Abstract
Purpose – Even though there is a growing recognition of the externality costs of low environmental performance by firms, there continue to be significant inter-firm differentials in environmental performance management. We build on the theories of strategic management to inquire into the factors contributing to these differentials. Design/methodology/approach – Using a 2015 survey sample of Chinese small and medium enterprises, we empirically investigate the alternative thesis that the profit maximization motive constitutes the appropriate heuristic for the performance management of corporate social responsibility factors. Findings – The g reen capability of a firm is an aggregate of green trading and the investments that the firm has made in green initiatives that are complementary to its strategic business model. The p rofit aspiration level of firms has a negative influence on their green programing, while transformational leadership has a positive influence. Originality/value – We develop seven propositions represented as algebraic relationships to interpret these factors.
Highlights
One of the major dilemmas for environmental performance management is the presence of externalities (Tirole, 2008)
We observed that many non-leading firms are likely to have superior green capability, and many leading incumbent firms are likely to be a follower in green programing because of their founding and legacy effects
We noted that the green trading of firms is likely to be a function of their green organizational culture effect – the more conscious and aware they are of the need for environmental accountability, the more motivated they will be to search for and mobilize green know-how from the market
Summary
One of the major dilemmas for environmental performance management is the presence of externalities (Tirole, 2008). The environment as a resource is a public good, so the costs of its depletion are shared collectively, even if the conversion of environmental resources yields private benefits. Society has become conscious of holding firms accountable for environmental resource depletion and rewarding firms for accretion, such as through preferential relationships, penalties, and premiums (Hoffman & Nembhard, 2014). Firms have become more conscious, building transparency into their environmental accountability, recognizing their liabilities for depletion, building capabilities to lower depletion and raise accretion even at higher costs, recognizing environmental capabilities and the costs of investments in these capabilities as baseline costs of doing business, and educating their customers so that they pay these passthrough costs and sustain what we refer to as “environmental performance management.”
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