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International Journal of Environmental Research and Public Health
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19 July 2020

Does Water, Waste, and Energy Consumption Influence Firm Performance? Panel Data Evidence from S&P 500 Information Technology Sector

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Department of Finance, Bucharest University of Economic Studies, 010374 Bucharest, Romania
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Author to whom correspondence should be addressed.
Int. J. Environ. Res. Public Health2020, 17(14), 5206;https://doi.org/10.3390/ijerph17145206
This article belongs to the Special Issue Sustainable Consumption in Environmental Issues: A Global Perspective
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Abstract

This paper aimed to investigate the impact of water, waste, and energy consumption on firm performance for a sample of enterprises that belong to the S&P 500 Information Technology sector over the period of 2009–2020. The quantitative framework covered both accounting (e.g., return on assets—ROA; return on common equity—ROE; return on capital—ROC; return on invested capital—ROIC) and market-based measures of performance (e.g., price-to-book value—PB), alongside firm and corporate governance specific variables. By estimating multivariate panel data regression models, the empirical results provided support for a negative impact of total water use on PB but a positive effect on ROA. With reference to the total waste, the econometric outcomes revealed a negative influence on the entire selected performance measures, whereas total energy consumption did not reveal any statistically significant influence.
Keywords:
water; waste; energy; panel data

1. Introduction

In the context of the augmented degradation of the environment and competitive market circumstances, managers are concerned as to how green practices can be employed to enhance organizational performance [1]. Jiang et al. [2] emphasized that green entrepreneurial orientation has positive effects on environmental and financial performance. Thus, in order to meet sustainable development goals, enterprises purse investments for novel and inclusive low-carbon products, dropping the carbon footmark of their manufacturing operations, setting emanation decrease targets, and enhancing their energy productivity [3]. Hence, the promotion of corporate social responsibility (henceforth “CSR”) has put pressure on companies regarding their relationships with the environment, society, and economy [4]. However, CSR is not an emerging phenomenon [5]; rather, it pinpoints that businesses cannot be detached from ethics, and every stakeholder should be taken into consideration in all activities of the company [6]. Even if CSR policy is an extra and voluntary cost that affects core business operations, it is a benefit to shareholders, as socially responsible companies become more attractive to stakeholders and society [7]. Moskowitz [8] suggested that socially responsible companies perform better than conventional corporations. Additionally, Gallego-Alvarez et al. [9] found that European companies that have adopted CSR practices are better-founded than other companies. Therefore, Mishra and Suar [10] confirmed that the CSR practices of stakeholders would be beneficial to firms. Companies should comprehend that CSR activities are not a burden but a way of investment because the expenses paid in the short term provide higher profits and a better reputation in the long term [11]. Rjiba et al. [12] claimed that CSR investments counterbalance the adverse effect of economic policy uncertainty on enterprise performance. Bhattacharyya and Rahman [13] proved a positive connection amid mandatory CSR spending and Indian firm performance. Nehrt [14] found that earlier investors in pollution dropping tools registered higher profit growth than subsequent investors. Thus, socially responsible companies could reduce their transaction costs [15] and may become more effective over time [16]. Additionally, higher profits in the short term and sustainable development in the long term [17] will lead to improved firm performance. At the same time, CSR exerts a robust impact on insolvency risk mitigation [18].
Prior research has focused on energy efficiency and financial performance in Korea [19], China [20], Spain and Slovenia [21]; energy efficiency and productivity/exporting in Latin America [3], Ethiopia [22], and India [23,24]; waste and enterprise performance in Japan [25] and the US [26,27]; emissions and firm performance in Europe [28,29,30], Japan [25], and the US [26,31,32]; and other diverse countries worldwide [33]. Additionally, earlier studies have focused on a wide range of industries [2,27,30,32,33,34,35,36]; manufacturing firms [21,24,25,31,37,38,39]; manufacturing and industry [40]; manufacturing, service, and IT organizations [1]; mining and manufacturing companies [41]; energy companies [19,20,42,43]; fossil fuel-related and non-fossil-fuel-related industries [44]; and industrial and commercial firms [45]. Nevertheless, industries intensely diverge in their emanations, whilst a company’s environmental performance substantially hinges on its industrial positions [46]. Hence, a single industry analysis would more precisely catch the related environmental proactivism [27]. This paper attempts to investigate the impact of water, waste, and energy consumption on firm performance out of the US Information Technology sector. Accordingly, the novelty of current paper emerges from approaching the technological sector, which reveals several distinct particularities. Product lifespan is commonly reduced, as new products with boosted performance continuously appear with superior complexity [47]. Hence, the generation of electronic waste has increased to 44.7 million metric tons yearly, being comparable to nearly 4500 Eiffel towers, whereas merely 20% of it is attested to be gathered and recycled [48]. The production of semiconductor, which are crucial elements in technology products, involves huge amounts of ultra-pure water to circumvent the dirt of electronic tools. For instance, a common semiconductor manufacturing plant employs two-to-four million gallons of ultra-pure water daily [49]. Nevertheless, semiconductor wastewater usually comprises several intractable chemicals like organic solvents, acids, bases, salts, heavy metals, and fine suspended oxide particles, among other organic and inorganic compounds [50]. In addition, the energy used to produce digital devices is substantially higher than the energy used during their functioning [44]. However, tech giants are seeking to lessen carbon and waste footprints and to encourage reprocessing, alongside water conservation [51].
The remainder of the paper is organized as follows. The following section discusses prior literature, and the third section reveals the data and research methods. The fourth section shows the quantitative outcomes. The last section emphasizes the main findings and their implications, study limitations, and future research avenues.

3. Research Methodology

3.1. Sample Selection and Data Collection

The sample comprised 71 technological companies covered by the S&P 500 index over the period of 2009–2020, and the data were gathered from Bloomberg. The selected variables are described in Table 4. Consistent with earlier research, in order to measure firm performance, the quantitative investigation comprised both accounting measures—such as return on assets [2,19,20,25,26,30,32,33,34,35,39,41,77,78,85,86,87,88,99,100,101], return on common equity [19,20,25,30,32,33,39,42,44,86,99], return on capital [19,20], and return on invested capital [25]—and market-based measures of performance like price-to-book value [34]. Additionally, several measures of firm characteristics were included in order to counteract any bias and error that may have distorted the association among selected variables [41].
Table 4. Variables’ descriptions.
Corporate liquidity measures are covered driven by that fact that enterprises that suffer from a low liquidity level may attempt to lifting their disclosure level of the CSR and voluntary actions [102]. In line with earlier research [13,24,26,29,31,33,34,36,38,41,42,43,77,84,86,88,90,99,100,101], indebtedness was included here because of the fact that a minor financial risk motivates an enterprise to implement technical innovation because it is convenient to persuade lenders and attract capital [18]. Fakoya [41] noticed that indebtedness measures the amount that a firm is funded by debt capital and shows the level to which external resources finance ecological investments. Sun and Cui [18] asserted that CSR raises company cash flow, lessens income instability, generates firm value, and engenders insurance-like assets that shelter companies from default. Cash-flow variables were defined as they have been in earlier studies [13,41,86] since the likelihood of earnings management is greater in corporations with a high excess free cash flow [64].
Furthermore, as in studies by Bhattacharyya and Rahman [13] and Fakoya [41], profitability was included. However, depending on the approached theory (e.g., stakeholder theory or trade-off), the relationship among profitability and CSR is inconclusive. With reference to taxation, Kim and Im [71] found that corporations concerned with CSR hinder tax circumvention, but passive CSR-implicated firms do not attempt tax avoidance. In regard to dividend policy, a higher payout decreases the accessible cash for executives and deters them from over-investing in CSR, but it also signals the firm’s reputation [103].
Like prior studies [3,13,20,24,25,26,27,30,31,33,35,39,42,44,46,77,78,79,83,85,90,91,99,100,101], firm size was included since large companies generally register a superior profit level compared with small corporations [20]. Larger firms are supposed to invest more in ecologically responsive machineries, as they are expected to have more funds and because they accept higher litigation risks [79]. Waddock and Graves [90] claimed that smaller enterprises may not show many evident socially responsible actions compared to larger companies because, as they develop, they entice more outside consideration and have to overtly comply to stakeholder requests. Hence, the resource-based view argues that larger corporations gain more from ecological innovations, particularly in compliance to guidelines or sector ethics codes, whereas stakeholder theory contends that smaller firms benefit due to the effect of customer demand [83].
Corporate governance variables were included following [34,45,46,79,104] because resource-based theory postulates that enterprises must have superior management abilities in order to follow proactive environmental policies [79]. For instance, Liu [104] documented that companies with superior female board representation register less ecological judicial proceedings. However, since the implementation of pollution-lessening approaches brings many challenges, executives are inclined to circumvent such strategies and assign funds to more traditional investments. Thus, an incentive mechanism should be employed [46]. Accordingly, board and executive compensation were covered similarly by Li, Ngniatedema, and Chen [34], as well as by Berrone and Gomez-Mejia [46].

3.2. Quantitative Framework

In line with prior studies [20,21,24,25,41,44,88,99], our quantitative approach was grounded in panel data regression models. In order to examine the impact of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on firm performance, we estimate the following pooled ordinary least squares regression models:
ROAit = α0 + β1TWUit + β2TWit + β3TECit + β4CorporateLiquidityit
+ β5CorporateIndebtednessit + β6Cash-flowit + β7Profitabilityit
+ β8CorporateTaxationit + β9DividendPolicyit + β10FirmSizeit
+ β11CorporateGovernanceit + uit
ROEit = α0 + β1TWUit + β2TWit + β3TECit + β4CorporateLiquidityit
+ β5CorporateIndebtednessit + β6Cash-flowit + β7Profitabilityit
+ β8CorporateTaxationit + β9DividendPolicyit + β10FirmSizeit
+ β11CorporateGovernanceit + uit
ROCit = α0 + β1TWUit + β2TWit + β3TECit + β4CorporateLiquidityit
+ β5CorporateIndebtednessit + β6Cash-flowit + β7Profitabilityit
+ β8CorporateTaxationit + β9DividendPolicyit + β10FirmSizeit
+ β11CorporateGovernanceit + uit
ROICit = α0 + β1TWUit + β2TWit + β3TECit + β4CorporateLiquidityit
+ β5CorporateIndebtednessit + β6Cash-flowit + β7Profitabilityit
+ β8CorporateTaxationit + β9DividendPolicyit + β10FirmSizeit
+ β11CorporateGovernanceit + uit
PBit = α0 + β1TWUit + β2TWit + β3TECit + β4CorporateLiquidityit
+ β5CorporateIndebtednessit + β6Cash-flowit + β7Profitabilityit
+ β8CorporateTaxationit + β9DividendPolicyit + β10FirmSizeit
+ β11CorporateGovernanceit + uit
where α0 denotes the intercept; β1–β11 are the coefficients to be estimated; ε is the disturbance term; i = 1, 2, …, 71, and t = 2009, 2010, …, 2020; TWU is total water use; PB is price-to-book value; ROIC is return on invested capital; TEC is total energy consumption; and TW is total waste. Additionally, in order to alleviate heteroscedasticity, we considered a robust standard error in addition to the baseline form.

4. Empirical Findings and Discussion

4.1. Summary Statistics and Correlations

Table 5 reveals the summary statistics for the variables used in the empirical research. We noticed that total water use registered the highest mean values, whereas total waste showed the lowest mean values. Figure 1 plots the annual means of total water use, total waste, and total energy consumption. As long as a small number of companies reported the data for the last two years, 2019 and 2020 are not covered in Figure 1. An increasing trendline of total water use and total energy consumption was noticed, and this was facilitated by the fact that in order to produce and power the related equipment, data hubs, or facilities requirements, a huge amount of electricity is needed. Therefore, the energy footprint of the Information Technology industry is projected to exhaust around 7% of global electricity [105]. Additionally, the International Energy Agency [106] advised that deprived of novel strategies, the energy spent by information and communications tools along with consumer electronics will double by 2022 and upsurge threefold by 2030 to 1700 terawatt hours, which will threaten the diligence of raising energy security and lessen the emanation of greenhouse gases. However, with reference to total waste, a decreasing trendline occurred because many large tech corporations are leaders in environmental responsibility [107].
Table 5. Descriptive statistics.
Figure 1. The annual means of (a) total water use, (b) total waste, and (c) total energy consumption. Source: Authors’ work.
Similar prior studies [21,24,26,28,31,33,34,35,41,42,99,101], correlations amongst variables are pointed out in Table 6. High correlations between explanatory variables are not reported, except for total debt to capital (TDC) and total debt to total assets (TDTA) (0.86), which showed that multicollinearity is less likely to be an issue. As such, we noticed weak correlations between water, waste, and energy consumption and firm performance—this was positive in case of TEC, negative with reference to TW, and mixed for TWU.
Table 6. Correlation matrix.

4.2. The Outcomes of Panel Data Regression Models

The regression results regarding the impact of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on accounting performance, in regard to return on assets and return on common equity are presented in Table 7. The coefficients of total water use revealed a positive and statistically significant impact only on ROA, which is in line with the view “do well by doing good” [90], as well as the win–win circumstance of Porter [95]. Consequently, the econometric outcome failed to support Hypothesis 1. As new factories are assembled, they are motivated to integrate internal water recycling methods in order to prevent major costs of ecological conformity and modernization in the future [47]. Several companies from the Information Technology sector employed water recycling facilities, which put them in a good marketing place and gave them a confident corporate image. These enterprises may benefit from premium pricing and augmented sales due to market acceptability and better social consent [63], thus leading to the registering of better performance due to the acquisition of more customers [102].
Table 7. The outcomes of panel data pooled regression models regarding the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on return on assets and return on common equity.
However, the coefficients related to total waste were found to negatively influence ROA, thus providing support for Hypothesis 2. Porter and Linde [96] found that damaging materials being released into the environment is an indication that resources have been exploited partly, inadequately, or unproductively. Hence, corporations should undergo extra actions that increase cost but generate no value for clients. Additionally, Lahouel, Bruna, and Zaied [77] argued that greater ecological regulations and severe national environmental guidelines adversely influence companies’ performance by involving supplementary, irredeemable charges.
With reference to total energy consumption, rather than expected from Hypothesis 3, the impact on firm performance, as measured by ROA and ROCE, was not statistically significant, as opposed to some prior studies [19,20] but in line with the study of Pons, Bikfalvi, Llach, and Palcic [21]. Nevertheless, consistent with the work of Li, Ngniatedema, and Chen [34], we found that the effect of energy on firm performance may not be instantaneous and might take more time for an enterprise to feel its influence. Nehrt [14] argued that enterprises, when deprived of the necessary time to assimilate new technologies, face time compression diseconomies that hinder them from enjoying all of their investments’ returns.
In line with earlier studies [33,41], the presence or absence of multicollinearity was investigated by means of the variance-inflation factors (henceforth “VIFs”). In this vein, Table 8 shows the mean VIFs. Since the related figures were much below the threshold value of 10, we noticed that the empirical outcomes were not affected by multicollinearity issues.
Table 8. Variance inflation factors (VIFs) for the panel data pooled regression models in regard to the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on return on assets and return on common equity.
Table 9 reports the estimates regarding the impact of water, waste, and energy consumption on market-based performance. The empirical outcomes provided support for a negative influence of total water use and total waste on PB, which was consistent with the work of Cordeiro and Sarkis [27] and Hart and Ahuja [32]. Therefore, the results supported Hypotheses 1 and 2. In the short term, investors have found environmental measures as possible expenses or penalties, thus leading to adverse effects on firm performance [101]. Nevertheless, even if the corporations in the Information Technology sector attempt to be ecologically proactive, the opposite outcome does not indicate the loss of money in the long run. Generally, short-term imperfections related to pro-environment policies are more than compensated for by long-term benefits [27].
Table 9. The outcomes of panel data pooled regression models regarding the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on price-to-book value.
Likewise, analogous to the outcomes provided in Table 7, total energy consumption was not found to reveal any statistically significant effects on firm performance; hence, Hypothesis 3 could not be maintained. According to Hart and Ahuja [32], there is a delay between the launch of emanations lessening efforts and the occurrence of benefits. Initially, training and machineries should be funded, after which the renegotiation of supply clearance agreements and internal restructuring is needed.
Additionally, the mean VIFs reported in Table 10 show that there were no concerns for multicollinearity.
Table 10. VIFs for the panel data pooled regression models regarding the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on price-to-book value.

4.3. Robustness Checks

Aiming to assess the robustness of the empirical findings, we employed ROC and ROIC as alternative measures of firm performance. The estimation results reported in Table 11 reinforce the negative impact of total waste on firm performance, alongside the lack of statistically significant influence of total energy consumption. From an agency viewpoint, the adverse effect of waste may be explained by the opportunistic behavior of managers who may use resources to follow their own objectives instead of investing in environmental projects [63]. In regard to total water use, the related coefficients provided support for the absence of any association with firm performance. Consistent with the work of Wang [88], diverse ecological technologies were found to exert dissimilar effects on firm performance. Hypothesis 2 was confirmed, but neither Hypotheses 1 or 3 could be supported.
Table 11. The outcomes of panel data pooled regression models regarding the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on return on capital and return on invested capital.
The mean VIFs with reference to estimation outcomes are reported in Table 12. Hence, as long as the related values of VIFs are below 10, there are no issues regarding multicollinearity.
Table 12. VIFs for the panel data pooled regression models regarding the influence of water, waste, and energy consumption, alongside firm and corporate governance-specific variables, on return on capital and return on invested capital.

5. Conclusions

This study investigated the influence of total water use, total waste, and total energy consumption on firm performance for a sample of enterprises in the S&P 500 Information Technology sector over the period of 2009–2020. The results showed mixed evidence in the case of total water use, namely a negative impact on price-to-book value, but a positive effect on return on assets. In regard to the total waste, the empirical findings provided support for an adverse influence on firm performance. Nevertheless, total energy consumption did not reveal any statistically significant impact on enterprise performance.
The research has implications for policymakers and company managers. With reference to water consumption, the wastewater from the manufacturing process should be suitably handled and discharged [94]. In this respect, transparency regarding water use, alongside industry regulations for reporting, should be imposed. As climate change is amplifying and water risks are becoming obvious, rigorous guidelines concerning water productivity and dismissal are essential.
With respect to waste, even if tech corporations are regularly concerned for environmental safety, electronic waste registers the highest growth. For instance, as the technology begins to move to 5G, there are many devices that are unsuited to novel technical ideas and will become outdated, leading to an increase in electronic waste. In this vein, policymakers should continuously track electronic waste statistics in order to lessen its emergence, avoid illegitimate removal and inappropriate handling, encourage recycling, and generate works in the refurbishment and recycling sectors [44]. Additionally, laws that forbid electronics from ordinary trash should be designed. Likewise, the recycling responsibly of company managers should be strengthened. Additionally, industrial development bonds should be considered in order to finance the establishment of electronic recycling facilities. Managers should be more concerned with waste prevention, along with end-of-pipe treatment [26]. Furthermore, directors should permanently exhibit a positive attitude toward sustainability through constant investments in green innovation [87]. Hence, ecological modernization should be considered by executives so as to support companies in accomplishing waste lessening or removal, resource recovering and dematerialization, and the reuse of goods [86].
Concerning energy, the enhancement of power management and productivity may generate supplementary returns, whereas saving energy can help reduce global warming [23]. Manufacturers should focus on producing equipment that needs very little power, apart from extending the battery life of portable tools. Thus, the related components should operate more efficiently to make sure that energy is only used when needed and to the desired scope. Apart from energy-intensive manufacturing procedures, the very short lifespan of many devices should not be disregarded. With the extended lifespan of digital tools, their related energy would not be an urgent matter. As such, the ecological footprint of digital technology may be lessened by tackling technical outmodedness [108]. In order to move their manufacturing processes forward, enterprises should shift from fossil fuels to renewable energy such as solar, wind, or hydropower.
The study had some limitations. First, the quantitative analysis covered large technological companies included in the S&P 500 index. Nevertheless, small and medium corporations should be considered because they also lead to ecological deprivation. As long as the positive consequences of environmental proactivism are not immediate [27], a lag regression model should be considered. In view of the rising concern about pollutant emission drops, future lines of research may extend the current investigation by exploring the impact of carbon releases on firm performance.

Author Contributions

Conceptualization, L.N.S., Ş.C.G., Z.S., and H.T.; data curation, L.N.S., Ş.C.G., Z.S., and H.T.; formal analysis, L.N.S., Ş.C.G., Z.S., and H.T.; funding acquisition, L.N.S., Ş.C.G., Z.S., and H.T.; investigation, L.N.S., Ş.C.G., Z.S., and H.T.; methodology, L.N.S., Ş.C.G., Z.S., and H.T.; project administration, L.N.S., Ş.C.G., Z.S., and H.T.; resources, L.N.S., Ş.C.G., Z.S., and H.T.; software, L.N.S., Ş.C.G., Z.S., and H.T.; supervision, L.N.S., Ş.C.G., Z.S., and H.T.; validation, L.N.S., Ş.C.G., Z.S., and H.T.; visualization, L.N.S., Ş.C.G., Z.S., and H.T.; writing—original draft, L.N.S., Ş.C.G., Z.S., and H.T.; writing—review and editing, L.N.S., Ş.C.G., Z.S., and H.T. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Conflicts of Interest

The authors declare no conflict of interest.

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