A strategic environmental management framework: Evaluating the profitability of being green

The extent to which corporate environmental governance is correlated with financial performance remains a topic for debate; however, consensus of opinion seems to be that there are some environmental management initiatives that add value to a firm’s bottom-line and other environmental management initiatives that adversely impact a firm’s bottom-line. This paper puts forth a new Strategic Environmental Management Framework (SEM Framework), which ties together much of the existing theory on corporate environmental management. The SEM Framework provides analysts and corporate strategists with a conceptual model that demonstrates how various forces influence a firm’s environmental governance commitment. Factors which influence a firm’s commitment to environmental governance are extracted from the SEM Framework and employed to guide assessment of publicly available corporate environmental disclosures for 88 firms listed on 5 major stock market indices lin Singapore and Canada. The environmental governance commitments of these firms were then compared to aggregated financial performance data in order to provide the comparative data for evaluating the environmental governance — financial performance relationship. The empirical research fails to confirm a significant correlation between environmental governance and financial performance for firms within any of the industry indices studied. Acknowledging the positive contributions that certain environmental initiatives can have on firm profitability, this paper concludes that a weak correlation between environmental governance and financial performance could exist; however, the correlation is not strong enough to out-weigh the other elements that influence a firm’s profitability. The implication of these findings for policy makers is that mechanisms other than free-market incentives are necessary if policy is to guide corporations toward adopting more sustainable environmental governance practices.