The impact of environmental innovations on financial performance: the case of Japanese automotive and electronics companies.

Cortez, Michael Angelo A. ; Cudia, Cynthia P.

BACKGROUND OF THE STUDY

With the rapid pace of globalization and internationalization of multinational enterprises come social issues of environmental neglect and depletion of natural resources. Issues on sustainability, social responsibility and governance practices call for highlighting activities multinational enterprises (MNEs) engage in to preserve and repair its natural environment.

While sustainability has a triple bottom line--environment, society and economy, environmental concerns seem to predominate value adding reports of Japanese companies. Arguably, without the environment, there will be no society; and without society, there will be no economy. Therefore, concerns for the environment encompasses societal and economic factors (Senge, 2008).

Environmental innovations started early in Japan in response to pollution problems in the 1970s due to rapid industrialization and economic growth. Product design and process improvements have since been institutionalized to be environmentally compliant. Porter (2008) updates his views on competitive advantage with green solutions on resource productivity to societal problems. He cites that product and process improvements has related benefits of cost savings and other income.

In 1997, the Ministry of Environment in coordination with various stakeholders and manufacturing companies came up with the guidelines for environmental reporting with the objective of standardizing reporting practices in Japan. This is in response to the absence of international environmental reporting guidelines, cognizant of the provisions of the Kyoto Protocol, and a move to advance the Global Reporting Initiative (GRI) of 1997. Four years after the initial implementation, the Japanese guidelines were revised and since then, environmental reporting has been a standard value adding non-financial report accompanying the annual report or internal revenue report of Japanese publicly listed companies in the New York Stock Exchange and Tokyo Stock Exchange. It is not surprising, therefore, that the highest adoption of sustainability reporting globally has taken place in Japan as a result of government initiative; followed by France, the U.K. and Germany (Kolk 2003).

The KPMG International Survey of Corporate Social Responsibility (CSR) 2005 revealed that 80% of the 250 companies examined are reporting in the electronics and computers, utilities and automotive and gas sectors (Hopkins 2007). Japanese automotive and electronics companies are most relevant in sustainability studies because of the carbon emissions in the upstream and downstream processes. In its manufacturing activities, companies aim to reduce their carbon emissions while eliminating toxic substances through eco-friendly product designs and energy-efficient process improvements. At the end-user or customer level, products of these companies are subject to energy consumption efficiency, thereby doubling the carbon emissions concerns.

The growing and varied concerns of stakeholders of a Japanese multinational enterprise in recent times highlight non-financial reports and disclosures that determine the quality or manner of financial performance. For almost a decade now, sustainability or environmental reports accompany financial reports to signal social responsibility and governance practices. It is in this light that the researchers investigate the question: how do environmental innovations impact financial performance of Japanese automotive and electronic companies?

This study aims: (1) to present the benefits of environmental innovations to include cost savings and opportunities for other income; (2) to determine the impact of environmental innovations on financial performance of Japanese automotive and electronics companies; (3) and to conclude with lessons learned for countries where subsidiaries and manufacturing companies have not yet adopted the practice of sustainability reporting.

Japanese automotive companies in this study include the global headquarters of Toyota, Honda, Mazda, Isuzu and Suzuki. For electronics companies, Toshiba, Fujitsu, Hitachi, Panasonic, and Sanyo were considered. The companies were chosen out of convenience and availability of comparable information. The scope of annual financial reports and environmental innovations costs from sustainability reports range from 2001 to 2008, which makes for consistency and comparability.

Toyota and Honda are leading global automotive manufacturing companies. Including Mazda, Isuzu and Suzuki in the sample companies would comprise most of the Japanese automotive and motor manufacturers of varying size and product lines. Toshiba and Fujitsu are likewise, globally renowned electronics brands. To provide for different sized companies, Hitachi, Panasonic, and Sanyo were included in the study.

Investigating the impact of environmental innovations on financial performance highlights the benefits to be gained by manufacturing companies, in general, and subsidiaries and related parties within the extended enterprise systems and value chains of these Japanese MNEs in developing countries. Governments and regulators may likewise consider the benefits of sustainability reporting on social and environmental compliance issues of manufacturing companies. Finally, the diverse demands of stakeholders and customers on profitability and manner of business operations are met through non-financial reporting of sustainable practices.

REVIEW OF LITERATURE

Earlier literature abound on corporate social responsibility of MNEs on social and environmental issues. Earlier 'environmental reports', aptly titled and reported by automotive and electronics companies could be seen from a CSR paradigm. However, in recent times, as environmental philosophy is institutionalized in Japanese multinational automotive and electronics companies, sustainability can likewise be seen from a governance perspective.

Sustainability reporting and environmental accounting in Japan

Sustainability of the natural environment is essentially about the long-term maintenance of the earth's ability to sustain itself (Crane 2008). Japan for Sustainability (JFS), a nonprofit organization providing information on developments and activities in Japan that lead toward sustainability defines the concept as:

"Acts by humankind that respect the diversity of all creatures, and result in the passing on of life, nature, livelihoods and culture to future generations within the carrying capacity of the natural environment, and the establishment of mutual connections with the purpose of building better societies and seeking the greatest happiness of the greatest number across both time and space."

In expanding sustainability's triple bottom-line, sustainability is seen from the four areas of: nature, economy, society and well-being.

The practice of environmental accounting in Japan has been in place for over a decade now. Since 1998, the disclosure of environmental information of publicly listed Japanese corporations has increased steadily from 35 percent to majority practice as a result of the government's initiative, the Environmental Reporting Guidelines (2000) by the Ministry of Environment. While deemed voluntary, the adoption and common practice has established the guidelines as a norm or a standard.

Published in May 2000 and revised in September 2002, the guidelines can be summarized in the following three points: environmental accounting system, environmental conservation cost, and environmental conservation effects and economical effects (Kokubu & Nashioka 2002).

The Ministry of Environment (2002) describes environmental accounting in the following quote:

   Environmental accounting aims at achieving sustainable development,
   maintaining a favorable relationship with the community, and
   pursuing effective and efficient environmental conservation
   activities. These accounting procedures allow a company to identify
   the cost of environmental conservation during the normal course of
   business, identify the benefits gained from such activities,
   provide the best possible means of quantitative measurement (in
   monetary value or physical units) and support the communication of
   its results.

The guideline (2000) describes environmental accounting as a system that integrates financial performance and environmental performance through correlating the environmental conservation effects and economical effects associated with environmental measures.

Environmental innovations on investments in assets refer to cash outlays on environmental concerns that benefit future periods. These may include the current acquisition value of plant and equipment that benefit the environment, research and development that qualify for capitalization, social costs, and environmental conservation.

Environmental innovations on expenses are classified into six categories: (1) business area costs; (2) upstream/downstream costs; (3) management activity costs; (4) research and development costs; (5) social activity costs; and (6) environmental damage costs.

In a recent study by the Ministry of Environment, Japan, translated as Research on Ecofriendly Activities of Japanese Corporation, the agency surveyed 2,526 companies that are listed in the first and second category of the Tokyo and Osaka stock exchange and 3,968 non-publicly listed companies with more than 500 employees. Over the period 2005, 2006 and 2007, half of the respondents answered they publish environmental reports. Thirty-seven percent (37%) of listed companies over the period answered they have been introduced to environmental accounting. Interestingly in 2007, 48.4% of headquarters have answered they have given directions to their subsidiary companies to abide by environmental management; a significant increase from 42.9% in 2005 (Ministry of Environment 2009).

Kolk's (2003) study of Fortune 250 companies revealed chemicals & pharmaceuticals topped the sustainability reporting percentages followed by computers & electronics and automotive manufacturers. While reporting trend percentages decreased from 1998 to 2001 in chemicals & pharmaceuticals (-8.33), higher rates of reporting were observed in computers & electronics (17.33%) and automotive (4.58%). Japan, France and Germany stood out as having the highest and significant increases presumably because of the level of regulation and increased societal expectations (Kolk 2003).

The business rationale for sustainability

The positive relationship between corporate citizenship (CC) and corporate financial performance (CFP) with causal mechanisms such as the improvement of managerial knowledge and skill and enhanced corporate reputation was earlier established by Orlitzky, Schmidt and Rynes (2003). Along the same line, Jones and Murrell (2001 in Orlitzky 2008) examined how a firm's public recognition for exemplary social performance can serve as a positive signal of the firm's business performance to shareholders. In addition, Orlitzsky (2008) cites the following causal mechanisms that link CFP and CC: efficiency, increasing competitors' costs, attracting more productive workforce, boosting sales revenues, and reducing business risk.

In his pathbreaking book The Necessary Revolution, Senge (2008) emphasized the benefits of sustainability as: avoiding significant costs, earning significant other income, gaining competitive advantage over competition, establishing points of differentiation, shaping the future of an industry, becoming a preferred supplier, and changing image and brand preference.

In developed countries like Japan, stakeholder influence pressures companies to perform product improvements more than the required government standard. This translates to improved reputation and legitimacy of the company.

Moreover, existing technologies on energy sources is being challenged by its finite availability hence innovation is needed in finding cleaner and more sustainable sources of energy. This clean technology strategy repositions a company in the competitive future. The creation of a sustainable vision provides a roadmap for addressing changing needs of society such as climate change, resource depletion and poverty. This enables a company to have a sustainable growth trajectory (Senge 2008).

Evidence from the U.S. on environmental disclosure suggests the link to financial performance. The largest number for firms that did not have an environmental policy were the low financial performers while high financial performers did have higher incidences of environmental policies as compared to low financial performers. The highest incidence of environmental policies came from medium financial performers (Stanwick & Stanwick 2000).

Financial analysis studies and environmental accounting

Among the first and limited literature that aims to integrate sustainability reporting and financial analysis is the study by Castro and Chousa (2006). By building on the Dupont Pyramid, the balanced scorecard and shareholder value concepts, they proposed measures on relating sustainability variables (such as environmental fines, emissions costs, pollution levels, waste, etc.) with traditional performance indicators like sales, costs and capital. The findings would have significantly changed the manner of environmental reporting except that companies found their own metrics as they deemed important to their stakeholders. Further more, the proposed integrated framework could most likely be executed from within the reporting company considering the extent of internal information needed. An external analysis may not necessarily have the access to such information to operationalize the proposed integrated framework.

The impact on financial performance

Deloitte Touche Tohmatsu, a leading global accounting firm, published The Sustainable Auto Report in 2001 highlighting the strengths and weaknesses of sustainability reporting practices. While there is genuine environmental concerns in the corporate philosophy of automotive manufacturers with a detailed discussions on product life cycles, innovation, technological options and eco-efficiency, there seems to have been limited discussions on matters that have or could have a bearing both on risks and opportunities; and on short-term and long-term financial performance. More than half of the reports evaluated in the study scored low (0 or 1) on the description of financial implications of environmental or social issues.

In a survey of environmental accounting practices of listed companies in Japan, Kokubu & Nashioka (2002) covered the years 1998 to 2000. They view environmental accounting as more likely restricted to the calculation of environmental conservation cost but the range could be expanded into environmental conservation as well as corporate management (Kokubu & Nashioka 2002). They criticize the current practice and see the comparability of these costs amongst companies as not so reliable yet because companies conforming to the guidelines are left with much discretion in recognizing and reporting environmental costs. The problems in defining environmental costs could stem from the lack of standard definition, distorted calculations, access to information, hidden costs and cost internalization (Jasch 2002).

On the other hand, Kolk (2003) sees the standardization of sustainability reporting, through the initiatives of the GRI and government regulation as likely to increase the quantity and quality of reports. This is the very reason that the Japanese guidelines aimed at correctly understanding, evaluating, and supporting the treatment of environmental conservation by enterprises.

The comparison of environmental costs and financial figures such as sales is probably helpful in seeing trends in companies environmental conservation activities. The benefits of environmental accounting includes: improvement of corporate image while enhancing consciousness within the company; reduction of environmental burden; reduction of environmental costs; development of environmentally friendly products and the improvement of environmental decision making (Kokubu & Nashioka 2002). These are all consistent with Orlitzky's (2006) theorization of the benefits of environmental accounting.

Kokubu & Nashioka (2002) correlates environmental costs with sales, net income and assets but had to consider only the business area costs, upstream and downstream costs, and management activity costs. They saw the ambiguity of R&D costs, social activity costs and environmental damage costs in making the total environmental costs comparable. Using Spearman's correlation coefficient analysis, they concluded that there is positive correlation with non-consolidated data and strongly positive correlation for consolidated data. They suggested further studies considering that in 2002, standardization was in place and expected widespread compliance amongst Japanese companies. Meanwhile, their study revealed certain differences in environmental accounting practices according to company size and industrial sector.

HYPOTHESES AND METHODOLOGY

This study uses the descriptive and exploratory case study design in comparing five automotive and five electronic Japanese manufacturing companies' environmental innovations measured through environmental costs and the related impact on sales, net income and assets

Following the conceptual theorization and observation works on corporate citizenship and financial performance of Orlitzky et. al (2006), sales and profitability benefits by Senge (2008), cost savings and other income by Porter (2008), and empirical observation covering 1998 to 2001 by Kokubu & Nashioka (2002), the authors of this study determined environments costs (environmental investments and environmental maintenance costs) as independent variables and sales, income, and assets as dependent variables.

Total environmental costs were considered to reconcile the varying treatments of research & development and other discretionary recognition of assets and expenses. Details of environmental benefits as estimated by the reporting companies and accumulated by the authors over the inclusive period are discussed in the section after the regressions results and discussions.

H1: Environmental innovations positively impact sales of Japanese automotive and electronics companies.

It may be theorized further that environmental innovations create perceived value of automotive and electronics products that customers appreciate and patronize. Hence, with environmental investments in research and development, and environmental expenses (like maintenance, cleanup, pollution prevention), the preference of customers or end users of the products could be translated into sales. These are currently observable in the sales growth of hybrid cars, the need for more energy efficient products, and the introduction of a new range of electronics products that have high eco-efficiency rating and with provisions for responsible end of life disposal.

H2: Environmental costs positively impact net income of Japanese automotive and electronics companies.

Sustainability is a broader concept that covers life cycle assessment and resource productivity. Life cycle assessment involves product designs that are free of substances of concern, process improvements that reduce emissions, and end of product life activities for recall, disassembly, materials renewal and recycling, and disposal. Relatedly, resource productivity is the process of maximizing the output of a unit resource through improved product designs, efficient production processes and renewal of resources that result in cost savings or opportunities for earning other income. Earlier espoused by Porter (2008), Senge (2008) and Orlitzky et. al (2006), profitability could result from significant cost savings through investment in environmental innovations; and other income from renewable and recyclable materials.

H3: Environmental costs positively impact assets of Japanese automotive and electronics companies.

Sales growth and profitability accumulated over the years and investments in environmental innovations (facilities and research & development) all sum up to a company's financial position. It is in the light that the researchers investigate the impact of environmental costs on total assets of a company.

Sustainability reports of the five automotive and five electronics companies were reviewed and the total environmental costs were lifted. Annual financial reports and internal revenue reports were examined to gather financial performance highlights of the subject companies. Personal interviews were conducted with subsidiaries in the Philippines of Toyota Motors Corporation and Toshiba Corporation to validate and substantiate the research findings. As such, results of this study cannot be generalized as indicative of environmental accounting and practices of Japanese automotive and electronic companies. However, the findings of this study could serve as initial results and other methods of triangulation may also be employed in the future to verify the findings in this study.

Data Analysis

Environment innovations in terms of costs include investments and expenses. Environment investments, regardless of generally accepted accounting principles, include: research and development (otherwise not classifiable as asset); recycling-related investments; other expenses on social contribution; ISO certification; education and training; and investment in plant and equipment (like any tangible asset but pertinent to recycling, prevention of global warming and eco-efficiency).

Maintenance costs include expenses related to environmental measures of waste processing, waste water treatment, atmospheric pollution and environmental preservation. In addition to the maintenance costs are: awareness building, professional environmental staff and environmental restoration (vehicle recalls and soil and ground water remediation). The environmental investments and expenses from 2001 to 2008 are related to the performance indicators such as sales, net income, and assets.

RESULTS AND DISCUSSION

Regression analysis was employed to determine if the environmental innovations impact the financial performance of the Japanese automotive and electronic companies included in this study. Three sets of regression analysis were performed in this study. The first regression analysis is geared towards estimating the financial performance in terms of sales; the second analysis estimates the financial performance in terms of net income; and the last analysis is an estimate of the financial performance of the companies in terms of assets.

Impact of environmental innovations to sales

Model 1 shows that, with other things remaining the same, if environment innovation in terms of cost goes up by a billion yen, average sales go up by about 24.4979 billion yen. The slope coefficient is highly significant at a = 0.05 , for the t value of about 4.23, which is obtained under the assumption that the true population coefficient is zero, is highly significant for the p value is 0.00006. The intercept value suggests that if environment innovation in terms of cost is zero, sales will amount to approximately 3,815.74 billion yen. The intercept coefficient is also highly significant, for the p value of obtaining a t value for this coefficient of as much as about 5 is practically zero.

Notwithstanding the small value of the coefficient of determination, F ratio of about 18 measures the overall significance of the estimated regression line and this value is expected of bi-variate regression models. Also, the coefficients have signs according to prior expectations. The environmental innovations have a positive impact on sales.

Impact of environmental innovations to net income

The slope coefficient in Model 2 suggests that, with all other things remain constant, if environment innovation in terms of cost goes up by a billion yen, net income on the average goes up by about 1.9535 billion yen. Using 5% level of significance, the coefficient of 1.9535 is highly significant, for the t value of about 4.67, which is obtained under the assumption that the true population coefficient is zero, is highly significant for the p value is 0.00001.

However, the intercept value of -29.3313 is not statistically significant. The results show that the model using the 80 sample observations cannot suggest a predictive power as to the amount of net income in the case where the companies included in the study do not have environmental innovations. This could possibly be explained by the recent drop in profitability of automotive and electronics companies due to the recent global economic crisis. Net losses or declines in profitability are observable in the companies' annual financial reports in fiscal year 2008.

F test that measures the overall significance of the estimated regression line poses a ratio of 18, a small value expected in this bi-variate regression model. Also, the slope coefficient has a sign according to prior expectation, which means that environmental innovations of the Japanese companies involved in this study have a positive impact on net income.

Impact of environmental innovations to assets

Model 3 shows that, with other things remaining the same, if environment innovation in terms of cost goes up by a billion yen, average assets go up by about 32.5421 billion yen. The slope coefficient is highly significant at a = 0.05, for the t value of about 4 is highly significant for the p value is 0.00008.

The intercept value of 3,299.52 suggests that if the companies involve in this study do not have environmental innovations, amount of assets on the average will be about 3,299.5200 billion yen. The intercept coefficient is also highly significant, for the p value of obtaining a t value for this coefficient of as much as about 3 is practically zero.

Test of significance yielded p-value of .0.0000076 which implies that there is a linear relationship between assets and environmental innovations, although the r-squared has small ratio of about 18, a value expected in this bi-variate regression model. Furthermore, the coefficients have signs according to prior expectations. The model therefore suggests that environmental innovations of Japanese companies involved in this study have a positive impact on assets.

The benefits of environmental innovations

The Japanese environmental reporting guidelines attempt to correlate environmental costs with environmental benefits. The benefits include cost savings from reduced energy consumption, cost savings from reduced waste processing costs, sale of recyclable goods and other income from environmental technologies.

Taking for example Toyota Motors Corporation, environmental benefits were estimated at JPY 3.7 billion in 1998 and it steadily rose to JPY 15.6 billion ten years after. If these environmental benefits were to be accumulated and assumed to have an impact on the financial statements, the cumulative benefits would have reached JPY 95.9 billion; significant enough to harness any economic shock from the global crisis. With Toyota's reported JPY 435 billion net loss in 2009, the environmental benefits have shielded the company from greater losses with its environmental costs and investments. Toyota's economic benefits initially came from the reduction of energy and waste processing costs. However, the sale of recyclable goods started contributing significantly, JPY 5.9 billion, to environmental benefits in 2003 until it became the main source in 2008 at JPY 12.4 billion or 79% of economic benefits for the year.

Toshiba, on the other hand, has different categorization of environmental benefits. These are detailed as to actual benefits, assumed benefits, customer benefits, and risk prevention. The actual benefits are those that can be directly converted into monetary value such as reduced charges for electricity, water, etc. These range from JPY 2.4 billion to JPY 7 billion during the inclusive period. Assumed benefits are reductions in environmental impacts expressed in monetary value. This is the larger share of environmental benefits for Toshiba which ranges from JPY 14 billion in 2001 to JPY 9 billion in 2008. The total environmental benefits of Toshiba fluctuate from JPY 16 billion in 2001 to JPY 42 billion in 2008.

Kokubu & Nashioka (2001) earlier questioned the discretion practiced by companies in estimating environmental costs and the same could be argued as for environmental benefits. The estimation process may distort expected correlation of environmental costs with environmental benefits as intended by the Japanese guidelines on environmental reporting.

Therefore, to alternatively point the discussions on benefits, statistical tests were employed by the authors to falsify or validate the a priori expectation that environmental costs are correlated with environmental benefits. The benefits, however, would have to be operationalized further into impacts on sales, net income and assets of the companies.

CONCLUSIONS

Statistical tests using regression analysis reveal that environmental innovations in terms of costs show a linear relationship with the financial performance of Japanese firms included in the study. This might imply that any change in the environmental investments and expenses made by the companies would result to a corresponding level of change in their sales, net income and assets.

Regarding sales, results of the regression analysis reveal the very small p-value of 0.00061. This leads to the conclusion that there is a linear relationship between the environmental innovations and sales. This further indicates that a billion yen increase in environmental investments and expenses of these companies signals an increase in sales by about 24 billion yen. The results of the test therefore suggest a positive impact of environmental innovations on sales. In the current business environment, this may be interpreted as the customers' preference for the value of eco-efficient products and environmentally compliant processes. Notable are the sales increases of innovative energy efficient vehicles and electronics products that have high eco-rating.

Furthermore, regression results show that environmental innovations in terms of costs positively impact net income of Japanese automotive and electronics companies. The p-value of 0.00001 leads us to conclude that there is a linear relationship between the environmental innovations and net income. Although the authors could not predict the amount of average net income if the companies would not have environmental innovations, Model 2 suggests, holding other things constant, that if environment innovation in terms of cost goes up by a billion yen, net income on the average goes up by about 1.9535 billion yen.

Lastly, environmental innovations in terms of costs have a positive linear relationship with assets. A billion yen increase in environmental investments and expenses of Japanese companies included in this study predicts an increase in assets by about 32 billion yen. All the cost savings and other income in the inclusive period of study sum up to retained earnings, estimated or actual, directly or indirectly.

RECOMMENDATIONS

In the foregoing, the authors described the environmental benefits, and determined the positive impact of investments in environmental innovations, measured in total environmental costs, to sales, net income and assets of Japanese automotive and electronics companies.

Sustainability reporting has been in place in Japan as facilitated by the Ministry of Environment's guidelines on environmental reporting. While these reports involve an estimation and adjustment process from generally accepted accounting principles based annual financial reports, readers and stakeholders should exercise discretion in interpreting the environmental costs and benefits.

With a decade of comparable information, further studies that could emerge from the above findings may include the impact of environmental costs on financial markets particularly market value. It would likewise be interesting to replicate this study on other publicly traded companies in the Tokyo Securities Exchange or the New York Stock Exchange.

Comparative studies within the MNE would also be a potent ground for research. The samples in this study covered the global headquarters in Japan and their consolidated reports. Studying their subsidiaries using the same variables may be interesting considering that they belong to the same extended value system.

REFERENCES

Castro, N. & J. Chousa. (2006). An Integrated Framework for Financial Analysis of Sustainability. Business Strategy and the Environment. 15, 322-333

Chu, Sandra (December 2009). Toshiba Information Equipment Philippines. Interview.

Crane, A., Matten, D. & L. Spence. (2008). CSR Readings and Cases in Global Context. Routledge.

Deloitte Touche Tohmatsu (2001). The Sustainable Auto Report. Retrieved in December 2009, from http://www.deloitte.com.

Japan for Sustainability (2009). Retrieved in December 2009, from http://www.japanfs.org.

Hopkins, M. (2007). Corporate Social Responsibility & International Development: Is Business the Solution? Earthscan 2007.

Kokubu, K. & E. Nashioka. (2002). Environmental Management Accounting Practices of Japanese Manufacturing Sites. Eco-efficiency in Industry and Science. 24.

Jasch, C. (2002). Environmental management accounting metrics: procedures and principles. Environmental management accounting: informational and institutional developments: 37-50. Dordrecht, Netherlands. Kluwer Academic Publishers.

Kolk, A. (2003). Trends in Sustainability Reporting by the Fortune Global 250. Business Strategy and the Environment, 12(5), 279.

Marcelo, Mark Anthony (November 2009). Toyota Motor Philippines Inc. Interview.

Ministry of Environment, Japan. (2009). Retrieved in December 2009, from http://www.env.go.jp/policy/jhiroba/kigyo/h19/gaiyo.pdf.

Ministry of Environment, Japan. (2002). Environmental Accounting Reporting Guidelines. Retrieved in June 2009, from http://www.env.go.jp.

Orlitzky, M. 2008. Corporate Social Performance and Financial Performance: A Research Synthesis. The Oxford Handbook of Corporate Social Responsibility. Oxford Press. 5, 113-134.

Orlitzky, M., Schimdt, F. & S. Rynes. (2003). Corporate Social and Financial Performance: A meta-analysis. Organization studies, 24(3), 403-441.

Porter, M. (2008). On Competition. Updated and Expanded Edition. Harvard Business Review.

Senge, P. (2008). The Necessary Revolution. Working Together to Create a Sustainable World. Nicholas Brealey Publishing.

Stanwick S. & P. Stanwick. (2000). The relationship between environmental disclosures and financial performance: An empirical study of U.S. firms. Eco-Management and Auditing, 7, 155-164.

Toshiba Corporation Sustainability Report (2008). Retrieved in December 2009, from http://www.toshiba.co.jp.

Toyota Motors Corporation Sustainability Report (2008). Retrieved in December 2009, from http://www.toyota.co.jp.

Michael Angelo A. Cortez, Ritsumeikan Asia Pacific University

Cynthia P. Cudia, De La Salle University

Table 1: Model 1: OLS, using observations 1-80 Dependent
variable: Sales

                                       Std.
                       Coefficient    Error        t-ratio

const                     3815.74    799.973       4.7698
Env_Innovation            24.4979    5.79109       4.2303
Mean dependent var       6297.545               S.D. dependent var
Sum squared resid        1.85E+09               S.E. of regression
R-squared                0.186612               Adjusted R-squared
F(1, 78)                 17.89523               P-value(F)
Log-likelihood          -791.6763               Akaike criterion
Schwarz criterion        1592.117               Hannan-Quinn

                          p-value

const                    <0.00001  ***
Env_Innovation            0.00006  ***
Mean dependent var          5359.246
Sum squared resid           4864.282
R-squared                   0.176184
F(1, 78)                    0.000063
Log-likelihood              1587.353
Schwarz criterion           1589.263

Table 2: Model 2: OLS, using observations 1-80 Dependent
variable: Net_Income

                                    Std.
                      Coefficient   Error      t-ratio

const                   -29.3313    57.7715     -0.5077
Env_Innovations          1.95351    0.418214     4.6711
Mean dependent var      168.5734       S.D. dependent var
Sum squared resid        9625196       S.E. of regression
R-squared               0.218586       Adjusted R-squared
F(1, 78)                21.81902       P-value(F)
Log-likelihood         -581.4298       Akaike criterion
Schwarz criterion       1171.624       Hannan-Quinn

                        p-value

const                   0.61309
Env_Innovations         0.00001  ***
Mean dependent var          394.8668
Sum squared resid           351.2833
R-squared                   0.208568
F(1, 78)                    0.000012
Log-likelihood              1166.860
Schwarz criterion           1168.770

Table 3: Model 3: OLS, using observations 1-80 Dependent
variable: Assets

                      Coefficient   Std. Error   t-ratio

Const                    3299.52    1075.55      3.0678
Env_Innovations          32.5421    7.78599      4.1796
Mean dependent var      6596.261      S.D. dependent var
Sum squared resid       3.34E+09      S.E. of regression
R-squared               0.182979      Adjusted R-squared
F(1, 78)                17.46878      P-value(F)
Log-likelihood         -815.3568      Akaike criterion
Schwarz criterion       1639.478      Hannan-Quinn

                            p-value

Const                    0.00296   ***
Env_Innovations          0.00008   ***
Mean dependent var          7189.350
Sum squared resid           6539.921
R-squared                   0.172504
F(1, 78)                    0.000076
Log-likelihood              1634.714
Schwarz criterion           1636.624