Environmental footprint, water intensity, and resilience to droughts

Overview & Synopsis

This empirical study tests the effect of environmental performance on the resilience of 345 public firms headquartered in the U.S. to severe droughts that arose between 2006 and 2018. Using a survival analysis methodology and an assessment of the direct environmental footprint of companies provided by Trucost, the findings indicate that firms with greater direct environmental footprints require 16 extra weeks on average to recover from drought-induced losses relative to other firms. The effect of environmental footprint on resilience is shown to be independent of water dependency, as the latter is explicitly included as a control variable in the regression models; the finding is further robust to different model specifications, analytical periods, and sampling methods. This result supports the Natural Resource-Based View, which implies that efficient pollution reduction strategies underly the creation of specific capabilities that lead to sustainable competitive advantages, including resilience to slow-onset nature adversity.