Be Green, Scale Up: When Does Improving Environmental Performance Help Firms Grow?

ABSTRACT Environmental management scholars have long debated the existence of the ‘business case’ of environmental sustainability. In this study, we rekindle this debate by identifying a tension between the natural resource‐based view (NRBV) and the Porter hypothesis (PH), and advance the dynamic capabilities view (DCV) as a reconciliatory theoretical framework that addresses this incongruity. We do so by demonstrating the dynamic nature of environmental capabilities and then leveraging the equifinality assumption of the DCV to suggest that NRBV and PH articulate two distinct but viable pathways to environmental capability maturation. We further propose that the maturity of environmental capabilities, in turn, underpins the sustainability of competitive advantage. To test this proposition, we conceptualize continuous improvements in firm environmental performance as a manifestation of mature environmental capabilities and operationalize sustained competitive advantage as firm growth. Using ordinary least‐squares (OLS) regression on a sample of 211 listed Indian manufacturing firms, and supplementing this baseline analysis with instrumental‐variable (IV), difference‐in‐differences (DiD), and generalized method‐of‐moments (GMM) estimations to address endogeneity and panel dynamism, we find that improvements in environmental performance—whether pre‐emptive or reactive—are positively associated with firm growth. Our findings are robust to alternative variable specifications and cross‐regional variations.