Nexus between Profitability and Environmental Performance of Indian Firms: An Analysis with Granger Causality

Sustainable development enhances the human life, with good eco facilities. The way to move toward the sustainable development is by giving best solutions to the issues of unbalanced ecological, environmental and economic development. This paper investigates the relationship between the environmental performance and the profitability variables such as return on assets (ROA), return on equity (ROE), return on capital employed (ROCE), and return on sales (ROS) of the sample firms in India. Granger causality test was used to examine bidirectional causality running from energy intensity (EI) to profitability of the firm. The study identified causal relationship that existed among the environmental performance and profitability of the firm. Further, it is found that there was an inverse relationship between ROCE and EI of the firm while direct relationship existed among ROA, ROE, ROS and EI. It is suggested that the practitioners, policy makers etc. may adopt the environment friendly technologies and encourage the Indian firms to use more energy efficient technology.