Going green is good for business, especially when companies disclose their environmentally friendly practices, according to new research in Green Supply Management. Annachiara Longoni, Director of ESADE's BuNeD research group, has published empirical research that shows how disclosing environmental practices can benefit a firm's performance. "Companies that are transparent and make their environmental practices public are likely to improve their financial outcome," says Prof. Longoni. "Our findings demonstrate that the broader the environmental disclosure practices, the greater and more positive the impact on financial performance." To test their hypothesis, Prof. Longoni and her co-author Prof. Raffaella Cagliano from Politecnico di Milano looked into the green supply-chain practices of more than one hundred top Italian food firms: "The food industry is a useful context for analyzing the impact of environmental disclosure initiatives, since the public has started to pay more attention to the responsible behaviors of food companies." The researchers measured the level of environmental disclosure practices and compared the average return on investment of these firms to that of their industry peers. Sharing environmental practices with a variety of stakeholders increases a firm's financial performance Broad disclosure practices The findings confirm that sharing environmental practices with a variety of stakeholders increases a firm's financial performance. But not all stakeholders are equal: improvement levels vary according to the type of stakeholders chosen. When environmental disclosure practices are limited and restricted to primary stakeholders - such as suppliers, distributors, customers and final consumers, shareholders, employees and unions, and the local community - financial performance is not improved on average. However, when environmental disclosure practices are more comprehensive and include a wider range of stakeholders - such as industrial associations and NGOs, mass media, regulatory institutions, banks, the scientific community and research institutions - financial performance is significantly improved. Examples of sustainable practices The type of information companies in the study disclosed included internal green supply-chain management practices in production processes - for example, efforts to reduce consumption of raw materials, water and energy, as well as pollution emissions. Regarding external green supply-chain management practices, the information disclosed was related to supplier selection on the basis of sustainability competencies, sustainability performance and reputation, certifications, and overall capacity to develop sustainable products. The weak link: environmental performance Disclosing environmental practices is good for business, but not so good for improving environmental performance. Companies that make their environmental practices public are not necessarily more committed to addressing sustainability issues. In fact, disclosing this information through channels such as CSR reports could sometimes be a marketing tool to enhance brand image among stakeholders. "Concerns among academics and practitioners are emerging about how statements in disclosure practices compare with the firm's real commitment to addressing sustainability issues," state the authors. The study suggests that companies that disclose their environmental practices do not necessarily improve their environmental performance. In fact, the researchers warn that an imbalance between the level of information disclosed and the firm's real commitment to addressing sustainability issues could have negative consequences: "Discrepancies between environmental information disclosed and a firm's actual green practices may preclude both the possibility of creating a positive firm image and improving financial performance, and establishing a dialogue with stakeholders to improve environmental performance." You may also like: Hiring a Chief CSR Officer improves firm performance

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Why disclosing green practices can be a profitable business practice

12/2018

Going green is good for business, especially when companies disclose their environmentally friendly practices, according to new research in Green Supply Management.


Annachiara Longoni, Director of ESADE's BuNeD research group, has published empirical research that shows how disclosing environmental practices can benefit a firm's performance.


"Companies that are transparent and make their environmental practices public are likely to improve their financial outcome," says Prof. Longoni. "Our findings demonstrate that the broader the environmental disclosure practices, the greater and more positive the impact on financial performance."


To test their hypothesis, Prof. Longoni and her co-author Prof. Raffaella Cagliano from Politecnico di Milano looked into the green supply-chain practices of more than one hundred top Italian food firms: "The food industry is a useful context for analyzing the impact of environmental disclosure initiatives, since the public has started to pay more attention to the responsible behaviors of food companies."


The researchers measured the level of environmental disclosure practices and compared the average return on investment of these firms to that of their industry peers.


Sharing environmental practices with a variety of stakeholders increases a firm's financial performance


Broad disclosure practices


The findings confirm that sharing environmental practices with a variety of stakeholders increases a firm's financial performance. But not all stakeholders are equal: improvement levels vary according to the type of stakeholders chosen.


When environmental disclosure practices are limited and restricted to primary stakeholders - such as suppliers, distributors, customers and final consumers, shareholders, employees and unions, and the local community - financial performance is not improved on average.


However, when environmental disclosure practices are more comprehensive and include a wider range of stakeholders - such as industrial associations and NGOs, mass media, regulatory institutions, banks, the scientific community and research institutions - financial performance is significantly improved.


Examples of sustainable practices


The type of information companies in the study disclosed included internal green supply-chain management practices in production processes - for example, efforts to reduce consumption of raw materials, water and energy, as well as pollution emissions.


Regarding external green supply-chain management practices, the information disclosed was related to supplier selection on the basis of sustainability competencies, sustainability performance and reputation, certifications, and overall capacity to develop sustainable products.



The weak link: environmental performance


Disclosing environmental practices is good for business, but not so good for improving environmental performance.


Companies that make their environmental practices public are not necessarily more committed to addressing sustainability issues. In fact, disclosing this information through channels such as CSR reports could sometimes be a marketing tool to enhance brand image among stakeholders.


"Concerns among academics and practitioners are emerging about how statements in disclosure practices compare with the firm's real commitment to addressing sustainability issues," state the authors.


The study suggests that companies that disclose their environmental practices do not necessarily improve their environmental performance. 


In fact, the researchers warn that an imbalance between the level of information disclosed and the firm's real commitment to addressing sustainability issues could have negative consequences: "Discrepancies between environmental information disclosed and a firm's actual green practices may preclude both the possibility of creating a positive firm image and improving financial performance, and establishing a dialogue with stakeholders to improve environmental performance."


You may also like: Hiring a Chief CSR Officer improves firm performance


More Knowledge
Inclusive environmental disclosure practices and firm performance: The role of green supply chain management
Longoni, Annachiara; Cagliano , Raffaella
International Journal of Operations & Production Management
Vol. 38, n 9, 03/2018, p. 1815 - 1835
Sustainable innovativeness and the triple bottom line: The role of organizational time perspective
Longoni, Annachiara; Cagliano , Raffaella
Journal of Business Ethics
Vol. 151, n 4, 09/2018, p. 1097 - 1120
Deploying environmental management across functions: The relationship between green human resource management and green supply chain management
Longoni, Annachiara; Luzzini , Davide; Guerci , Marco
Journal of Business Ethics
Vol. 151, n 4, 09/2018, p. 1081 - 1095
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