Focusing on 278 listed corporations in Japan, the present study tests the hypothesis that robust environmental conservation activities have a positive effect on their financial performance. It also examines the role played by the environmental policies introduced and strengthened by the government since the end of the 1990s. By a statistical causality analysis using data from 1999 to 2003 we have shown that a positive effect of corporate environmental activities on financial performance was verified more clearly when information about the firms' responses to environmental policies were included with information about environmental management activities. Furthermore, an analysis of industrial groups revealed the following: firstly, in the machinery industry, the effect of environmental performance on financial performance was, on the whole, in a negative direction, i.e., higher environmental performance tends to lead to lower financial performance; secondly, although a positive relationship exists in the energy-intensive industry group for the period as a whole, a recent trend of tightening climate policies appears to turn this relationship into a negative one; and thirdly, in the miscellaneous industry group, a strong positive relationship exists and this tendency is growing stronger. It is interesting that a structural change in the socio-economic system toward sustainability is underway in the industrial group which is closely related to people's daily lives with an obvious connection to health, safety and the environment.
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