The doctoral dissertations of the former Helsinki University of Technology (TKK) and Aalto University Schools of Technology (CHEM, ELEC, ENG, SCI) published in electronic format are available in the electronic publications archive of Aalto University - Aaltodoc.

Determinants of Environmental Profit. An Analysis of the Firm-Level Relationship Between Environmental Performance and Economic Performance

Leena Lankoski

Dissertation for the degree of Doctor of Science in Technology to be presented with due permission of the Department of Industrial Engineering and Management for public examination and debate in Auditorium B at Helsinki University of Technology (Espoo, Finland) on the 16th of September, 2000, at 12 noon.

Dissertation in PDF format (ISBN 951-22-8057-4)   [1065 KB]
Dissertation is also available in print (ISBN 951-22-5127-2)


The study contains a theoretical and empirical examination of the relationship between the environmental and economic performance of firms. It reframes the crucial question to read, not whether, but when environmental performance improvements are profitable for firms. The study develops the novel concept of environmental profit and investigates its determinants.

To this end, the study first reviews the existing literature to show how and why attempts to detect a systematic relationship between the environmental and economic performance of firms have been unsuccessful. In particular, the study identifies three gaps in the previous knowledge: (1) the relationship may not be constant across environmental performance levels, which means that it needs to be considered a function of environmental performance; (2) the relationship may not be uniform across cases, which means that the determinants of environmental profit need to be identified; and (3) the relationship may not be static across time, which means that changes in the determinants of environmental profit over time need to be discussed.

The study approaches the topic through three research modules. The first research module uses mathematical model building to assert that the relationship should be considered a case-specific, inverted U-shaped function of environmental performance, represented by an environmental profit curve. So-called win-win situations exist as long as a firm is situated in the rising portion of its environmental profit curve.

The second research module examines statistically the overcompliance of 108 Finnish manufacturing plants in the chemical forest industry, chemical industry, metal industry, and food industry with effluent discharge regulations during 1988-1996. This module finds that there is significant variation in overcompliance and, thus, in perceived win-win situations. The most important sources for this variation are to be found at the plant level.

The third research module consists of eleven case studies concerning Finnish manufacturing plants, which are used to develop an understanding of the mechanisms behind the plant-level variation in perceived win-win situations. This analysis reveals six main determinants of environmental profit: technology, regime, visibility, willingness to pay, benchmarks, and discount rate. Combined, these determinants establish whether a particular environmental performance improvement in a particular firm results in a win-win situation or not.

In sum, the study shows that the firm-level relationship between environmental and economic performance takes the form of an inverted U-shaped function of environmental performance, and varies from firm to firm according to the six main determinants of environmental profit.

Keywords: environmental performance, economic performance, sustainable business, competitiveness, corporate responsibility

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© 2006 Helsinki University of Technology

Last update 2011-05-26