Darnall Nicole and Ytterhus Bjarne

Environmental and Financial Performance:
Do Industrial Sectors Differ In Their Ability To Derive Financial Benefits From Environmental Actions?

Darnall Nicole, North Carolina State University
Ytterhus Bjarne, Norwegian School of Management BI
E-mail: bjarne.ytterhus@bi.no

Abstract
This paper is based on our study (Darnall & Ytterhus 2005), which evaluates the link between facilities’ environmental and financial performance and controls for endogeneity associated with improved environmental performance. These relationships were considered by relying on survey data from manufacturing facilities operating in Canada, France, Germany, Hungary, Japan, Norway and the United States (http://www.oecd.org/env/eipc/resource/firm). In addition to the “win-wins” analysis we also raised the question: Do industrial sectors differ in their ability to derive financial benefits from environmental actions? We made three types of comparisons:
First we compared the financial performance of facilities operating within low polluting industries or “clean sectors” to facilities operating within high polluting industries or “dirty sectors”.
In the second stage of our sector analysis, we assessed whether facilities operating within two “dirty” sectors differed in their environmental performance and whether these differences were related to their financial performance (Hart & Ahuja 1996).
Finally, we considered whether companies operating in “high growth” industries differed from companies operating in “low growth” sectors in whether they derived positive financial benefits from their environmental actions (Russo & Fouts 1997).
To assess the statistical relationship between facilities’ financial and environmental performance among the sector comparisons, we relied on chi-square tests. With respect to our sector analyses, facilities that operated in dirty and clean sectors, and in early mover and later mover sectors did not differ in whether or not they earned positive profits from their improved environmental performance. Low-growth sectors that accrued positive profits had more often reduced their use of natural resources and global pollutants than facilities in the same sector that did not accrue positive profits. However, these differences were modest, and for this reason, our overall conclusion therefore is that, based on the facilities in this sample: There is no empirical support to suggest that there are differences among industry sectors. These results are further corroborated by the lack of statistical significance found in our bivariate probit regression models when evaluating the links between firms’ environmental and financial performance.

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