An Impact of Environmental Practices on Financial Performance: A Literature Review

Abstract

In the course of developing interest in environmental management practices within the organization, many companies world over now focus attention towards environmental sustainability. The purpose of this paper is to carry out a literature review of the quantitative and qualitative studies that analyzes the relationship between environmental practices and the resultant impact on financial performance. An examination of the literature was undertaken to review the quantitative and qualitative studies. A total of 130 studies were identified and examined the sample size, financial variables, environmental variables, statistical methods and also the main findings of the researchers. Results were mixed and varied, ranging from positive to negative and in some cases with no result, inconsistent, often contradictory and statistically insignificant in relationship. Findings suggested that 52% studies of selected sample show positive relations and the rest 48% still remaining with negative mix or no relationship. The inconsistency is due to the absence of clear framework that explains what actually constitutes environmental practices and how to determine their outcome, measures of financial performance, sample composition, time period and control variable. Consequently, it is more difficult to identify general relationship between different indicators of environment and financial performance. The paper offers interesting implications for managers, pointing out that a real commitment to green management may result in a positive influence on financial performance. Therefore it is critical to build a scope for future research to achieve better and more consistent results.