Environmental assessment for corporate sustainability by resource utilization and technology innovation: DEA radial measurement on Japanese industrial sectors

- DEA radial approach is applied to measure the corporate sustainability of Japanese industries.
- The concept of corporate sustainability is measured by its five subcomponent measures.
- Japanese energy firms do not have corporate governance capabilities.
- Technology innovation can more effectively improve the performance of the energy sector.

This study proposes a new use of DEA (Data Envelopment Analysis) radial approach to examine the corporate sustainability of Japanese industrial sectors. The concept of corporate sustainability is measured by its subcomponent measures, including UEN (Unified Efficiency under Natural Disposability), UEM (Unified Efficiency under Managerial Disposability), UENM (Unified Efficiency under Natural and Managerial Disposability), UEI (Unified Efficiency for Intermediate measurement) and UENM(DC) (Unified Efficiency under Natural and Managerial Disposability with Desirable Congestion). Among the five measures, the UEI examines a degree of how each firm can efficiently utilize its resources. The UENM(DC) examines a degree of how the firm can reduce an amount of undesirable outputs by technology innovation and/or managerial change. Such a combined use between UEI and UENM(DC) has been never explored in DEA environmental assessment. The empirical results obtained from the proposed approach have identified two important implications. One of the two implications is that the Japanese energy industry has been long under governmental regulation so that energy firms do not have corporate governance capabilities at the level of other industrial sectors which are competing in a global market. In particular, the implication is applicable to Japanese electric power firms. It is necessary for them to change their corporate governances (e.g., by adding new executive board members who have international experience and/or woman executives, as widely found in American and European energy industries) so that they can pay attention to consumers, not regulatory agencies of the Japanese government. The other implication is that technology innovation can more effectively improve the performance of the energy sector. Employing high efficiency and low carbon generation technologies to achieve desirable fuel mix is essential for improving the corporate sustainability of the Japanese energy sector.