Being green makes me greener? An evaluation of sustainability rebound effects

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Abstract

Sustainability is not only about caring for future generations. It can be a profitable business. For stock market investors sometimes, it is difficult to choose where to allocate financial resources, especially in sustainability investment funds. In this sense, the Brazilian stock market index provides a measurement criterion that defines which Brazilian companies invest in sustainability purposes, the so-called Corporate Sustainability Index (ISE). What is still unknown are the consequences of the performance of this index in the stimulation of new practices of sustainability in companies, in other words, if there is a rebound effect of green investments in stock markets. For that, we conduct a documental research analysis comparing virtuous and crisis economic periods with Delphi Method and correlation regression. The data revealed that certified companies still maintain their investments in sustainability practices even when the context is not favorable and the index is not performing well. This represents a cost in the short-range that represents a positive rebound effect of being certified and employing efforts to maintain greener operations in the long-range. Individual behavior revealed to be a fundamental aspect of an organizational decision of sustainability strategy. The paper contributes to investment market choices for attesting long-range sustainability investments by certified companies, even in hostile economic conditions, demonstrating that sustainability is aligned with purpose and durable commitment toward sustainable development.

Introduction

Sustainable management is not an easy task, especially in emerging markets (Singh, 2018). Companies need to develop a sustainable architecture to leverage sustainable practices and sustainable philosophy (Singh, 2018). Leadership and top management, as well as environmental, and ethical policy, play a critical role in enhancing the environmental performance and competitive advantage of companies. They act as strategic resources, influencing organizational human and technical aspects, which in turn have a direct influence on environmental performance (Singh et al., 2020).

Stakeholders are, likewise, represent a critical factor in this system. El Kassar and Singh (2019) found that stakeholders indirectly affect environmental performance and, consequently, competitive advantage. Nevertheless, discussing the environmental performance of companies, we find that it is also significantly affected by green innovations. El Kassar and Singh (2019) contribute to the knowledge related to green innovation as an antecedent to environmental performance. Therefore, companies need to seek for green innovation as a pathway to enhance environmental performance and competitive advantage (Singh et al., 2019, Singh et al., 2020).

However, despite acting towards sustainable management practices, through technical and human engagement and dynamic capabilities, companies need to ensure they effectively communicate how their products and services contribute to saving the environment. These communications are essential to creating a positive customer and investor perception related to the commitment of the company with the environment (Burhanudin and Ferguson, 2018).

Information is the lifeblood of markets, and communicating sustainability through reports and indicators is fundamental to demonstrate to the market the environmental practices and purpose (Report Corporate Knights, 2017). Sustainability engaged companies trend to choose high-quality sustainability disclosure to communicate their superior performance to the market, consistent with voluntary disclosure theory, which suggests a positive relationship between sustainability performance and sustainability disclosure (Hummel, K., & Schlick, C., 2016).

Measuring sustainability is complex for any company (Kwatra et al., 2016). The complexity extends from the validity and reliability of indicators (Liu et al., 2016) to the capacity of measuring all parts of the company with precise weights indicators (Schrippe and Ribeiro, 2018). This challenge relies on the stock market disturbing choices of investments, especially about sustainability specific interests.

The Business Sustainability Index (ISE) developed by BM&F – BOVESPA (B3), the biggest stock market in Brazil, certifies companies that comprise a public commitment to sustainable development. They become part of a select group of companies in the country. This metric follows the world standards of the Global Reporting Initiative (GRI, 2018), Dow Jones Sustainability Index (DJSI, 2018) and FTSE4Good indexes (FTSE, 2018). Some certifications have been bringing standards to the market, such as Quality Management (ISO 9001:2015); Environmental Management (ISO 14001:2008); Health and Safety at Work (OHSAS, 18001:1999 and ISO 45001:2018); Social Responsibility (ISO 26000:2010) and Energy Management Systems (ISO 50001:2018). However, these standards do not address methodologies or define indicators, they report what companies implement and monitor sustainable practices, opening opportunities to check and correct processes in cases of nonconformities.

Being certified aggregate value to companies in diverse sources of strategy such as branding, reliability, risk analysis, social and environmental responsibility, ethics and for a consequence, financial performance (Scarlat and Dallemand, 2011; Mol and Oosterveer, 2015). Although certification also can drive to cleaner production processes as reverse logistics (Eltayeb et al., 2011), greener product development (Liboni-Amui et al., 2017) and reduction of the product life cycle (Dangelico et al., 2017) it also may possess a dark side of not-so-expressive cost reduction (Eltayeb et al., 2011) and when the means are not justified but the ends to achieve sustainable goals (Wijen, 2014). Brazilian companies are a special case because the country presents substantial biodiversity and ISE certifies only a few companies in a wide number of different organizations.

Moreover, we can question if certified companies are supposed to reinvest on sustainable practices, and if so, if these investments are generating increasing levels of index performance. Certified companies have a chance to decrease investments when market investors tend to stop or decline funds amounts. In another way around, they have to maintain their internal investment on sustainability issues in order to retain the certification and continue to be an attractive opportunity in the market. Only the investment behavior of companies can reveal if there is a rebound effect (Vivanco et al., 2016; Binswanger, 2001) of sustainability certification and if it happens in the same proportion for all metrics of Brazilian ISE database. For that, we aim to explore by document open data of ISE methodology if certified companies tend to remain their investments in sustainability dimensions and if this behavior is the same by the traditional methodology and by the methodology weighted by the opinion of experts in green stock markets.

Section snippets

Rebound effects in green stock market

Sustainable and Responsible Investments (SRI) are booming worldwide (Lobe and Walkshäusl, 2014) accelerating these assets commercialization in stock markets and changing global trends in corporate social responsibility (Patnaik et al., 2018). Emerging countries and, especially Brazil, take a relevant role in the global market since its biodiversity importance and potential growing (Groombridge, 1992, Pearce and Moran, 2013).

The green stock market offers investment possibilities in different

Method

To develop this study, we selected an exploratory approach combined with a quantitative approach. Three-phase format composes the method proceedings. First, we perform document research using open data of B3 (BM&F BOVESPA stock market) database. Then, for contesting the argument that metrics reveal same weights no matter what they intend to measure, we conducted a Delphi Method (Cezarino and Corrêa, 2015), in the politic version of the research method (Okoli and Pawlowski, 2004; Dalkey, 1969)

Results

In this section, we present and discuss the results of the research following the three proposed steps from the method section of the paper.

Table 1 shows the evolution of the sustainability indexes of Companies 1 and 2. In all metrics, there was an evolution, even though the total result of the General Sustainability Index of the 2015/16 biennium compared to 2017/18 of the two companies. The second biennia reveal low performance than the previous one, the GER (General) and SOC (Social)

Discussions

Analyzed data provokes some interesting insights about rebound effects from a systemic perspective of management. For better development, we conceived the displayed framework in Fig. 06 relating the results of the first and second phases with the hypothesis acceptation rate proposed in the third phase of the research. The figure relates the seven dimensions of ISE methodology between the virtuous and crisis economic scenarios in Brazil. The results on the left side are related to the ISE

Final remarks

Companies maintain and increase their investment in sustainability dimensions, when certified by ISE, even when the country is crossing financial crisis, agreeing to previous literature (Scarlat and Dallemand, 2011; Mol and Oosterveer, 2015; Dangelico et al., 2017; Liboni-Amui et al., 2017). Results show that critical areas as the environment (AMB) and carbon emission (CLI) are strategic areas of the studied companies that have their portfolio of actions being invested in an increasing way.

CRediT authorship contribution statement

Luciana Oranges Cezarino: Conceptualization, Methodology, Software, Data curation, Writing - review & editing. Márcio de Queiroz Murad: Data curation. Wisley Falco Sales: Writing - original draft.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgements

The authors thank Brazilian research agencies for financial sponsoring. CNPq - Coordination for the Improvement of Higher Education Personnel (CAPES) and FAPEMIG.

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