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Eco-efficiency Based on Social Performance and its Relationship with Financial Performance

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  • Yongyoon Suh
  • Hyeonju Seol
  • Hyerim Bae
  • Yongtae Park

Abstract

type="main"> As corporate responsibility for environmental management has gained attention, eco-efficiency has become recognized as an important concept for improving the social performance of the business sector as well as that of the public sector. Improving eco-efficiency is widely accepted not only as a means of increasing economic value, but also as a means of reducing environmental effects. However, managing for eco-efficiency should take into consideration the differences among industries, because the impact of eco-efficiency on financial and social performance varies among industries. To explore this variation, we conducted a cross-industry analysis of eco-efficiency based on social performance using data envelopment analysis (DEA). DEA measures relative efficiency and is a useful tool for taking into account the relative importance of industry-specific characteristics. Using DEA, eco-efficiency scores were derived based on the ratio of two factors of social performance: (1) value-added inducing and production-inducing economic spillover effects and (2) the amount of greenhouse gases emitted and energy used. Then, we identified the relationships between our eco-efficiency score and financial performance, which is a measure of the firm's stability. The case study is based on 272 firms in 16 industries in South Korea. Results show that firms in product manufacturing and service-intensive industries tend to have higher eco-efficiency scores than those in raw material or chemical-intensive industries. In addition, most of the industries reveal no relationship between traditional financial performance metrics and eco-efficiency scores. A handful of industries had significant relationships with one or more financial performance metrics; in some cases, these relationships were negative, whereas in others they were positive. Surprisingly, almost all industries have no significant relationships between eco-efficiency and financial performance. This result implies that government support for policies that reward firms that attempt to be eco-efficient are needed, or that other nonfinancial metrics that influence eco-efficiency, such as employment and brand reputation, should be considered. This article is expected to support policy makers as they formulate industry-specific environmental strategies.

Suggested Citation

  • Yongyoon Suh & Hyeonju Seol & Hyerim Bae & Yongtae Park, 2014. "Eco-efficiency Based on Social Performance and its Relationship with Financial Performance," Journal of Industrial Ecology, Yale University, vol. 18(6), pages 909-919, December.
    • Handle: RePEc:bla:inecol:v:18:y:2014:i:6:p:909-919
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