The interplay between firms’ environmental goal setting and operational performance

Purpose – This study investigates how firms set environmental goals, focusing on greenhouse gas emission (GHGe) reduction targets. Unlike traditional goals such as profit or growth, environmental goals are typically voluntary, lack standardized metrics and are not subject to regulatory oversight. Design/methodology/approach – Drawing on the aspiration-level adaptation process outlined by the Behavioral Theory of the Firm (BToF), we examine how prior goals, prior performance and social comparison influence current environmental goals, and whether operational performance (OP) moderates the relationship between attainment discrepancy and goal setting. Using a dynamic panel of 312 firms from 2013 to 2020, we estimate a system generalized method of moments (GMM) model to address endogeneity concerns. Findings – Results indicate that environmental goal setting follows BToF mechanisms and is contingent on firms' OP. Firms with strong OP set more ambitious goals after exceeding prior targets and more feasible goals when underperforming. Originality/value – This study extends the BToF to the environmental sustainability context by linking aspiration-level mechanisms to environmental goal setting and by adding OP as a moderator.