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When and why does it pay to be green?

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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

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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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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. Paul Lanoie & Jérémy Laurent-Lucchetti & Nick Johnstone & Stefan Ambec, 2007. "Environmental Policy, Innovation and Performance : New Insights on the Porter Hypothesis," Cahiers de recherche 07-06, HEC Montréal, Institut d'économie appliquée.
  3. 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.
  4. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2010. "Polluters and Abaters," Working Papers 1009, University of Waterloo, Department of Economics, revised Sep 2010.
  5. 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.
  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. Paul Lanoie & Stefan Ambec, 2009. "Performance environnementale et économique de l’entreprise," Économie et Prévision, Programme National Persée, vol. 190(4), pages 71-94.
  8. Paul Lanoie & Daniel Llerena, 2007. "Des billets verts pour des entreprises agricoles vertes?," CIRANO Working Papers 2007s-17, CIRANO.
  9. 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.
  10. 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.
  11. Lanoie, P. & Llerena, D., 2007. "Des billets verts pour des entreprises agricoles vertes ?," Working Papers 200707, Grenoble Applied Economics Laboratory (GAEL).

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