Pro-environmental strategy and financial performance: universal win–win relationship?

Abstract Despite mixed findings in prior research, authors continue to posit a positive relationship between pro-environmental strategies and financial performance. Challenging this bias for a positive, or win–win relationship, the paper hypothesizes that the relationship between pro-environmental strategy and financial performance is not positive across all firms. Specifically, the paper develops and tests the novel hypothesis that the baseline relationship is negative, but that this negative relationship becomes smaller or even positive when firms have high levels of managerial competence and when they have good corporate governance practices that reduce agency costs. Based on a sample of 446 S&P 500 firms from the United States observed over a twenty-year period, the study finds support for the hypotheses. The paper holds important implications for managers, investors, and policy makers interested in promoting pro-environmental strategies that result in positive financial performance for firms.