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When and why does it pay to be green?

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Abstract

According to widely held beliefs, environmental protection is associated with an increase in costs for businesses imposed by the government. Over the last decade, this view has been challenged by a number of analysts. They have identified many possibilities, from a conceptual or theoretical point of view, whereby firms could offset the costs of sustaining the environment with higher profits. 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 costs; v) cost of material, energy and services; vi) cost of capital, and vii) cost of labour. The purpose of this report is to provide empirical evidence supporting the existence of these opportunities and to assess their magnitude. For each of the seven possibilities identified above, we provide a discussion of the mechanisms involved and a systematic view of the empirical evidence available. The objective of this 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 sometimes be partly or completely compensated by gains made elsewhere. Through a systematic examination of all the possibilities, we want to identify the circumstances most likely to lead to a “winwin” situation, i.e., better environmental and financial performance.

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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 07-04.

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Length: 45 pages
Date of creation: May 2007
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Handle: RePEc:iea:carech:0704

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Keywords: Environmental policy; innovation; Porter hypothesis; environmental regulation; pollution; capital market; green products.;

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References

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Citations

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Cited by:
  1. Eyraud, Luc & Clements, Benedict & Wane, Abdoul, 2013. "Green investment: Trends and determinants," Energy Policy, Elsevier, vol. 60(C), pages 852-865.
  2. Fabio Iraldo & Francesco Testa & Vlasis Oikonomou & Michela Melis & Marco Frey & Eise Spijker, 2009. "A literature review on the links between environmental regulation and competitiveness," Working Papers 200904, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.
  3. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2010. "Polluters and Abaters," Working Papers 2010.146, Fondazione Eni Enrico Mattei.
  4. Lanoie, P. & Laurent-Lucchetti, L. & Johnstone, N. & Ambec, S., 2007. "Environmental policy, innovation and performance : new insights on the Porter hypothesis," Working Papers 200706, Grenoble Applied Economics Laboratory (GAEL).
  5. Paul Lanoie & Daniel Llerena, 2007. "Des billets verts pour des entreprises agricoles vertes?," CIRANO Working Papers 2007s-17, CIRANO.
  6. Paul Lanoie & Daniel Llerena, 2007. "Des billets verts pour des entreprises agricoles vertes?," Cahiers de recherche 07-07, HEC Montréal, Institut d'économie appliquée.
  7. Rim Makni & Claude Francoeur & François Bellavance, 2009. "Causality Between Corporate Social Performance and Financial Performance: Evidence from Canadian Firms," Journal of Business Ethics, Springer, vol. 89(3), pages 409-422, October.
  8. Luc Eyraud & Changchang Zhang & Abdoul Aziz Wane & Benedict J. Clements, 2011. "Who's Going Green and Why? Trends and Determinants of Green Investment," IMF Working Papers 11/296, International Monetary Fund.
  9. Lanoie, P. & Llerena, D., 2007. "Des billets verts pour des entreprises agricoles vertes ?," Working Papers 200707, Grenoble Applied Economics Laboratory (GAEL).
  10. Wei, Zuobao & Xie, Feixue & Posthuma, Richard A., 2011. "Does it pay to pollute? Shareholder wealth consequences of corporate environmental lawsuits," International Review of Law and Economics, Elsevier, vol. 31(3), pages 212-218, September.

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