The impact of environmental performance on firm performance: Short-term costs and long-term benefits?

We examine the intertemporal effect of environmental performance on financial performance and propose a method to assess the environmental performance in a fuller manner based on the weighting various pollutants according to their dangerousness to environment. Using our improved measures of environmental performance applied to the firm level data from the Czech Republic, the results suggest that while the effect of environmental performance on financial performance is negative for environmental performance lagged by 1 year lag, it becomes positive for 2 years lag. As a consequence, our findings indicate that Porter hypothesis holds in the long-run.