Environmental compliance: determinants, interactions and performance

As businesses face mounting pressure due to the urgent need for systemic change to address the climate crisis (European Environment Agency, 2020b), understanding how environmental regulations, innovation and performance interact has become critical for achieving sustainable transformation goals (European Commission, 2011; Accenture, 2023). This thesis explores the complex relationships between green innovation, environmental performance and environmental compliance within businesses. The Porter hypothesis (Porter and van der Linde, 1995) posits that well-designed environmental regulations stimulate innovation while enhancing business and environmental performance. This study expands understanding of the theory by empirically testing some of its implications while building on insights from other theoretical explanations such as the resource-based view of the firm (Penrose, 1959; Peteraf, 1993), the natural resource-based view of the firm (Hart, 1995), institutional theory (Dimaggio and Powell, 1983), and the knowledge-based view (Grant, 1996) of the firm. From reviewing the literature, three critical research gaps are addressed: (i) limited micro-level analysis of environmental performance as a determinant of green innovation; (ii) insufficient understanding and examination of the joint determination of environmental compliance, green innovation, business and environmental performance; and (iii) limited understanding of the drivers of voluntary environmental activities beyond regulatory compliance by business, particularly the role of green innovation and environmental performance. This thesis employs both primary and secondary data collection techniques. Secondary data uniquely combines longitudinal datasets from the European Pollutant Release and Transfer Register (E-PRTR), Bureau van Dijk’s Fame database, European Patent Office records, and Irish Environmental Protection Agency reports, creating firm-level databases for the UK (516 companies, 7,013 observations) and Ireland (354 companies, 1,952 observations) for empirical analysis. Primary survey data from 335 Irish companies provides the first comprehensive measurement of voluntary environmental actions, distinguishing firms that engage in beyond compliance activities. Three empirical Chapters reveal key insights. The first empirical contribution (Chapter 4) analyses green patenting as an essential form of green knowledge development for firms. Using UK data (2007-2019) and penalised maximum likelihood logistic regression (firthlogit), this study finds that firms’ innovative capacity, business performance, and environmental performance determine their propensity for green patenting. Higher emissions and lower productivity in the previous year are associated with increased green patent applications. These results contribute to the literature by providing firm-level evidence of environmental performance as a determinant in the green patenting decisions, addressing a gap in studies that examined environmental performance only at aggregate levels. These findings inform policy development for more effective targeting and design of UK innovation support programmes by promoting the factors that encourage the application for green patents, as well as funding mechanisms for green patent generation. The second empirical contribution (Chapter 5) examines the transmission mechanisms central to the Porter hypothesis, i.e., analysing complex relationships between environmental compliance, green innovation, environmental performance, and business performance, using three-stage least squares (3SLS) regression for Ireland (2007-2020). Results reveal a significant trade-off: higher emissions promote green innovation development, while higher green innovation increases emissions. Compliance positively affects green innovation, business performance, and environmental performance, with lag effects. This research expands the knowledge around the sequential framework of the Porter hypothesis. These findings suggest that policymakers should design environmental regulations accounting for temporal dimensions and manage trade-offs between promoting green innovation and controlling increases in emissions, while implementing targeted innovation support programmes and compliance strategies. The research highlights the importance of adopting long-term perspectives when managers invest in green innovation, as initial performance trade-offs can yield sustained benefits over time. The final empirical contribution (Chapter 6) examines the factors that encourage companies to exceed environmental compliance standards. Using probit and ordered probit estimation techniques on primary survey data for Ireland (2023), this study examines the determinants of two beyond compliance measures: a self-assessed measure and a measure based on businesses’ sustainable activities. Findings show that green innovation and environmental performance significantly and positively influence beyond compliance behaviour, providing policymakers with evidence to prioritise funding for green innovation initiatives and environmental performance improvements as effective mechanisms to encourage voluntary environmental actions that exceed regulatory requirements. Overall, this thesis advances the understanding of corporate environmental strategies by demonstrating that the path to sustainability involves complex, dynamic relationships rather than simple linear progressions from regulation to innovation and improved performance. Furthermore, policymakers and businesses must work together as both of their efforts are needed to address the climate crisis.

Grantor dc:publisher

University College Cork

Year dc:date.issued

2025

Author dc:creator

• Cespedes Davalos, Maria del Pilar

Advisors dc:contributor.advisor

• Power, Bernadette
• Ryan, Geraldine
• Eakins, John
• Doyle, Eleanor

• Environmental compliance
• Porter hypothesis
• Business performance
• Environmental performance
• Green innovation
• Simultaneous equation analysis

Statement dc:rights

• © 2025, Maria del Pilar Cespedes Davalos.

Licence dc:rights.uri

• https://creativecommons.org/licenses/by-nc/4.0/

Language dc:language.iso

en

Handle dc:identifier.uri

https://hdl.handle.net/10468/18480

OAI identifier oai:identifier

oai:cora.ucc.ie:10468/18480