Managing a portfolio of environmental projects: Focus, balance, and environmental management capabilities

Abstract

AbstractThis research examines the influence of a firm's portfolio of environmental projects on its ability to efficiently improve environmental outcomes. The data comes from Chinese automotive suppliers of a western manufacturer and consists of 154 environmental project portfolios that contain 614 environmental improvement projects as well as firm‐level data from Dun & Bradstreet. A data envelopment analysis (DEA) is used to estimate the firms' efficiency in transforming resources into environmental outcomes. Then an econometric analysis evaluates the impact of the portfolio effect (i.e., environmental project portfolio composition) on the firm's efficiency in improving the environment. The empirical results show that when firms reduce the heterogeneity in the types of environmental projects in their portfolios (i.e., a more focused portfolio), they can more efficiently improve environmental outcomes. However, firms may want to introduce diversity in the types of environmental projects in their portfolio (i.e., reducing the focus).The analysis shows that more environmentally capable firms can increase the diversity of the projects in their portfolios without negatively impacting outcomes. In addition, firms can better manage diversity in their portfolios when they balance socially oriented projects with technically oriented projects. This study contributes to the theory of project portfolio roles in improving environmental outcomes and offers several novel insights for project portfolio managers working to improve environmental outcomes with limited resources.