2013 Volume Supplement2 Pages 81-97
This study aims to explain why firms’ environmental activities can lead to better financial performance. Most prior empirical research has shown that environmentally friendly firms enjoy higher stock returns and/or higher stock prices, relative to less environmentally friendly firms. However, the process for achieving better performance was not clear. We use the Sustainability Balanced Scorecard (SBSC), a tool to enhance financial performance through managing nonfinancial indicators, to show how “it pays to be green.” Specifically, we map a Carbon SBSC strategy map, selecting environmental and financial indicators to include. We then conduct an empirical study to test the hypothesized relationships displayed on the Carbon SBSC. The empirical results support our hypotheses on causality. This study contributes to extant research by articulating logical relationships between firms’ environmental activities and financial performance through a Carbon SBSC strategy map, and by testing the relationships using data for firms in Japan.
