In the past, companies used to believe that the more environment-friendly they were, the less competitive they would be. They believed it would add to costs and would not deliver immediate financial benefits (Stark, 1993). This has been changing in recent years due to reasons like stricter environmental regulations and consumer demand for green initiatives. Organizations have started to reduce their environmental footprint as they have realized that positive environmental behaviors lead to a positive impact on a larger scale. In the long run, organizations get cost savings, higher consumer demand, tax incentives, employee retention, brand reputation, and increase competitiveness (Spector, 2012). A survey from Nielsen (2015) found that 55 % of consumers across the world would be prepared to pay more for goods and services that have a positive impact. Nielsen also found that people between the ages of 21 and 34 are most responsive to sustainability actions which shows that in the future environmental performance will be even more important.
Before going any further, I will differentiate between actual environmental performance and perceived environmental performance. Actual environmental performance can be explained `as environmental efficiency, for example by taking a measure of an entity’s environmental impact and dividing that measure by a denominator that reflects either units of economic activity or population or financial performance (Sulkowski and White, 2010). For the purpose of my study, I will define perceived environmental performance as the collective reputation of a company published by the company in their annual reports and on their website.
This paper focuses on the environmental behaviors of companies in Germany and France which have the two largest economies in Europe. These two countries have many large multinational organizations which operate from many diverse locations around the world and therefore have a great effect on the global environmental footprint (Forbes, 2017). Therefore, both Germany and France have taken the lead in promoting global environmental initiatives, but both countries use different tactics. The types of environmental initiatives and strategies pursued are influenced by the government policies the countries implement (Dilchert & Ones, 2012).
Germany has made many pioneering and promotion-based policies by establishing the Berlin Mandate, the Kyoto Protocol and Germany’s Renewable Energy Act. By using market regulation to incentivize renewable energy, Germany’s innovation and incentive-based policies have been rated as among the most effective environmental policy regimes (Schraad-Tischler et al., 2017). On the other hand, France through its strong emissions standards emphasizes on prevention-focused policies. France also has complex regulations and bureaucracy that slows the implementation of renewable energy technologies and makes attaining renewable energy goals unlikely (OECD, 2016). Powerful lobbies also prevent stronger environmental policies from being implemented. Therefore, France’s policies are less effective than Germany’s (Schraad-Tischler et al., 2017) and therefore suggest that German companies are more likely to embed sustainability into business plans for market and competitive advantage (Aguinis & Glavas, 2012, 2013).
Financial performance & Environmental Performance
Past research analyzed 652 U.S. manufacturing firms over the time period 1987–1996 which showed evidence of an association between lower pollution and higher financial valuation, but it also depends on firm’s fixed characteristics and strategic position (King & Lenox, 2001). Another study empirically tested data from 1987 to 1992 which showed that a firm’s corporate social performance is indeed impacted by the size of the firm, the level of profitability of the firm, and the amount of pollution emissions released by the firm (Stanwick & Stanwick, 1998). Contradictory research shows that following environmental regulation is expensive and hurts a company’s profitability (Udayasankar, 2008). On the other hand, a profitable company is more likely to spend more of on green technologies.
A study detailed the environmental performance of the Standard and Poor’s 500 companies comparing both accounting and market returns of the “high polluter” to the “low polluter” companies and the result showed that there is no penalty or reward for green investing (Cohen et al., 1997). Another study utilized data from the Investor Responsibility Research Center and proprietary database to investigate the relationship between environmental performance and financial performance in the electric utilities industry and there was evidence of a negative relationship between financial return and a more pro-active measure of an environmental performance (Filbeck & Gorman, 2004). Past meta-analysis (Olitzky, Schmidt, & Rynes, 2003) found a positive correlation between corporate environmental initiatives and corporate financial performance (ρ = .12, SDρ= .33, k = 139), so we expect that there will be a positive correlation between number of environmental initiatives and financial performance for both German and French companies. The number of environmental initiatives will have a positive relationship with the financial performance of the company.
Size & Environmental Performance
90% of businesses in the world are Small and medium-sized firms form (Udayasankar, 2008). A study analyzed different economic incentives given to firms to conduct CSR (Corporate Social Responsibility) initiatives depending on their size, visibility, resources and scale of operations and it showed that both extremely small and extremely large firms are willing to implement CSR initiatives, but their reasonings are different while medium sized firms are the least motivated (Udayasankar, 2008). Smaller firms are less likely to participate in Corporate Social Responsibility activities because they have fewer resources and lower visibility which limits them. medium-sized firms are the least motivated. This suggests a U-shaped relationship between firm size and CSR participation (Udayasankar, 2008). This study along with discussing the correlation between size and CSR performance, also focuses on defining different characteristics which contribute to a firm’s size. This paper divided characteristics into: Motivating factors, Size, Visibility, Resource access, and Scale of operations (Udayasankar, 2008).
Another study questioned the role of SMEs (small & medium sized enterprises) in their socially responsible behavior by comparing SME and large firm CSR tactics. The hypothesis was that if the firm is large then CSR tactics are more formal. Data was collected from a sample of 3,680 Italian firms through telephone interviews where top managers were asked questions and results showed that the larger the firm, the more likely it is to have formal CSR strategies (Perrini et al., 2007). SMEs represented 89.6% of the firms in the sample which led to a skewed sample.
Past research also showed that small businesses are socially giving by nature, but the small size limits them. The study reviewed the impact of firm size on four types of business behavior: issue characteristics, personal characteristics, organizational characteristics and context characteristic and results showed that small businesses do limit barriers on social responsibility taking, but the relationship also depends on a large number of other conditions like characteristics of small business owners/managers and characteristics of the organization itself (Lepoutre & Heene, 2006). Small businesses were differentiated from larger companies with criteria such as financial turnover, assets, market share, numbers employed and ownership. Larger companies are usually more environmentally inclined because of the number of resources because the number of environmental initiatives will have a positive relationship with the number of employees.
Employee satisfaction & Environmental Performance
Past research investigated the effect of environmental performance and profitability had on employee satisfaction. The study used both environmental and employee satisfaction rankings from a company called Vanno, a company reputation ranking service and results showed a positive relationship between perceived environmental performance and employee satisfaction, but no relationship with financial value (Walsh & Sulkowski, 2009). The number of environmental initiatives will have a positive relationship with the CSRHUB Employee Satisfaction Ratings.
Method
The sample included the largest German and French public companies from the 2016 Forbes 2000 ranking list which included 48 German and 60 French companies. The research assistants recorded environmental initiatives reported by organizations on the company websites and sustainability, corporate social responsibility and annual reports. We coded a total of 2,165 initiatives (M = 45, SD = 32) from German companies and 3,009 initiatives (M = 50, SD = 33) from French companies. We recorded the industry type, initiative consequences, and motivations for the environmental behaviors to help in classifying the behaviors to the Ones et al. pro-environmental initiative taxonomy (D’Mello et al., 2010, 2011; Ones et al., 2014). To compare the differences in average number of environmental initiatives in each category, we computed the standardized mean differences in number of initiatives for French and German companies.
We found the number of environmental behaviors of France and Germany and correlations between the environmental behaviors and three variables: financial performance, company size and employee satisfaction. We obtained financial performance (sales, profits, assets, and market value) information, employee size and number of countries each organization operates in from the Forbes website and on the organizations’ websites. To examine the relationship between environmental initiatives and financial performance, we conducted correlational analyses and subsequent regression analyses to control for number of locations (indexed by number of countries the organization operates in) and employee number. We also conducted correlational analyses and subsequent regression analyses to control for number of locations (indexed by number of countries the organization operates in) and employee number.
We also conducted a correlation and regression analyses between the number of company environmental initiatives and CSRHUB Employees category ratings as well. The CSRHUB Employees category ratings include disclosure of policies in diversity, labor relations, rights, compensation, benefits, employee training, health and safety both qualitatively and quantitatively. For the purpose of this study, we will also compare CSRHUB Environment Ratings with the number of environmental initiatives as well. The CSRHUB Environmental category ratings were evaluated as a company’s compliance with environmental regulations, mitigation of environmental footprint, address climate change, energy-efficient operations, the development of renewable energy and disclosure of sources of environmental risk and liability.
Results
The results of German and French companies’ numbers of environmental initiatives and behaviors recorded show a small difference (d = -.15, 95% CI = [-.21, -.09]) with French companies performing slightly more initiatives on average. The environmental initiatives and behaviors are divided into different categories (see Table 1, p. 18). The number of behaviors by French and German companies were similar for Avoiding Harm, Influencing Others and Transforming while German companies have fewer Recycling behaviors, but more Repurposing behaviors. German organizations focus more on Conserving behaviors. The main difference was that German companies had more Instituting programs and policies behaviors in the Taking Initiative category than French Companies. Compliance and innovation-related behaviors were similar from French and German organizations. On the other hand, German companies had more behaviors in the setting environmental goals and standards behaviors than French companies.
There are differences in the relationship between organizational environmental and financial performance for France and Germany. Environmental behaviors of German companies are strongly related to financial performance of their companies (r = .64, 95% CI = [.43, .79]), but not related for French companies (r = .06, 95% CI = [-.20, .32]). The correlation between the number of environmental behaviors with CSRHUB employee ratings was positive and moderate (r = 0.3248, p < .05). The correlation between the number of environmental behaviors and CSRHUB environmental ratings is not significant (r=0.144, p<0.3385). The correlation between the number of environmental behaviors and number of employees is negative and not significant (r= -0.099, p< 0.3385).
Discussion
The correlations show that German companies embed their environmental behaviors in their operations for competitive and market advantage while even though French companies implement behaviors, it is for more preventive measures and does not have a correlation with financial performances.
Results showed that despite French companies performing slightly more number of environmental initiatives, German companies’ environmental initiatives are positively correlated with most financial performance measures, while French companies’ environmental initiatives are not significantly related to their financial performance. The regression analysis results suggested that German companies’ number of environmental initiatives had incremental validity in predicting financial performance above and beyond number of employees and location when financial performance was measured using sales and profits. German companies’ number of environmental initiative did not significantly predict market value after controlling for employee number. None of the predictors significantly predicted asset value. For French companies, the number of environmental initiatives did not predict any measure of financial performance. In fact, employee number was the only significant predictor of sales, asset value and market value, (but not profit) after controlling for number of environmental initiatives and number of locations.
Further analyses showed that environmental initiatives were related to financial performance when measured using sales and profit, even after accounting for number of employees and locations for German companies. However, environmental initiative was not significantly related to market value after controlling for employee number. In contrast, French companies’ number of environmental initiatives had negligible correlations with all measures of financial performance. This was consistent with Olitzky et al.’s (2003) findings, account-based measures (sales, profit and asset value) of financial performance yielded slightly higher average correlations (r ̅ = .45) than the market-value measure (r = .41) for German companies.
The results also show that better perceived environmental performance has a positive correlation with employee satisfaction. Past research supports these results as there is a link between firm value and employee satisfaction (Bernhardt et al.,2000). This could also indicate a link between firm value and profitability and environmental performance. It also suggests that Human Resources departments should incorporate environmental behaviors in their policies as it improve employee satisfaction. The results show that the correlation between the number of environmental behaviors and number of employees is negative and not significant which contradicts past findings (Lepoutre & Heene, 2006).
Limitations & Future Research
We were limited as we had to rely on company publications which might not be fully accurate leading to errors and had a limited sample of 48 French and 61 German companies which leads to low generalizability as there are two countries and kind of similar characteristics. We looked at one instance in time 2015 to be exact. The results might be different if it was done over a longer period of time. It might just be an unusual year and might inflate or deflate the results.
Future research should examine how the number of environmental initiatives is related to subsequent financial performance over multiple years and vice versa. Also, future studies could use a mixed approach to study environmental initiatives where both company reporting and our own assessment (e.g. observational surveys etc.) are done. Moving forward, future research should expand on the number of countries to include other countries in Europe and other parts of the world to examine how the relationships between environmental performance and financial performance differ for different countries. Lastly, it is important for future research to examine how to encourage organizations to embed environmental behavior into their operations by using the complete toolkit of I-O psychology (Muros, 2012).