DEA environmental assessment on U.S. industrial sectors: Investment for improvement in operational and environmental performance to attain corporate sustainability

Authors: Wang, D., Li, S., Sueyoshi, T.

Publication: Energy Economics

Abstract

Environmental assessment has recently become an important business concern because consumers are interested in environmental protection. They try to avoid purchasing products from dirt-imaged companies, which do not pay attention to environmental protection, even if their prices are much less than the ones produced by green-imaged companies. Thus, a green image is very important for corporate survivability in a global market. This study considers "corporate sustainability", indicating that companies need to consider both economic prosperity and pollution prevention in their operations. To discuss the issue from corporate strategy for modern business, this study discusses a use of Data Envelopment Analysis (DEA) for environmental assessment by focusing upon Research and Development (R&D) strategy as well as technology innovation and selection for reduction of undesirable outputs (e.g., CO₂ emission). This type of research has never been explored in previous studies. It is easily envisioned that the proposed DEA environmental assessment will guide corporate leaders in identifying how to invest for technology innovation to reduce an amount of undesirable outputs. To discuss the practicality, this study applies the proposed approach to 153 observations on S&P 500 corporations in 2012 and 2013. The empirical investigation confirms that investors pay more serious attention to company's green image and the reality for a long run sustainability than profitability in a short run concern. Furthermore, the energy sector is the best investment target among seven industrial sectors examined in this study. The measurement of corporate sustainability can serve as an empirical basis in selecting what type of technology is fitted for a specific industry.

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