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Disentangling economic crisis effects from environmental regulation effects: Implications for sustainable development

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  • Simone Lazzini
  • Zeila Occhipinti
  • Angela Parenti
  • Roberto Verona

Abstract

With climate change becoming more severe, policy makers must impose environmental regulations that will lead firms to adopt sustainable corporate models. According to the Porter hypothesis, environmental regulation can favour the implementation of business strategies that improve economic and environmental performances. In this study, we examine how one such form of regulation, the European Union Emission Trading Scheme (EU ETS), impacts firm performance, and we subsequently widen the examination beyond the regulation to evaluate an economic crisis which could potentially confound regulation effects. We estimate a panel model with time‐ and firm‐fixed effects for different subsamples that disentangle the effect of the EU ETS policy from the 2008 economic crisis. The results indicate that the EU ETS policy in its third phase can activate the Porter hypothesis and is effective in fuelling the implementation of sustainable corporate models by firms. However, we also find that the economic crisis neutralises the effects of the regulation on firm performance, precluding the triggering of the Porter hypothesis in severely affected firms.

Suggested Citation

  • Simone Lazzini & Zeila Occhipinti & Angela Parenti & Roberto Verona, 2021. "Disentangling economic crisis effects from environmental regulation effects: Implications for sustainable development," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2332-2353, July.
    • Handle: RePEc:bla:bstrat:v:30:y:2021:i:5:p:2332-2353
    DOI: 10.1002/bse.2749
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    2. Qiong Zhou & Qian Tan & Huixiang Zeng & Yu-En Lin & Peng Zhu, 2023. "Does Soil Pollution Prevention and Control Promote Corporate Sustainable Development? A Quasi-Natural Experiment of “10-Point Soil Plan” in China," Sustainability, MDPI, vol. 15(5), pages 1-20, March.

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