011). Effects of different dimensions of corporate social responsibility on corporate financial performance in tourism-related industries. Tourism Management, 32(4), 790-804.

Iwata, H., & Okada, K. (2011). How does environmental performance affect financial performance? Evidence from Japanese manufacturing firms. Ecological Economics, 70(9), 1691-1700.

Jiang, L., Wang, L., Fang, T., & Papadopoulos, V. (2018). Disruption of ergosterol and tryptophan biosynthesis, as well as cell wall integrity pathway and the intracellular pH homeostasis, lead to mono-(2-ethylhexyl)-phthalate toxicity in budding yeast. Chemosphere, 206, 643-654.

Keoleian, G. A., & Menerey, D. (1993). Life cycle design guidance manual: Environmental requirements and the product system. In Life cycle design guidance manual: environmental requirements and the product system. EPA.

Klassen, R. D. (2000). Just-in-time manufacturing and pollution prevention generate mutual benefits in the furniture industry. Interfaces, 30(3), 95-106.

(35)

López-Gamero, M. D., Molina-Azorín, J. F., & Claver-Cortes, E. (2009). The whole relationship between environmental variables and firm performance: Competitive advantage and firm resources as mediator variables. Journal of environmental management, 90(10), 3110-3121.

Lubatkin, M., & Chatterjee, S. (1994). Extending modern portfolio theory into the domain of corporate diversification: Does it apply?. Academy of Management Journal, 37(1), 109-136.

Melnyk, S. A., Sroufe, R. P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21(3), 329-351.

Mintzberg, H. (1989). The Structuring of Organizations. Readings In Strategic Management, 322-352

Moorhead, J., & Nixon, T. (2015). Global 500 Greenhouse Gas Report: The Fossil Fuel Energy Sector. Thomson Reuters: Toronto, ON, Canada, 1-6.

Nickell, S. J. (1996). Competition and corporate performance. Journal of political economy, 104(4), 724-746.

Northwest Product Stewardship Council. (2019). Northwest Product Stewardship Council. Retrieved from http://productstewardship.net/

OECD. (1997). Retrieved from

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=OCDE/GD(97)133&docLan guage=En

Pollution Prevention Act. (1990). Pollution Prevention Act of 1990 | US EPA. Retrieved from https://www.epa.gov/p2/pollution-prevention-act-1990

Randøy, T., & Goel, S. (2003). Ownership structure, founder leadership, and performance in Norwegian SMEs: implications for financing entrepreneurial opportunities. Journal of business venturing, 18(5), 619-637.

(36)

Reinhardt, F. L. (1998). Environmental product differentiation: Implications for corporate strategy. California management review, 40(4), 43-73.

Reuters. (2018). Breaking News, Business News, Financial and Investing News & More | Reuters.com. Retrieved from https://www.reuters.com

Roome, N. (1992). Developing environmental management strategies. Business strategy and the environment, 1(1), 11-24.

Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of management Journal, 40(3), 534-559.

Rust, J., & Rothwell, G. (1995). Optimal response to a shift in regulatory regime: The case of the US nuclear power industry. Journal of Applied Econometrics, 10(S1), S75-S118.

Sarkis, J., & Cordeiro, J. J. (2001). An empirical evaluation of environmental efficiencies and firm performance: pollution prevention versus end-of-pipe practice. European Journal of Operational Research, 135(1), 102-113.

Sharma, S. (2000), “Managerial Interpretations and Organizational Context as Predictors of Corporate Choice of Environmental Strategy”, Academy of Management Journal, 43(4), 681-697.

Schoenherr, T. (2012). The role of environmental management in sustainable business development: a multi-country investigation. International Journal of Production Economics, 140(1), 116-128.

Srivastava, S. K. (2007). Green supply‐chain management: a state‐of‐the‐art literature review. International journal of management reviews, 9(1), 53-80.

Stellman, J. M. (Ed.). (1998). Encyclopaedia of occupational health and safety (Vol. 1). International Labour Organization.

Theodore, L. (1994). Pollution prevention. CRC Press.

The Impact of Environmental Strategies and their Interaction Effects on Firm Performance