Paradox by Padmanav

About the study

In this study, we revisit the long-standing debate on whether environmental sustainability creates a “business case” for firms by addressing theoretical tensions between the natural resource-based view (NRBV) and the Porter hypothesis (PH). While NRBV emphasizes proactive environmental strategies as sources of competitive advantage, PH suggests that regulatory pressure can drive innovation and performance gains. To reconcile these perspectives, we apply the dynamic capabilities view (DCV), highlighting the evolving nature of environmental capabilities. Using the DCV’s equifinality assumption, we argue that NRBV and PH represent two distinct yet valid pathways through which firms can develop mature environmental capabilities—either through voluntary, pre-emptive investments or through reactive responses to regulatory pressures.

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We further propose that the maturity of environmental capabilities leads to sustained competitive advantage. We conceptualize continuous improvements in environmental performance as evidence of mature capabilities and measure sustained competitive advantage through firm growth. Empirically, we analyze 211 listed Indian manufacturing firms using ordinary least squares (OLS) regression as the baseline model. To address potential endogeneity and dynamic panel issues, we supplement this analysis with instrumental-variable (IV), difference-in-differences (DiD), and generalized method-of-moments (GMM) estimations.

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Our results show that improvements in environmental performance—whether proactive or compliance-driven—are positively associated with firm growth. These findings remain consistent across alternative variable specifications and regional subsamples, indicating strong robustness. Overall, we demonstrate that firms can achieve growth through multiple pathways, reinforcing the idea that mature environmental capabilities are central to sustaining competitive advantage.