Customer environmental concerns and profit margin: Evidence from manufacturing firms

Abstract

This study evaluates the impact of customer environmental concerns on manufacturing firms’ profit margin. Eco-conscious customers may have a high demand for green products and are willing to pay a price premium for those products. The green effect is subject to the degree of greenness in production processes. In addition, environmental investments reduce the negative impact of production processes on the natural environment, alleviating customers’ environmental concerns. However, environmental investments increase product costs, which may subsequently offset economic benefits from eco-conscious customers. As such, we test the impact of customer environmental concerns on profit margin by controlling for the greenness levels (represented by energy consumption) and environmental investments (represented by energy efficiency measures). Based on a sample of 5390 manufacturing firms in 25 Central and Eastern European and Central Asian countries, our empirical results indicate a positive impact of customer environmental concerns on profit margins for low energy-intensity firms and a negative impact for high energy-intensity firms. In addition, high energy-intensity firms with energy efficiency measures are more negatively affected by customer environmental concerns than those with energy efficiency measures.