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When and why does it pay to be green ?

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Author Info
Ambec, S.
Lanoie, P.

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Abstract

The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, during the last decade, this paradigm has been challenged by a number of analysts. In particular, Porter (Porter, 1991; Porter and van der Linde, 1995) argues that pollution is often associated with a waste of resources (material, energy, etc.), and that more stringent environmental policies can stimulate innovations that may compensate for the costs of complying with these policies. This is known as the Porter hypothesis. In fact, there are many ways through which improving the environmental performance of a company can lead to a better economic or financial performance, and not necessarily to an increase in cost. To be systematic, it is important to look at both sides of the balance sheet.First, a better environmental performance can lead to an increase in revenues through the following channels: i) a better access to certain markets; ii) the possibility to differentiate products and iii) the possibility to sell pollution-control technology. Second, a better environmental performance can lead to cost reductions in the following categories: iv) regulatory cost; v) cost of material, energy and services (this refers mainly to the Porter hypothesis); vi) cost of capital, and vii) cost of labour. Although these different possibilities have been identified from a conceptual or theoretical point of view for some time (Reinhardt, 2000; Lankoski, 2000, 2006), to our knowledge, there was no systematic effort to provide empirical evidences supporting the existence of these opportunities and assessing their “magnitude”. This is the objective of this paper. For each of the seven possibilities identified above [i) through vii)], we present the mechanisms involved, a systematic view of the empirical evidence available, and a discussion of the gaps in the empirical literature. The objective of the paper is not to show that a reduction of pollution is always accompanied by a better financial performance, it is rather to argue that the expenses incurred to reduce pollution can sometime be partly or completely compensated by gains made elsewhere. Through a systematic examination of all the possibilities, we also want to identify the circumstances most likely to lead to a “win-win” situation, i.e., better environmental and financial performance.

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Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 200704.

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Date of creation: 2007
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Keywords: ENVIRONMENTAL POLICY INNOVATION PORTER HYPOTHESIS ENVIRONMENTAL REGULATION POLLUTION CAPITAL MARKET GREEN PRODUCTS

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Find related papers by JEL classification:
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul Lanoie & Daniel Llerena, 2007. "Des billets verts pour des entreprises agricoles vertes?," CIRANO Working Papers 2007s-17, CIRANO. [Downloadable!]
  2. Paul Lanoie & Jérémy Laurent-Lucchetti & Nick Johnstone & Stefan Ambec, 2007. "Environmental Policy, Innovation and Performance: New Insights on the Porter Hypothesis," CIRANO Working Papers 2007s-19, CIRANO. [Downloadable!]
    Other versions:
  3. Paul Lanoie & Daniel Llerena, 2007. "Environmental Policy, Innovation and Performance : New Insights on the Porter Hypothesis," Cahiers de recherche 07-07, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
  4. Lanoie, P. & Llerena, D., 2007. "Des billets verts pour des entreprises agricoles vertes ?," Working Papers 200707, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
  5. Ziesemer, Thomas & Kriechel, Ben, 2007. "The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption," UNU-MERIT Working Paper Series 024, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
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