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Definition, Conceptualization, and Measurement of Corporate Environmental Performance: A Critical Examination of a Multidimensional Construct

Abstract

Corporate environmental performance (CEP) has been of fundamental interest in scholarly research during the last few decades. However, there is a great deal of disagreement pertaining to the definition, conceptualization, and adequate measurement of CEP. Our study addresses these issues and provides a methodologically rigorous and comprehensive examination of content validity and construct validity. By integrating the available literature on CEP, we derive a parsimonious definition and theoretically sound framework of the focal construct. Drawing on non-aggregated and publicly available data for a sample of 706 firm-years, we test the construct validity of this framework by means of factor analysis. Our results provide evidence for the multidimensional nature of the focal construct. By contrasting our findings with existing measurement approaches in empirical research, we emphasize several deficiencies with regard to the inferences and conclusions yielded in prior research. Future empirical and practically oriented studies can build on our findings and thus provide more stringent results.

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Fig. 1
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Notes

  1. 1.

    Search conducted on November 19, 2012.

  2. 2.

    It should be noted that there are a number of works that address the measurement and validity of related constructs, such as environmental corporate social responsibility (Rahman and Post 2012) environmentally responsible manufacturing (Curkovic 2003), or corporate environmentalism (Banerjee 2002). However, these constructs are linguistically but not conceptually similar to CEP.

  3. 3.

    In particular, PCA does not differentiate between common and unique variance and defines the components as a linear combination of the indicators. Therefore, PCA does not represent an appropriate approach for identifying the underlying factors or dimensions of a set of indicators (Fabrigar et al. 1999).

  4. 4.

    The last column in Table 1 shows that the terms impacts and aspects are ostensibly used as synonyms. However, it should be noted that there is a fundamental difference between the meanings of environmental impacts and environmental aspects. Whereas an environmental aspect is an element of an organization’s activities that can interact with the environment (e.g., emissions of solvent to water), an environmental impact describes any change to the environment due to the activities of an organization (e.g., water pollution) (ISO 1999).

  5. 5.

    The ISO (1999) defines a management performance indicator as an “[…] indicator that provides information about the management efforts to influence an organization’s environmental performance” and an operational performance indicator as an “[…] indicator that provides information about the environmental performance of an organization’s operations.” In addition there are also environmental condition indicators (ECIs), which are defined as “specific expression that provides information about the local, regional, national, or global condition of the environment” (ISO 1999, p. 4). However, in line with Xie and Hayase (2007) and Young and Welford (1998), we argue that ECIs are not appropriate for the evaluation of CEP (implying the focus on the organizational level) because ECIs would require a focus on the level of single production sites since environmental conditions differ between locations. Moreover, ECIs involve the problem of interdependent causes (e.g., emissions of other production sites), making them difficult to operationalize (Jasch, 2000; Kolk and Mauser, 2002).

  6. 6.

    The latest ISO survey reports 267,457 certified companies worldwide (status for 2011).

  7. 7.

    The draft guidance on the ISO 14031 listed more than 100 potential indicators to measure different aspects of EOP (Ditz and Ranganathan, 1997).

  8. 8.

    The use of publicly available data is of particular importance because empirical research is facilitated by practical and straightforward access to data (Rahman and Post 2012).

  9. 9.

    The ASSET4 database was launched in 2004 and the data has been used in previous research for example by Ziegler et al. (2011) or Semenova (2010).

  10. 10.

    The WLSMV estimator provides weighted least square parameter estimates using a diagonal weight matrix and robust standard errors and a mean- and variance-adjusted χ2 test statistic (Brown 2006).

  11. 11.

    Higher values of EOP indicators represent higher intensities of GHG emissions, energy consumption and so forth, whereas higher values of EMP indicators represent higher sophisticated environmental objectives, policies and so forth. Therefore, a negative factor correlation between the EOP and EMP dimension represents a positive association.

  12. 12.

    We ran this additional analysis only for European firms to check if the results of our main analysis are affected by country differences between Europe and North America. The supplemental analysis could be only done on the second half of the sample as the number of US firms was too small to run an additional analysis.

  13. 13.

    A company’s total assets also provide a benchmark for the level of corporate activity and can be regarded as a proxy for the vertical integration of a company. A higher level of vertical integration is assumed to require a greater amount of total assets.

  14. 14.

    It is worth mentioning that several studies examined the relationship between CEP and EMS. In these studies, the EMP dimension (measured in terms of EMS) was modeled as an antecedent of CEP (measured exclusively in terms of EOP) to test the impact of EMS on environmental outcomes (e.g., Aravind and Christmann 2011; Iraldo et al. 2009; Nawrocka and Parker 2009). Because these studies essentially examined the relationship between different dimensions of CEP and deviated from the extant definitions and conceptualizations of CEP (constituting the basis of our analyses), we excluded them from our review.

  15. 15.

    For example, KLD rates companies using a binary system composed of strengths and weaknesses with regard to a total of 12 issue areas (Schreck 2011). These issue areas, however, are in no way theoretically grounded. Moreover, empirical examinations have shown that the KLD data actually entail different factor structures (Mattingly and Berman 2006).

  16. 16.

    With regard to implications for practitioners, the second point means that superior EMP does not necessarily translate into improved EOP. That is, just implementing a sophisticated EMS does not automatically decrease a firm’s environmental aspects. The third point means that improving a particular aspect (e.g., decreasing a firm’s GHG emissions) does not imply an improvement of EOP in general. This fact has already been acknowledged by practitioners concerned with life cycle assessments (e.g., Guinée 2002).

Abbreviations

CEP:

Corporate environmental performance

CFA:

Confirmatory factor analysis

CFI:

Comparative fit index

ECI:

Environmental condition indicators

EFA:

Exploratory factor analysis

EMP:

Environmental management performance

EMS:

Environmental management system

EOP:

Environmental operational performance

GHG:

Greenhouse gas

ICB:

Industrial classification benchmark

ISO:

International organization for standardization

KLD:

Kinder, Lydenburg, Domini research and analytics

MON:

Environmental monitoring

OBJ:

Environmental objectives

OS:

Organizational structure

PCA:

Principal component analysis

POL:

Environmental policy

PRO:

Environmental processes

RMSEA:

Root mean square error of approximation

TLI:

Tucker–Lewis fit index

TRI:

Toxics Release Inventory

WLSMV:

Robust weighted least squares means and variance adjusted estimator

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Acknowledgments

We thank anonymous reviewers for helpful comments. In addiditon, we thank Maik P. Hamann for constructive suggestions.

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Trumpp, C., Endrikat, J., Zopf, C. et al. Definition, Conceptualization, and Measurement of Corporate Environmental Performance: A Critical Examination of a Multidimensional Construct. J Bus Ethics 126, 185–204 (2015). https://doi.org/10.1007/s10551-013-1931-8

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Keywords

  • Corporate environmental performance
  • Construct validity
  • Multidimensionality
  • Environmental management system
  • Environmental performance measurement
  • ISO 14031
  • Measurement models