Abstract
Corporate environmental performance (CEP) has been of fundamental interest in scholarly research during the last few decades. However, there is a great deal of disagreement pertaining to the definition, conceptualization, and adequate measurement of CEP. Our study addresses these issues and provides a methodologically rigorous and comprehensive examination of content validity and construct validity. By integrating the available literature on CEP, we derive a parsimonious definition and theoretically sound framework of the focal construct. Drawing on non-aggregated and publicly available data for a sample of 706 firm-years, we test the construct validity of this framework by means of factor analysis. Our results provide evidence for the multidimensional nature of the focal construct. By contrasting our findings with existing measurement approaches in empirical research, we emphasize several deficiencies with regard to the inferences and conclusions yielded in prior research. Future empirical and practically oriented studies can build on our findings and thus provide more stringent results.
Similar content being viewed by others
Notes
Search conducted on November 19, 2012.
It should be noted that there are a number of works that address the measurement and validity of related constructs, such as environmental corporate social responsibility (Rahman and Post 2012) environmentally responsible manufacturing (Curkovic 2003), or corporate environmentalism (Banerjee 2002). However, these constructs are linguistically but not conceptually similar to CEP.
In particular, PCA does not differentiate between common and unique variance and defines the components as a linear combination of the indicators. Therefore, PCA does not represent an appropriate approach for identifying the underlying factors or dimensions of a set of indicators (Fabrigar et al. 1999).
The last column in Table 1 shows that the terms impacts and aspects are ostensibly used as synonyms. However, it should be noted that there is a fundamental difference between the meanings of environmental impacts and environmental aspects. Whereas an environmental aspect is an element of an organization’s activities that can interact with the environment (e.g., emissions of solvent to water), an environmental impact describes any change to the environment due to the activities of an organization (e.g., water pollution) (ISO 1999).
The ISO (1999) defines a management performance indicator as an “[…] indicator that provides information about the management efforts to influence an organization’s environmental performance” and an operational performance indicator as an “[…] indicator that provides information about the environmental performance of an organization’s operations.” In addition there are also environmental condition indicators (ECIs), which are defined as “specific expression that provides information about the local, regional, national, or global condition of the environment” (ISO 1999, p. 4). However, in line with Xie and Hayase (2007) and Young and Welford (1998), we argue that ECIs are not appropriate for the evaluation of CEP (implying the focus on the organizational level) because ECIs would require a focus on the level of single production sites since environmental conditions differ between locations. Moreover, ECIs involve the problem of interdependent causes (e.g., emissions of other production sites), making them difficult to operationalize (Jasch, 2000; Kolk and Mauser, 2002).
The latest ISO survey reports 267,457 certified companies worldwide (status for 2011).
The draft guidance on the ISO 14031 listed more than 100 potential indicators to measure different aspects of EOP (Ditz and Ranganathan, 1997).
The use of publicly available data is of particular importance because empirical research is facilitated by practical and straightforward access to data (Rahman and Post 2012).
The WLSMV estimator provides weighted least square parameter estimates using a diagonal weight matrix and robust standard errors and a mean- and variance-adjusted χ2 test statistic (Brown 2006).
Higher values of EOP indicators represent higher intensities of GHG emissions, energy consumption and so forth, whereas higher values of EMP indicators represent higher sophisticated environmental objectives, policies and so forth. Therefore, a negative factor correlation between the EOP and EMP dimension represents a positive association.
We ran this additional analysis only for European firms to check if the results of our main analysis are affected by country differences between Europe and North America. The supplemental analysis could be only done on the second half of the sample as the number of US firms was too small to run an additional analysis.
A company’s total assets also provide a benchmark for the level of corporate activity and can be regarded as a proxy for the vertical integration of a company. A higher level of vertical integration is assumed to require a greater amount of total assets.
It is worth mentioning that several studies examined the relationship between CEP and EMS. In these studies, the EMP dimension (measured in terms of EMS) was modeled as an antecedent of CEP (measured exclusively in terms of EOP) to test the impact of EMS on environmental outcomes (e.g., Aravind and Christmann 2011; Iraldo et al. 2009; Nawrocka and Parker 2009). Because these studies essentially examined the relationship between different dimensions of CEP and deviated from the extant definitions and conceptualizations of CEP (constituting the basis of our analyses), we excluded them from our review.
For example, KLD rates companies using a binary system composed of strengths and weaknesses with regard to a total of 12 issue areas (Schreck 2011). These issue areas, however, are in no way theoretically grounded. Moreover, empirical examinations have shown that the KLD data actually entail different factor structures (Mattingly and Berman 2006).
With regard to implications for practitioners, the second point means that superior EMP does not necessarily translate into improved EOP. That is, just implementing a sophisticated EMS does not automatically decrease a firm’s environmental aspects. The third point means that improving a particular aspect (e.g., decreasing a firm’s GHG emissions) does not imply an improvement of EOP in general. This fact has already been acknowledged by practitioners concerned with life cycle assessments (e.g., Guinée 2002).
Abbreviations
- CEP:
-
Corporate environmental performance
- CFA:
-
Confirmatory factor analysis
- CFI:
-
Comparative fit index
- ECI:
-
Environmental condition indicators
- EFA:
-
Exploratory factor analysis
- EMP:
-
Environmental management performance
- EMS:
-
Environmental management system
- EOP:
-
Environmental operational performance
- GHG:
-
Greenhouse gas
- ICB:
-
Industrial classification benchmark
- ISO:
-
International organization for standardization
- KLD:
-
Kinder, Lydenburg, Domini research and analytics
- MON:
-
Environmental monitoring
- OBJ:
-
Environmental objectives
- OS:
-
Organizational structure
- PCA:
-
Principal component analysis
- POL:
-
Environmental policy
- PRO:
-
Environmental processes
- RMSEA:
-
Root mean square error of approximation
- TLI:
-
Tucker–Lewis fit index
- TRI:
-
Toxics Release Inventory
- WLSMV:
-
Robust weighted least squares means and variance adjusted estimator
References
Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives, 22(4), 45–62.
Ameer, R., & Othman, R. (2012). Sustainability practices and corporate financial performance: A study based on the top global corporations. Journal of Business Ethics, 108(1), 61–79.
Anderson, J. C., & Gerbing, D. W. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103(3), 411–423.
Aravind, D., & Christmann, P. (2011). Decoupling of standard implementation from certification: Does quality of ISO 14001 implementation affect facilities’ environmental performance? Business Ethics Quarterly, 21(1), 73–102.
Azzone, G., Noci, G., Manzini, R., Welford, R., & Young, W. (1996). Defining environmental performance indicators: An integrated framework. Business Strategy and the Environment, 5(2), 69–80.
Bagozzi, R. P., & Baumgartner, H. (1994). The evaluation of structural equation models and hypothesis testing. In R. P. Bagozzi (Ed.), Principles of marketing research (pp. 386–422). Cambridge: Blackwell Publishing.
Banerjee, S. B. (2002). Corporate environmentalism: The construct and its measurement. Journal of Business Research, 55(3), 177–191.
Bansal, P., & Gao, J. (2006). Building the future by looking to the past. Organization and Environment, 19(4), 458–478.
Berchicci, L., & King, A. (2007). 11 postcards from the edge: A review of the business and environment literature. Academy of Management Annals, 1(1), 513–547.
Bisbe, J., Batista-Foguet, J. M., & Chenhall, R. (2007). Defining management accounting constructs: A methodological note on the risks of conceptual misspecifications. Accounting, Organizations and Society, 32(7–8), 789–820.
Brahma, S. S. (2009). Assessment of construct validity in management research: A structured guideline. Journal of Management Research, 9(2), 59–71.
Brown, T. A. (2006). Confirmatory factor analysis for applied research. New York: Guilford Publications.
Brown, B., & Perry, S. (1994). Removing the financial performance halo from Fortune’s “Most Admired” companies. Academy of Management Journal, 37(5), 1347–1359.
Busch, T., & Hoffmann, V. H. (2011). How hot is your bottom line? Linking carbon and financial performance. Business and Society, 50(2), 233–265.
Camisón, C. (2010). Effects of coercive regulation versus voluntary and cooperative auto-regulation on environmental adaptation and performance: Empirical evidence in Spain. European Management Journal, 28(5), 346–361.
Carlson, K. D., & Herdman, A. O. (2010). Understanding the impact of convergent validity on research results. Organization Research Methods, 15(1), 17–32.
Chatterji, A. K., Levine, D. I., & Toffel, M. W. (2009). How well do social ratings actually measure corporate social responsibility? Journal of Economics and Management Strategy, 18(1), 125–169.
Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4–5), 303–327.
Clarkson, P. M., Overell, M. B., & Chapple, L. (2011). Environmental reporting and its relation to corporate environmental performance. Abacus, 47(1), 27–60.
Clemens, B., & Bakstran, L. (2010). A framework of theoretical lenses and strategic purposes to describe relationships among firm environmental strategy, financial performance, and environmental performance. Management Research Review, 33(4), 393–405.
Combs, J. G., Russell Crook, T., & Shook, C. L. (2005). The dimensionality of organizational performance and its implications for strategic management research. In D. J. Ketchen (Ed.), Research methodology in strategy and management (pp. 259–286). Amsterdam: Elsevier.
Curkovic, S. (2003). Environmentally responsible manufacturing: The development and validation of a measurement model. European Journal of Operational Research, 146(1), 130–155.
Darnall, N., & Edwards, D, Jr. (2006). Predicting the cost of environmental management system adoption: The role of capabilities, resources and ownership structure. Strategic Management Journal, 27(4), 301–320.
de Burgos Jiménez, J., & Céspedes Lorente, J. J. (2001). Environmental performance as an operations objective. International Journal of Operations and Production Management, 21(12), 553–572.
de Villiers, C., Naiker, C., & van Staden, C. J. (2011). The effect of board characteristics on firm environmental performance. Journal of Management, 37(6), 1636–1663.
Delmas, M. A., & Nairn-Birch, N. S. (2011). Is the tail wagging the dog? An empirical analysis of corporate carbon footprints and financial performance. Los Angeles: University of California, Institute of the Environment and Sustainability.
Ditz, D., & Ranganathan, J. (1997). Measuring up: Toward a common framework for tracking corporate environmental performance. Washington, DC: World Resource Institute.
Dixon, W. J., & Yuen, K. K. (1974). Trimming and winsorization: A review. Statistical Papers, 15(2–3), 157–170.
Dixon-Fowler, H. R., Slater, D. J., Johnson, J. L., Elstrand, A. E., & Romi, A. M. (2013). Beyond “Does it pay to be green?” A meta-analysis of moderators of the CEP–CFP relationship. Journal of Business Ethics, 112(2), 353–366.
Dooley, R. S., & Fryxell, G. E. (1999). Are conglomerates less environmentally responsible? An empirical examination of diversification strategy and subsidiary pollution in the U.S. chemical industry. Journal of Business Ethics, 21(1), 1–14.
Dunn, M. B., & Jones, C. (2010). Institutional logics and institutional pluralism: The contestation of care and science logics in medical education, 1967–2005. Administrative Science Quarterly, 55(1), 114–149.
Edwards, J. R. (2001). Multidimensional constructs in organizational behavior research: An integrative analytical framework. Organization Research Methods, 4(2), 144–192.
Edwards, J. R. (2003). Construct validation in organizational behavior research. Chapel Hill: University of North Carolina.
Elsayed, K. (2006). Reexamining the expected effect of available resources and firm size on firm environmental orientation: An empirical study of UK firms. Journal of Business Ethics, 65(3), 297–308.
Entine, J. (2003). The myth of social investing: A critique of its practice and consequences for corporate social performance research. Organization and Environment, 16(3), 352–368.
Etzion, D. (2007). Research on organizations and the natural environment, 1992–Present: A review. Journal of Management, 33(4), 637–664.
Fabrigar, L. R., MacCallum, R. C., Wegener, D. T., & Strahan, E. J. (1999). Evaluating the use of exploratory factor analysis in psychological research. Psychological Methods, 4(3), 272–299.
First, I., & Khetriwal, D. S. (2010). Exploring the relationship between environmental orientation and brand value: Is there fire or only smoke? Business Strategy and the Environment, 19(2), 90–103.
Gilley, K. M., Worrell, D. L., Davidson, W. N, I. I. I., & El-Jelly, A. (2000). Corporate environmental initiatives and anticipated firm performance: The differential effects of process-driven versus product-driven greening initiatives. Journal of Management, 26(6), 1199–1216.
Goldstein, D., Hilliard, R., & Parker, V. (2011). Environmental performance and practice across sectors: Methodology and preliminary results. Journal of Cleaner Production, 19(9), 946–957.
Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate. Business and Society, 36(1), 5–31.
Guenther, E., Hoppe, H., & Endrikat, J. (2011). Corporate financial performance and corporate environmental performance: A perfect match? Journal of Environmental Law and Policy, 34(3), 279–296.
Guenther, E., & Kaulich, S. (2005). The EPM-KOMPAS: An instrument to control the environmental performance in small and medium-sizes enterprises (SMEs). Business Strategy and the Environment, 14(6), 361–371.
Guinée, J. B. (2002). Handbook on life cycle assessment: Operational guide to the ISO standards. Dordrecht: Kluwer Academic Publishers.
Hall, J., & Wagner, M. (2012). Integrating sustainability into firms’ processes: Performance effects and the moderating role of business models and innovation. Business Strategy and the Environment, 21(3), 183–196.
Hoffmann, V. H., & Busch, T. (2008). Corporate carbon performance indicators: Carbon intensity, dependency, exposure, and risk. Journal of Industrial Ecology, 12(4), 505–520.
Hu, L., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling, 6(1), 1–55.
Hunter, J. E., & Schmidt, F. L. (2004). Methods of meta-analysis: Correcting error and bias in research findings (2nd ed.). Thousand Oaks, CA: Sage Publications.
Ienciu, I. A., & Napoca, C. N. (2009). Environmental performance versus economic performance. International Journal Business Research, 9(5), 125–131.
Ilinitch, A. Y., Soderstrom, N. S., & Thomas, T. E. (1998). Measuring corporate environmental performance. Journal of Accounting and Public Policy, 17(4), 383–408.
International Organization for Standardization (ISO). (1999). ISO 14031: 1999. Environmental management—environmental performance evaluation—guidelines. Geneva: ISO.
International Organization for Standardization (ISO). (2004). ISO 14004: 2004. Environmental management systems: General guidelines on principles, systems and supporting techniques. Geneva: ISO.
Iraldo, F., Testa, F., & Frey, M. (2009). Is an environmental management system able to influence environmental and competitive performance? The case of the eco-management and audit scheme (EMAS) in the European Union. Journal of Cleaner Production, 17(16), 1444–1452.
Jaggi, B., & Freedman, M. (1992). An examination of the impact of pollution performance on economic and market performance: Pulp and paper firms. Journal of Business Finance and Accounting, 19(5), 697–713.
Jarvis, C. B., MacKenzie, S. B., & Podsakoff, P. M. (2003). A critical review of construct indicators and measurement model misspecification in marketing and consumer research. Journal of Consumer Research, 30(2), 199–218.
Jasch, C. (2000). Environmental performance evaluation and indicators. Journal of Cleaner Production, 8(1), 79–88.
Johnston, A., & Smith, A. (2001). The characteristics and features of corporate environmental performance indicators? A case study of the water industry of England and Wales. Eco-Management and Auditing, 8(1), 1–11.
Judge, W. Q., & Douglas, T. J. (1998). Performance implications of incorporating natural environmental issues into the strategic planning process: An empirical assessment. Journal of Management Studies, 35(2), 241–262.
Jung, E. J., Kim, J. S., & Rhee, S. K. (2001). The measurement of corporate environmental performance and its application to the analysis of efficiency in oil industry. Journal of Cleaner Production, 9(6), 551–563.
Kassinis, G., & Vafeas, N. (2002). Corporate boards and outside stakeholders as determinants of environmental litigation. Strategic Management Journal, 23(5), 399–415.
Kassinis, G., & Vafeas, N. (2006). Stakeholder pressures and environmental performance. Academy of Management Journal, 49(1), 145–159.
King, A. A., & Lenox, M. J. (2001). Does it really pay to be green? An empirical study of firm environmental and financial performance. Journal of Industrial Ecology, 5(1), 105–116.
Klassen, R. D., & Whybark, D. C. (1999). The impact of environmental technologies on manufacturing performance. Academy of Management Journal, 42(6), 599–615.
Kolk, A., & Mauser, A. (2002). The evolution of environmental management: From stage models to performance evaluation. Business Strategy and the Environment, 11(1), 14–31.
Law, K. S., Wong, C. S., & Mobley, W. H. (1998). Toward a taxonomy of multidimensional constructs. Academy of Management Review, 23(4), 741–755.
Lefebvre, E., Lefebvre, L. A., & Talbot, S. (2003). Determinants and impacts of environmental performance in SMEs. R&D Management, 33(3), 263–283.
López-Gamero, M. D., Molina-Azorín, J. F., & Claver-Cortés, E. (2009). The whole relationship between environmental variables and firm performance: Competitive advantage and firm resources as mediator variables. Journal of Environmental Management, 90(10), 3110–3121.
Mattingly, J. E., & Berman, S. L. (2006). Measurement of corporate social action: Discovering taxonomy in the Kinder Lydenburg Domini Ratings data. Business and Society, 45(1), 20–46.
McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Corporate social responsibility: Strategic implications. Journal of Management Studies, 43(1), 1–18.
Melnyk, S. A., Sroufe, R. P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operational Management, 21(3), 329.
Molina-Azorín, J. F., Claver-Cortés, E., López-Gamero, M. D., & Tarí, J. T. (2009). Green management and financial performance: A literature review. Management Decision, 47(7), 1080–1100.
Muthén, B. O., du Toit, S. H. C., & Spisic, D. (1997). Robust inference using weighted least squares and quadratic estimating equations in latent variable modeling with categorical and continuous outcomes. Unpublished manuscript.
Nawrocka, D., & Parker, T. (2009). Finding the connection: Environmental management systems and environmental performance. Journal of Cleaner Production, 17(6), 601–607.
O’Leary-Kelly, S. W., & Vokurka, R. J. (1998). The empirical assessment of construct validity. Journal of Operational Management, 16(4), 387–405.
Orlitzky, M. (2011). Institutional logics in the study of organizations: The social construction of the relationship between corporate social and financial performance. Business Ethics Quarterly, 21(3), 409–444.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24, 403–411.
Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: A research note. Accounting, Organizations and Society, 27(8), 763–773.
Perotto, E., Canziani, R., Marchesi, R., & Butelli, P. (2008). Environmental performance, indicators and measurement uncertainty in EMS context: A case study. Journal of Cleaner Production, 16(4), 517–530.
Poser, C., Guenther, E., & Orlitzky, M. (2012). Shades of green: Using computer-aided qualitative data analysis to explore different aspects of corporate environmental performance. Journal of Management Control, 22(4), 413–450.
Price, J. L., & Mueller, C. W. (1986). Handbook of organizational measurement (2nd ed.). Marshfield, MA: Pitman.
Rahman, N., & Post, C. (2012). Measurement issues in environmental corporate social responsibility (ECSR): Toward a transparent, reliable, and construct valid instrument. Journal of Business Ethics, 105(3), 307–319.
Rao, P., O’Castillo, O., Intal, P. S, Jr., & Sajid, A. (2006). Environmental indicators for small and medium enterprises in the Philippines: An empirical research. Journal of Cleaner Production, 14(5), 505–515.
Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational performance: Towards methodological best practice. Journal of Management, 35(3), 718–804.
Rikhardsson, P. M. (1998). Information systems for corporate environmental management accounting and performance measurement. Greener Management International, 21(Spring), 51.
Russo, M. V., & Minto, A. (2012). Competitive strategy and the environment: A field of inquiry emerges. In P. Bansal & A. J. Hoffman (Eds.), The Oxford handbook on business and the natural environment (pp. 29–49). Oxford: Oxford University Press.
Salo, J. (2008). Corporate governance and environmental performance: Industry and country effects. Competition and Change, 12(4), 328–354.
Schreck, P. (2011). Reviewing the business case for corporate social responsibility: New evidence and analysis. Journal of Business Ethics, 103(2), 167–188.
Schwab, D. P. (1980). Construct validity in organizational behavior. In L. L. Cummings & B. Staw (Eds.), Research in organization behavior (pp. 3–43). Greenwich, CT: JAI Press.
Semenova, N. (2010). Corporate environmental performance: Consistency of metrics and identification of drivers. Working paper, Abo Akedemi University, Turku, Finland.
Steers, R. M. (1975). Problems in the measurement of organizational effectiveness. Administrative Science Quarterly, 20(4), 546–558.
Suddaby, R. (2010). Editor’s comments: Construct clarity in theories of management and organization. Academy of Management Review, 35(3), 346–357.
Venkatraman, N. V. (2008). Advancing strategic management insights: Why attention to methods and measurement matters. Organization Research Methods, 11(4), 790–794.
Venkatraman, N., & Ramanujam, V. (1987). Measurement of business economic performance: An examination of method convergence. Journal of Management, 13(1), 109–122.
Waddock, S. (2003). Myths and realities of social investing. Organization and Environment, 16(3), 369–380.
Wagner, M., & Schaltegger, S. (2003). How does sustainability performance relate to business competitiveness? Greener Management International, 44, 5–16.
Walls, J. L., Berrone, P., & Phan, P. H. (2012). Corporate governance and environmental performance: Is there really a link? Strategic Management Journal, 33(8), 885–913.
Wells, R. P., Hochman, M. N., Hochman, S. D., & O’Connell, P. A. (1992). Measuring environmental success. Total Quality Environmental Management, 1(4), 315–327.
Wong, C. S., Law, K. S., & Huang, G. H. (2008). On the importance of conducting construct-level analysis for multidimensional constructs in theory development and testing. Journal of Management, 34(4), 744–764.
Xie, S., & Hayase, K. (2007). Corporate environmental performance evaluation: A measurement model and a new concept. Business Strategy and the Environment, 16(2), 148–168.
Yang, M. G., Hong, P., & Modi, S. B. (2011). Impact of lean manufacturing and environmental management on business performance: An empirical study of manufacturing firms. International Journal of Production Economics, 129(2), 251–261.
Young, C. W., & Welford, R. J. (1998). An environmental performance measurement framework for business. Greener Management International, 21, 30–50.
Ziegler, A., Busch, T., & Hoffmann, V. H. (2011). Disclosed corporate responses to climate change and stock performance: An international empirical analysis. Energy Economics, 33(6), 1283–1294.
Acknowledgments
We thank anonymous reviewers for helpful comments. In addiditon, we thank Maik P. Hamann for constructive suggestions.
Author information
Authors and Affiliations
Corresponding author
Electronic supplementary material
Below is the link to the electronic supplementary material.
Rights and permissions
About this article
Cite this article
Trumpp, C., Endrikat, J., Zopf, C. et al. Definition, Conceptualization, and Measurement of Corporate Environmental Performance: A Critical Examination of a Multidimensional Construct. J Bus Ethics 126, 185–204 (2015). https://doi.org/10.1007/s10551-013-1931-8
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-013-1931-8