Environmentally sound management pays off in the health care sector
This paper examines if it is possible to manage a firm in a more environmentally sound way and outperform firms who operate in a less environmentally sound manner.
A previous meta-analysis based on a sample of 71 examined the relationships between corporate environmental performance (CEP) and corporate financial performance (CFP). Most studies find a positive relationship between CEP and CFP. While interesting, we need to understand the underlying causes of this relationship as well as compare large versus small firms, public versus private firms, and US versus international firms
Data
We use a measure of CEP that is outcome based: the Environmental Impact Score (EIS) produced by Trucost, which specializes in quantitative measures of environmental performance. The Environmental ImpactScore is based on over 700 metrics including greenhouse gas emissions, water use, and solid waste disposal. This quantitative, standardized ranking is a valid measure based on publically available environmental data and the rigorous input-output model.
Our results support the hypothesis that a firm’s responsible environmental management has an impact on their earnings per share. It is interesting that there are essentially three types of firms in this group. Approximately one-fifth of the firms in the group are insurance and managed care firms or firms that provide management services; they receive the top 6 EISs as they do relatively clean office work.
Approximately three-fifths of the sample are manufacturing firms producing pharmaceuticals, medical instruments, implants and other devices used in health care delivery or directly by patients. This group has the lowest EISs as might be expected given that they produce goods that use chemicals, plastics, metals and other resources..
The other firms support the industry either through distribution or support services like technology tools and consulting and their EISs fall between the other two groups.
This rough ordering of the EIS by type of firm created concern so we ran an additional regression with a dummy variable for the insurance companies. The insurance dummy was not significant and the coefficients and significance levels of the other explanatory variables were not affected by the insurance dummy.
Results
While as a group the manufacturing firms have a larger impact on the environment than the other firms , they are working hard to reduce their environmental impact and with resulting cost savings and corresponding improvement in their bottom line.