The influence of environmental regulations on business innovation, intellectual capital, environmental and economic performance

Abstract

Currently, there are two main trends in the field of corporate environmental management regarding the role of environmental regulations in corporate environmental and economic performance. The first trend examines environmental regulations such as barriers or risks of corporate operations since they increase the adaptation and compliance costs which negatively influence their competitive advantage. The second trend examines the potential positive effects of environmental regulations on firms’ operations like reduction in operational costs, creation of intellectual capital and enhancement of economic performance. In this debate, this paper examines a set of hypotheses to analyze the relationships between environmental regulations and various aspects of corporate performance. Hypotheses are tested by utilizing information disclosed in a sample of 100 sustainability reports published by 25 firms in the metal products sector over a four-year period. To collect all the necessary non-financial information a methodological framework was used which is based on a scoring system and a set of indicators derived from GRI guidelines and the relevant literature, while well-known financial indicators were used to assess firms’ economic performance. The findings show positive relationships between the environmental performance and the level of corporate compliance with environmental legislation as well as between corporate environmental innovation and environmental performance. There is also a positive correlation between the level of corporate compliance with environmental legislation and components of green intellectual capital.