Examining Firms’ Sustainability Frontier: Efficiency in Reaching the Triple Bottom Line

Abstract

Sustainability has become a significant concern worldwide in recent decades. There seems to be implicit competition among firms for better sustainability performance. Like any other firm activity, sustainability undertakings require resources and their efficient use to achieve the desired performance. Firms may hesitate to undertake sustainability initiatives due to the underlying costs, leading to the question of how efficient they are in their sustainability practices. Relying on data from CSRHub and COMPUSTAT, we employed data envelopment analysis to evaluate the sustainability efficiency of 1141 large U.S. manufacturing firms from 2009 to 2018. We measured the sustainability efficiency of each firm relative to those on the efficient frontier for all the firms in our sample and also separately for each industry. The analysis results indicate that firms’ sustainability efficiency varies across years and industries. Furthermore, we show a quadratic relationship between sustainability performance and sustainability efficiency. This finding implies a process that begins with firms struggling to streamline their sustainability efforts and decreasing their efficiency as sustainability performance increases. Sustainability efficiency starts increasing only after a certain threshold is reached in sustainability performance. Our findings offer valuable insights for firms and stakeholders in their efforts to achieve desired levels of sustainability efficiency.