Economic Sustainability in Wastewater Treatment Companies: A Regional Analysis for the Iberian Peninsula

Round 1

Reviewer 1 Report

The article deals with the assessment of economic sustainability in wastewater treatment companies and not with technical issues. The content of the article is of interest to economists rather than wastewater treatment technicians, hence my assessment of the low interest in these issues.

It seems to me that the article should not be submitted to section: Environmental Sciences

Author Response

In this paper the financial sustainability of 222 Wastewater Treatment Plants in Iberian Peninsula is analysed, in 2016-2019 using SABI database. It is a relevant topic in the actual management research agenda. Furthermore, by correlating Wastewater treatment plants’ (WWTPs) financial aspects with circular economy principles this paper addresses environmental issues. WWTPs perform the important task of mitigating environmental impacts caused by organizations and households at the end-of-pipe. They focus on the operational environmental performance either regulated by laws, contributing to financial savings, or increasing customer satisfaction. However, the literature so far falls short on evaluating these companies own financial performance and economic sustainability. Evaluating the economic sustainability of any business is important because it affects firm survival in the market. And, therefore, it compromises the recycling chain necessary for the environmental sustainability of a given economy. In other words, economic viability performs as a substantial barrier to the implementation of a resource recovery technology. On the other hand, the exploration of the system symbioses across neighbouring waste generation sites allows to tackle the environmental issues faced by the generation of wastewater.

Author Response File: Author Response.docx

Reviewer 2 Report

A regional analysis  of wastewater companies is useful  but the paper needs a broad discussion besides financial sustainability concerns

Abstract :

Please delete these paragraphs - this is for the introduction section supported by references:

 <In developed countries, about 30% of wastewater is released into the environment without being treated. In the case of developing countries, the amount rises to 92%.>

Introduction  - the role of circular economy in wastewater is neglected  as a key  EU environmental policy

2. Methodology - One parameter used is the density of population. OK . What about the number and types of municipalities ( ie, large city, urban, peri-urban/metropolitan, rural)  covered by each wastewater treatment plant ?. How do these characteristics influence the financial and performance indicators at the regional level?

Please clarify the limitations of this study.

3. Results displayed in a GIS map format could better reflect the regional disparities between regions in the Iberian Peninsula

Discussion -   here a  broad discussion with references could be developed

The paper focuses too much on financial aspects, but these aspects must be also correlated with circular economy principles.

For example, which wastewater treatment plants are equipped with anaerobic digestion facilities to produce biogas based on sewage sludge ( electricity and thermal energy through co-generation)  ?

What are  Sewage sludge treatment options in Spain and Portugal…?

Line 526-527  Studies such as [28-31] could inspire a more complete analysis where social and  environmental performance were analyzed and compared to financial performance   - please provide more details about these studies, avoid multiple in-text citations without sufficient arguments

Conclusions  -   some key statistics  from results need to be provided in this section

Author Response

Abstract: Please delete these paragraphs - this is for the introduction section supported by references:

 <In developed countries, about 30% of wastewater is released into the environment without being treated. In the case of developing countries, the amount rises to 92%.>

Done.

Introduction- the role of circular economy in wastewater is neglected  as a key  EU environmental policy

The following text was added in the Introduction: Worldwide water scarcity requires the integration of water policy in the Circular Economy (CE) to improve the quantity and quality of water, by promoting its reuse and optimizing the amount of energy, minerals and chemicals used in the operation of water systems [22]. In this context, a stream of literature estimates the market value of water to drive water savings to a circular paradigm, to improve economic and environmental decision-making [23]. However, most Small and Medium Enterprises (SMEs) face specific challenges, such as access to finance, and difficulties to implement the CE). Therefore, the process of the implementation of CE should start by managing change within the organization [24]. This is only feasible if the organization is economically sustainable. Accordingly, the regional agendas aim at identifying opportunities for accelerating and transitioning to more efficient and sustainable use of resources and reconciling together with regional stakeholders [25]. Yet, despite the establishment of the Green Deal by the European Commission in 2019, political progress has been tenuous in terms of achieving long-term sustainability goals [26]. Wastewater policy measures have been primarily guided by considerations of cost efficiency and large-scale infrastructure [27], incapable of preventing the excessive water consumption and of supporting the pillars of sustainable development [28]. Furthermore, water is not the major concern in the CE agendas of the member states, unlike materials and waste. Still, in the Iberian Peninsula the emphasis on water is more evident in political plans when compared to concerns with the land [29].

Methodology - One parameter used is the density of population. OK . What about the number and types of municipalities (i.e., large city, urban, peri-urban/metropolitan, rural)  covered by each wastewater treatment plant ?. How do these characteristics influence the financial and performance indicators at the regional level?

This a very good question to be analysed. In fact, was not the focus in this study but we added this idea to future research. In the conclusion section we included the following sentence:

“An analysis about the number and types of municipalities (i.e., large city, urban, peri-urban/metropolitan, rural) covered by each wastewater treatment plant, could be welcome in order to conclude how do these characteristics influence the financial and performance indicators at the regional level.”

We agree and added it to avenues of future research.

Please clarify the limitations of this study.

The following text was added in the Discussion: This paper has some limitations. First, this research does not shed light on which wastewater treatment plants are equipped with anaerobic digestion facilities to produce biogas based on sewage sludge (electricity and thermal energy through co-generation), or what are sewage sludge treatment options in Spain and Portugal. Second, it is very difficult to conclude that a firm is more or less efficient if we do not know the volume of wastewater treated in every firm. Third, is very difficult to conclude that a firm is efficient when the volume of wastewater treated in every firm is unknown.

Results displayed in a GIS map format could better reflect the regional disparities between regions in the Iberian Peninsula

We agree, but none of us could work with ArcGis.

The paper focuses too much on financial aspects, but these aspects must be also correlated with circular economy principles.For example,

which wastewater treatment plants are equipped with anaerobic digestion facilities to produce biogas based on sewage sludge (electricity and thermal energy through co-generation) ?

It was not possible to ascertain what kind of facilities the WWTPs possess, due to the lack of response from these firms. This was added in the limitations of the study.

What are sewage sludge treatment options in Spain and Portugal…?

In the Iberian Peninsula, the most common sewage sludge treatments are the anaerobic digestion, aerobic stabilization and composting

Line 526-527, Studies such as [28-31] could inspire a more complete analysis where social and environmental performance were analysed and compared to financial performance   - please provide more details about these studies, Avoid multiple in-text citations without sufficient arguments

More details of these studies were added in discussion section: For example, a study [37] confirms that the valuation effect of a company is attributable mainly to greater earnings persistence in firms with higher levels of Corporate Social Performance (CSP). These outcomes are consistent with higher CSP conferring a competitive advantage on firms. In fact, firms often undertake activities that do not necessarily increase cash flows (e.g., costly investments in corporate social responsibility or CSR), and some investors value these non-cash activities. Another study [38] concludes that price reacts to investments in CSR activities as individual social responsibility can lead to corporate social responsibility when managers care about stock price. Other studies statement that their theory and findings contribute to the CSR and affect literatures in accounting by revealing the contingent nature of how and to what extent CSR performance influences investors' beliefs about firm value and the bids these investors are likely to make in equity markets (see for example, [39]). In fact, a firm’s investment in corporate social responsibility (CSR) builds a positive image of caring for social good and imposes additional costs on executives׳ informed trading, which is widely perceived self-serving [40].

Conclusions -   some key statistics  from results need to be provided in this section

Following the reviewer’s suggestion, we have included some additional information regarding key statistics in the conclusion section.

Reviewer 3 Report

The paper includes an interesting study. The conclusions and the discussion are relevant. Its structure is correct, although it is a bit difficult to read.
Some recommendations and suggestions are:
- Please add a sentence or two to clearly recap how your study differs from what has already been done in literature to ascertain the contributions more strongly
- The methodology section needs more details 
- The methodology should be justified in the article in the light of the research questions (i.e., why is the chosen methodology the best approach to answer the research questions).
- Discussion: Improve the discussion section to ascertain better what is unique/novel about your findings

Author Response

- Please add a sentence or two to clearly recap how your study differs from what has already been done in literature to ascertain the contributions more strongly

We included some additional information about the contribution of the paper in the introduction section: It is a relevant topic in the actual management research agenda. So, this study addresses new insights in this area by correlating Wastewater treatment plants’ (WWTPs) financial aspects with circular economy principles and evaluating these companies own financial performance and economic sustainability. Evaluating the economic sustainability of any business is fundamental because it affects firm survival in the market. The literature so far falls short in these evaluating studies.

- The methodology section needs more details. The methodology should be justified in the article in the light of the research questions (i.e., why is the chosen methodology the best approach to answer the research questions).

Some details were added to the methodological section, particularly information about the methodology chosen and the data to clarify some numbers and to better explain the approach used.

This study uses ratios (key financial indicators), calculated with the amounts collected from the company’s financial statements. The software IBM SPSS, version 27, was used to statistics analysis. This methodology was applied in many other studies, as for example, 26 and 27.

A longitudinal study helps to understand the evolution of firm’s financial situation, so we use 4 years of observations.

- Discussion: Improve the discussion section to ascertain better what is unique/novel about your findings

Discussion section was improved, also some information was added to conclusion section and some news ideas of future research, all support the novel of our findings.

Reviewer 4 Report

In this paper the financial sustainability of 222 Wastewater Treatment Plants in Iberian Peninsula is analyzed, in 2016-2019 using SABI database.

It is a relevant topic in the actual management research agenda. Moreover, the paper is right for the topics of Applied Sciences, so congratulations to the authors for join the accounting information with the wastewater treatment

I try to expose some recommendations to improve the work.

• The authors should be explain better the sample. They say that the final sample comprises 47 Portuguese firms and 175 Spanish firms, but in the table 1 the total is 44 and 171 and in the table 2 is 47 and 173. These differences are a bit confusing.
• Why the authors used four years (2016 – 2019)?
• In the table 2 de mean values of the accounting information is the sum of four years?
• The authors selected the sample depend according to the description of the activities of the firms?
• The authors say that “some Portuguese firms present technical bankruptcy”. The bankruptcy occurs when a firm can not pay their debts so, how do you know if the firms can, or not, pay the debts?
• What it is the reason of the differences among the observations in the table 3?. It depend on the number of data in the four years?. I think you must explain that.

• The results of the table 3 are calculated according to table 2? I have the same doubt between table 4 and table 2.
• The sales growth is calculate for three years only (2017-2016, 2018-2017 and 2019-2017) is it right?

Lastly, I think it could be interesting to know the calculation of the fees or prices of water in every region. By the other hand it is very difficult to conclude that a firm is more or less efficient if we do not know the volume of wastewater treated in every firm.

Author Response

The authors should be explain better the sample. They say that the final sample comprises 47 Portuguese firms and 175 Spanish firms, but in the table 1 the total is 44 and 171 and in the table 2 is 47 and 173. These differences are a bit confusing.

Table 1 presents the number (and percentage) of companies per dimension and per region. 44 companies out of 47 are SME in Portugal, and to Spain 171 companies out of 173 are SME, all the others are large-size companies. In the table it is also presented the number of large-size firms (columns 4 and 5) and the total number of companies (last two columns). In the text we have also introduced additional information to clarify these numbers.

Why the authors used four years (2016 – 2019)?

Thank you for your question, we totally forgot to explain the choice of the period analyzed. We have included the following sentence in the topic 2.2 Data.

“The last year with available data at the moment of data collection was 2019. We decide to analyze 4 years of observations to understand the evolution of firm’s financial situation, since a singular year does not give us insights about its future financial sustainability.”

In the table 2 de mean values of the accounting information is the sum of four years?

Table 2 presents the mean values of annual information. We have clarified it on the text.

“Table 2 shows the mean values of annual accounting information, namely total assets, and total equity (from balance sheet), sales and net income (from income statement), number of employees and age of the company, per region.”

The authors selected the sample depend according to the description of the activities of the firms?

This information was not clear on the paper. We have included the following sentence in the topic 2.2 Data to clarify.

“For it, firms with primary code of NACE Rev. 2 code 37 – Sewerage from Portugal and Spain were selected in SABI Database, from Bureau van Dijk.”

The authors say that “some Portuguese firms present technical bankruptcy”. The bankruptcy occurs when a firm can not pay their debts so, how do you know if the firms can, or not, pay the debts?

The expression “technical bankruptcy” is a Portuguese expression that does not have that meaning that the reviewer gave. Therefore, in order to avoid misunderstandings, we delete that expression and clarify what does negative equity means.

“This situation is also evident in the total equity, since some Portuguese firms present negative equity, it means, liabilities are not only to finance the firm’s assets (investment), but also the negative equity that results from losses of previous years, and in Spain there is no evidence of that problem.”

What it is the reason of the differences among the observations in the table 3?. It depend on the number of data in the four years?. I think you must explain that.

The data in an unbalanced panel data (this information was introduced now in topic 2.2 Data), which means that we do not have information to all years to all companies, neither to all companies to all ratios. The main difference regarding the number of observations is the ratio of sales growth (comparing with the others) since not always we have information of previous year to calculate the ratio. We also have introduced a sentence before table 3 to clarify it.

The results of the table 3 are calculated according to table 2? I have the same doubt between table 4 and table 2.

All the ratios presented in tables 3 and 4 were calculated using the formulas presented in topic 2.1 Methodology, per year and per company. In table 3 the table presents the descriptive statistic of that information per country, while in table 4 present only the mean values per region and per country.

The sales growth is calculate for three years only (2017-2016, 2018-2017 and 2019-2017) is it right?

Sales growth is the annual growth of sales, it means, the growth from 2015 to 2016; from 2016 to 2017; from 2017 to 2018; and from 2019 to 2019. All ratio presents 4 years of information.

Lastly, I think it could be interesting to know the calculation of the fees or prices of water in every region. By the other hand it is very difficult to conclude that a firm is more or less efficient if we do not know the volume of wastewater treated in every firm.

It was not possible to ascertain the water prices in every region due to the lack of response. Agree.

Round 2

Reviewer 2 Report

The paper is improved. I recommend the publication of the manuscript