Measuring the sustain ability of firms’ trade: a review of the methods and an application to the COVID-19 crisis

The environment is central to global debates, with issues like climate change, pollution, and resource scarcity gaining attention. Public interest is rising, and studies are exploring the links between economic growth, trade, and the environment. A key challenge is defining what makes a firm, product, or process greener than another. This paper identifies the most commonly used indicators for assessing the environmental performance of firms' trade and demonstrates how greenness evaluations can vary depending on the chosen indicator, using a sample of Italian firms during the COVID-19 crisis as a case study. Our literature review shows that many studies evaluating the greenness of firms' trade focus on Environmental Goods (EGs). EGs are divided into Type A, which serve an environmental purpose, and Type B, which are environmentally preferable alternatives. Various institutions compile EG lists based on 6-digit HS codes, such as APEC (54 products; APEC, 2012), OECD (130 products; OECD/EUROSTAT, 1999), and CLEG (248 products; Sauvage, 2014). These lists differ in criteria for inclusion, which results in variations in product count and the balance of Type A and Type B items. APEC focuses primarily on Type A products, while OECD and CLEG include both types. This distinction is important for understanding how the choice of indicator affects the results. We investigate the impact of the COVID-19 crisis on the greenness of firms' trade using a sample of 57,359 Italian firms. Our analysis combines firm-level trade data from COEWEB-ISTAT with financial data from Bureau van Dijk AIDA for the year 2020. To address endogeneity concerns, we apply an instrumental variable (IV) approach, where the dependent variable is the percentage of green imports over total firm imports. We use firms' turnover as a proxy for the economic impact of the crisis and instrument it with the exogenous classification of firms into essential and non-essential sectors, as defined by the Italian DPCM of March 25, 2020. This allows us to distinguish between firms more severely affected by the crisis, those forced to halt operations, and those less affected. Our findings reveal that the impact varies depending on the sustainability indicator used. With the broad CLEG list, we find a significant negative effect of turnover on green imports. The OECD list yields a non-significant result, while the restrictive APEC list shows a significant positive effect. These differences highlight the critical role of indicator selection in assessing firms' environmental performance.