Towards sustainable development: Environmental innovation, cleaner production performance, and reputation

Abstract

The growing concerns regarding sustainability and a firm's effects on the environment explain the important role that environmental management may play in corporate reputation. Following the premises of the stakeholder approach and dynamic capability theory, we explore how a comprehensive environmental management (environmental innovation [EI] and cleaner production [CP]) impacts a firm's reputation. By analyzing a panel data of European manufacturing firms, we show that EIs benefit corporate reputation. Results also confirm that the higher effectiveness of CP initiatives, the higher a firm's reputation. Both dynamic capabilities improve the firm's legitimacy and stakeholders' perceptions concerning the firm's commitment to environmental sustainability. We offer relevant insights for the academic community as to how EI and CP represent proactive strategies that enhance reputation and provide practical implications for managers in order to respond to stakeholders' demands.