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Disentangling economic crisis effects from environmental regulation effects: Implications for sustainable development
Author(s) -
Lazzini Simone,
Occhipinti Zeila,
Parenti Angela,
Verona Roberto
Publication year - 2021
Publication title -
business strategy and the environment
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.123
H-Index - 105
eISSN - 1099-0836
pISSN - 0964-4733
DOI - 10.1002/bse.2749
Subject(s) - porter hypothesis , environmental regulation , european union , sustainable development , economics , environmental policy , panel data , emissions trading , financial crisis , business , economic system , public economics , climate change , international economics , natural resource economics , macroeconomics , political science , ecology , law , econometrics , biology
Abstract With climate change becoming more severe, policy makers must impose environmental regulations that will lead firms to adopt sustainable corporate models. According to the Porter hypothesis, environmental regulation can favour the implementation of business strategies that improve economic and environmental performances. In this study, we examine how one such form of regulation, the European Union Emission Trading Scheme (EU ETS), impacts firm performance, and we subsequently widen the examination beyond the regulation to evaluate an economic crisis which could potentially confound regulation effects. We estimate a panel model with time‐ and firm‐fixed effects for different subsamples that disentangle the effect of the EU ETS policy from the 2008 economic crisis. The results indicate that the EU ETS policy in its third phase can activate the Porter hypothesis and is effective in fuelling the implementation of sustainable corporate models by firms. However, we also find that the economic crisis neutralises the effects of the regulation on firm performance, precluding the triggering of the Porter hypothesis in severely affected firms.