Optimizing environmental expenditures for maximizing economic performance

Abstract

PurposeCorporate environmental expenditure has been a growing concern in recent years, yet mixed findings exist regarding its economic impact. The purpose of this paper is to explain the mixed relationship between environmental expenditure and economic performance from the natural-resource-based view.Design/methodology/approachUsing Global Reporting Initiative survey data from 120 firms in 30 countries, this study uses PROCESS, a path-based analysis software, to test the moderation and mediation hypotheses in an integrated analytical model.FindingsThe findings show that environmental expenditure has a negative impact on economic performance through pollution prevention capability. In contrast, environmental expenditure has a positive impact on economic performance through product stewardship capability. Both effects are significantly strengthened when the firm is located in an environmentally munificent country.Practical implicationsThis study intends to inform firm managers, especially those in environmentally munificent countries, to relocate their environmental expenditure to enhance firms’ economic performance. In particular, firms should focus more on the reduction of input, such as raw materials, energy, and water, instead of output, including emissions, effluents, and wastes.Originality/valueThe contrasting indirect effects of pollution prevention and product stewardship offer a viable explanation for the mixed findings in the existent literature on environmental expenditure from a new perspective.