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Keywords Environmental management, Corporate strategy, Financial performance, Corporate finances, Market value, Economic sustainability
Abstract Environmental management systems (EMS) seek to make companies simultaneously more competitive and environmentally responsible. Improved environmental performance can be sought from the adaptation of techniques that emphasize reduction of waste and process/product redesign in the quest of reducing environmental impact. However, EMS lacks a framework to quantify improvements and much of the evidence of EMS's impact on financial performance is anecdotal. This lack of theoretical development has served to diminish corporate support, thus reducing the likelihood of EMS implementation due to a perceived cost disadvantage. This paper proposes, and tests, a framework to quantify EMS improvements to determine the impact of EMS strategies on financial performance. Our findings suggest that implementation of an EMS strategy does not negatively impact a firm's financial performance.
Introduction
Due to agreements on global warming, an increase in the number of environmentally aware consumers, and the advent of ISO 14000 (a voluntary international standard to certify environmental processes developed by the International Organization for Standardization); companies are increasingly interested in capturing benefits associated with environmental sustainability and stewardship. Environmental management systems (EMS) have emerged as a means to systematically apply business management to environmental issues to enhance a firm's long-run financial performance by developing processes and products that simultaneously improve competitive and environmental performance (Stead and Stead, 1992).
EMS implementation is increasingly seen as essential due to a perceived link between a company's impact on the environment and profitability. Process-based strategies to improved environmental performance can be adapted from traditional just-in-time and total quality management techniques. Florida and Davison (2001) exemplify the viability of this strategy within their description of the "three-zero" manufacturing paradigm, where companies attempt to achieve a level of zero defects, zero inventory, and zero waste and emissions. However, lack of a theoretical framework to quantify the relationship between environmental and financial performance has hindered the ability of management to gain support for capital investment that these strategies may require.
The traditional environmentally conscious perspective argues that "greening" is good for society. Corporations, however, are typically motivated to reduce, not social, but organizational costs. As EMS strategies may require significant capital investment, conventional wisdom dictates that EMS adopting firms would be at...