Is environmental institutional stringency key to enhancing financial performance through corporate environmental progress?

In the actual scenario of increasing environmental problems (such us, Global Warming, wide spread of micro-plastics, or the extermination of many species), there is an urgent need for a deeper understanding of dimensions of the problem to mitigate their impact. This study investigates the relationship between corporate environmental progress and financial performance, framed within the context of contemporary institutional theories. While much of the prior literature has primarily sought to establish a direct business case for environmental management, the present research shifts focus to examine the role of environmental institutional stringency on this relationship. Through a comprehensive meta-analysis of 321 empirical studies, encompassing 1008 effect sizes and over 121,000 firm observations, the findings reveal that the association between environmental progress and financial performance is influenced by the degree of institutional environmental stringency that the firm conforms. Specifically, there is an interactive effect of country- and industry-level environmental institutional stringency that constrains firms' ability to capitalize on the financial benefits of their environmental progress. This study contributes to the institutional theory literature by clarifying the distinction between mere compliance with institutional pressures and the pursuit of competitive advantages, offering novel insights into the complexities of corporate environmental management.