Source prevention or end-of-pipe treatment? Green public procurement and corporate environmental investment strategies

Abstract

As a market-based environmental policy instrument, Green Public Procurement (GPP) increases environmental legitimacy pressures on companies. However, it is unclear whether and how this change in pressure is reflected in corporate environmental investment strategies. Using manually collected data on corporate environmental investment and green public procurement data obtained through textual analysis techniques, this study observes that GPP significantly promotes corporate environmental investment in source prevention, but has no obvious effect on environmental investment in end-of-pipe treatment, suggesting that enterprises obtaining green procurement orders are more inclined to adopt a preventive environmental investment strategy in response to increasing environmental pressures. The above effects are more pronounced in enterprises where the interests of shareholders and managers are aligned and in highly competitive industries. Mechanism analysis reveals that the government's threat of termination of procurement, increased attention from green investors, and improved access to environmental subsidies are potential mechanisms by which GPP influences corporate environmental investment strategies. Finally, we investigate the supply chain spillovers of GPP using a unique three-level supply chain dataset. This study provides valuable insights into how developing countries can use market-based policy instruments to induce and incentivize enterprises to adopt proactive environmental strategies.