The link of environmental and economic performance: Drivers and limitations of sustainability integration

• Links stakeholder demands, environmental/social activities of firms and performance
• Integration to measure and address firm heterogeneity in pays-to-be-green debate
• Tests if integration positively links with economic/environmental performance
• Moderated structural equation model shows environmental performance decoupled
• Resource based view self-limiting in improving environmental/economic performance

Combining stakeholder, resource based and institutional theories suggests that stakeholder demands affect the environmental and social activities of firms, which in turn influence various performance aspects. This paper tests if stakeholder demands are related to the integration of management activities within the firm, and if such integration is positively associated with economic and environmental performance dimensions, where especially for the latter empirical evidence is scarce and inconsistent. To address this gap, data from the manufacturing sector is used for analysing how stakeholder types associate with sustainability integration and economic and environmental performance. The analysis reveals better fit for a moderated structural equation model than a model with direct links between economic and environmental performance and shows that environmental performance is decoupled from integration. These findings suggest that resource based reasoning could be self-limiting in jointly improving environmental and economic performance.