Empirical Evidence on Environmental Performance and Operating Costs*

Koegst Jakob, Guenster Nadja

Abstract

ABSTRACT We investigate how environmental performance affects operating costs using a sample of 785 U.S. firms for the period 2006 - 2014. Environmental performance is measured as the overall environmental score provided by Asset4. We find that better environmental performance is negatively associated with direct production costs, but increases overhead costs. Because direct production costs have a larger impact than overhead costs, aggregate operating costs decline as environmental performance improves. To deal with endogeneity and to interpret the results causal, we use an instrumental variables approach.