Environmental Management Commitments: Impacts on Environmental Performance, Profitability, and Financial Risk (Preliminary Phase of Study)

Abstract

I propose a conceptual model that shows management commitment leading to better environmental performance and better financial performance. The model will be tested using factor analysis and regression on data from Canadian companies in the extractive sector from three points in time, 2004, 2008 and 2011, with the objective of identifying the discrete management decisions that lead to better performance. I use two alternative measures of environmental performance. The first is the volume of emissions recorded in Environment Canada’s National Pollutant Release Inventory database; the second is the asset retirement obligation disclosed in companies’ balance sheets. At this point the research is very incomplete as I have data for 2008 only. However the descriptive statistics are provocative. For example, the positive correlation between the remediation liabilities and emissions suggest what might be interpreted as a ‘halo effect’. The factor(s) that contribute to good performance in these two disparate performance metrics need(s) to be identified, which is the goal of this work. Also, when company size is considered, emissions vary considerably for both large and small companies, suggesting again that specific though yet to be identified management commitments lead to significantly different performance. When complete, this research will provide insight into the timing and scope of actions that must be taken to reduce negative environmental impacts, and provide managers with insight to formulate both long and mid-term operational strategies.