Can firms enhance economic performance by contributing to sustainable consumption and production? Analyzing the patterns of influence of environmental performance in Japanese manufacturing firms

The purpose of this study is to clarify the patterns of influence of a firm's environmental performance on its economic performance, with consideration of sustainable consumption and production (SCP). It is well known that environmental performance generally influences economic performance through an improvement in the production process and an increase in demand. Thus, it is expected that firms can enhance economic performance much more than previously thought by contributing to SCP. However, because consumers/customers cannot directly observe a firm's environmental performance, its environmental performance should influence economic performance by improving the production process directly and increasing demand indirectly via disclosed environmental information. Furthermore, the influence of environmental performance on economic performance should depend on the assumption of the nature (linear or nonlinear) of the relationship between them. This study develops a simple theoretical economic model to identify how a firm's environmental performance influences economic performance and empirically tests the model using data on Japanese manufacturing firms from 2008 to 2015. Our regression results prove that environmental performance enhances economic performance by improving the production process directly and increasing demand indirectly via disclosed environmental information. Specifically, the former is a positive linear relationship, and the latter is a U-shaped relationship. Because these results support the view that firms can enhance economic performance by contributing to the SCP, this study provides new insight into the ongoing debate about whether a firm's environmental performance enhances its economic performance, especially in the era of sustainable development goals. (C) 2019 Institution of Chemical Engineers. Published by Elsevier B.V. All rights reserved.