How Does Environmental Performance Contribute to Firm Financial Performance in a Multi-country Study? Mediating Role of Competitive Advantage and Moderating Role of Voluntary Environmental Initiatives

This study comprehensively investigates when and how environmental performance impacts financial performance in a multi-country sample. This study applies GMM by using a panel of 161 Climate Action 100 + companies from 34 countries encompassing 2015 to 2021. Our analysis shows that firms' environmental performance positively contributes to financial performance, and results are robust to the alternative measures. The results show that competitive advantage mediates the relationship between environmental performance and financial performance. Similarly, voluntary environmental regulation adoption contextually and environmental management positively moderate the relationship and reduce the negative impact of pollution on financial performance. We conclude that firms should move from Friedman's profit maximization philosophy towards Hart's natural-resource-based view of pollution prevention and product stewardship for securing sustainable financial performance. Our findings have significant implications for managers, companies, and policymakers who are concerned with business operations, environmental performance, and carbon emissions mitigation strategies.