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The study, published in the European Journal of Operational Research, shows that firms that appear highly efficient at generating revenue can perform far worse when their environmental footprint are included in the calculation.
To tackle this problem, researchers developed a new way to measure “sustainable corporate efficiency”, combining traditional financial metrics with environmental data such as energy consumption, carbon emissions and revenues generated from environmentally friendly products and services.
Dr Menelaos Tasiou, co-author of the study and Senior Lecturer in Finance at the University of Surrey, said:
“Businesses have long been judged on how efficiently they turn resources into profit. But if those profits come with large environmental costs, the picture changes completely. What we show is that true efficiency means generating revenue while also reducing the environmental damage caused by production. In other words, profitability alone can mask how wasteful a business really is when environmental costs are considered.”
The research analysed more than 2,800 publicly listed companies across 61 countries between 2010 and 2022, creating one of the largest global datasets measuring how sustainable companies are, when both financial performance and environmental impact are assessed together.
The team combined company financial records, in alignment with the green economy (defined as a low carbon, resource efficient and socially inclusive economy), with environmental disclosures such as energy use and greenhouse gas emissions. They then applied a machine learning technique known as Convexified Efficiency Analysis Trees (CEAT) to estimate how efficiently companies convert resources into revenue while minimising pollution.
Unlike older approaches, the method models the reality that production creates both desirable outputs, such as revenue, and undesirable ones, such as emissions. This allows companies to be compared on how well they balance profit with environmental performance.
The results found a moderate link between financial efficiency and environmental efficiency, meaning many firms that are strong financially are not necessarily good at managing their environmental impact.
The study also found large differences across industries and countries. Firms operating in sectors with high emissions, such as manufacturing and energy, often lagged behind leaders that were better at reducing carbon intensity while maintaining revenue.
Dr Tasiou continued:
“Measuring efficiency in this broader way can help investors, regulators and policymakers identify companies that are genuinely prepared for a low carbon economy. Stronger management capability plays a key role. Firms with more capable management teams were more likely to balance profitability with environmental responsibility, suggesting that leadership decisions can strongly influence sustainable performance.
“As governments push towards net zero and investors scrutinise environmental performance more closely, companies that fail to integrate sustainability into their operations risk falling behind.”
