The sustainable development of the aerospace industry: Drivers and impact of corporate environmental responsibility

Abstract

The aerospace industry is facing new challenges in managing sustainable development. From an instrumental perspective, eco‐friendly business models should strengthen operations efficiency and improve companies' reputations while also creating conditions for stronger financial performance. Accordingly, the present study examines the drivers leading aerospace companies to engage in corporate environmental responsibility (CER) and its impacts. First, we investigate whether and to what extent the characteristics of the board, as an effective corporate governance (CG) mechanism, foster CER. Second, we analyse the impact of CER engagement on both accounting‐ and market‐based measures of corporate financial performance (CFP). Using a worldwide sample of 157 aerospace companies over the period from 2005 to 2019, this study identifies notable findings. In the first stage, the results show that identified characteristics of the board of directors are positive predictors of higher CER engagement. In the second stage, the findings indicate that CER engagement drives higher profitability and positive appreciation among financial stakeholders. Consistent with this win‐win scenario, we provide empirical support for the conflict resolution hypothesis at the governance level. Furthermore, we recommend that firms in the aerospace industry increase their involvement in environmental policies that enhance competitive advantage and market value.