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The topic I have chosen to base my literature review on is environmental performance in business. With regards environmental performance in business the main topics I have sourced from my readings are environmental management and its implications on business performance in terms of financial performance, environmental management systems and innovation and environmental management. I have also identified the key pieces of literature from each author. I have compared and contrasted articles with regards their content on the topic and noted similarities with regards the author's findings.
Environmental Performance in business
Environmental performance is defined by ISO 14031 as a firm's success in managing the relationships between its products, activities, or services, and the natural environment. In turn, reducing the environmental impacts manufactured from a firm's activities, products, and services, improves environmental performance (Rikhardsson, 1998).
From my reading of the literature the main authors I have identified with regards the topic are:
Green Management & Financial Performance:
Environmental Management Systems:
Innovation and environmental management:
Main issues regarding the topic
Under the topic Environmental Performance in Business I have analysed the literature under the following headings:
Green management and financial performance
Innovation and environmental regulation
Environmental management strategies
For the literature review I have grouped the literature under the following headings:
Under my first heading I aim to study the relationship between environmental management/ green management and financial performance in business. I aim to identify whether this relationship is overall positive or negative.
Green management and financial performance
Article 1: "Green Management and financial performance: a literature review"
José F. Molina-Azorín, Enrique Claver-Cortés, Maria D. López-Gamero, Juan J. Tarí, (2009),"Green management and financial performance: a literature review", Management Decision, Vol. 47 Iss: 7 pp. 1080 - 1100
The objective of this paper was to conduct a literature review of the quantitative studies that have analysed the impact of green management on the financial performance of companies (Molina, 2010).
With regards the methodology of the paper the quantitative studies were conducted in the form of a literature review that analyse the impact of environmental management on financial performance. In total 32 studies were conducted with results being obtained from these studies (Molina, 2010)
The article weighs up the positives and negatives associated with the link between green management and financial performance and makes comments based on the findings from the data collection. The article consists of a considerable literature review of the quantitative studies that show the impact of green management on financial performance within business.
The literature review consists of literature under the following headings:
Arguments for positive and negative relationship between green management and financial performance.
Environmental mgmt strategies
Review of literature - highlights
The literature within the article highlights the positive and negative links between green management and financial performance.
This article seeks to make a contribution to the debate about the reasons to
implement environmental strategies, carrying out an extensive review of the green
management-financial performance link. In our opinion, ethics and social
responsibility in general, and green management in particular, should be a key
part of business. (Molina, 2009)
Green management can provide opportunities to reduce costs and increase revenues. Ambec and Lanoie (2008) point out that there are four opportunities companies can make use to reduce costs (risk management and relations with external stakeholders; cost of material, energy, and services; cost of capital; and cost of labour) and three opportunities to increase revenues (better access to certain markets; differentiating products; and selling pollution-control technology) (Molina, 2009)
More broadly, environmental management can improve stakeholder relationships
and prevent costly stakeholder conflicts (Hull and Rothenberg, 2008). Stakeholder and
institutional theories share a conceptualization of organizations being embedded
within a wider social system that shapes their behaviour. An organization's
relationships with institutions and stakeholders are assumed to play a significant
role in both the definition and determination of success (Donaldson and Preston, 1995).
Effective management of relationships with key stakeholders can contribute to
enhanced financial performance through the creation, development, or maintenance of
ties that provide important resources to companies (Jones, 1995; Brammer and
Those suggesting a negative relationship between environmental management and
financial performance argue that firms trying to improve environmental performance
drag management and resources effort away from central areas of the business, resulting
in decreased profits. In this theory, managers cannot make both environmental and
competitive improvements in the business (Hull and Rothenberg, 2008; Klassen and Whybark, 1999).
Agency perspectives on corporate social and environmental performance argue that
absent strong control from shareholders, managers can use corporate
resources to target goals that enhance their own utility in ways that are unlikely to
provide significant returns to companies. Consequently, good social and environmental
performance come at the expense of good financial performance because social and
environmental performance make use of firm resources in ways that confer significant
managerial benefits rather than devoting those resources to alternative investment
projects or returning them to shareholders (Blanco et al., 2009).
The most prominent objection to corporate social responsibility was the classical
economic argument proposed by Milton Friedman (Lee, 2008). Friedman (1962) argued
that the social responsibility of a corporation is to make money for its shareholders,
Results / Conclusions
With regards the findings obtained from these studies, the results varied with the majority of the studies leaning towards a positive impact between environmental and financial performance. The findings within the paper demonstrate that the group of industries, countries and firms varied (Molina, 2010)
With regards limitations or gaps in research can be identified from the paper in that the research does not take into account studies that environmental management influenced environmental performance (Molina, 2010)
With regards the practical implications of such a paper the article offers interesting dilemmas for management within firms in relation to imposing and committing to a green management plan in order to receive increased profits. Also the paper could be deemed as valuable in that a considerable literature review was conducted with gaps for future research present (Molina, 2010)
This article strikes a similarity with Jose Moneva's paper in that both share the same results in that there is an overall positive relationship between green environmental management and financial performance. In relation to the number of studies conducted for the methodology section they are similar with 23 in Moneva's paper and 32 in Molina's paper.
Article 2: "Corporate environmental and financial performance: a multivariate approach"
José M. Moneva, Eduardo Ortas, (2010),"Corporate environmental and financial performance: a multivariate approach", Industrial Management & Data Systems, Vol. 110 Iss: 2 pp. 193 - 210
The objective of this paper is to highlight and evaluate the significance of the link between corporate environmental and financial performance. This is conducted in order to show managers how adequate and proper management of environmental factors could help contribute to an increase in financial performance of the company. (Moneva, Ortas, 2010)
With regards the methodology section of the paper the paper analyses the environmental and financial performance of 23 European companies. The commitment to environmental performance is analysed under the stakeholder approach and subsequently linked with the financial performance of the company. For the first time in this study a partial least squares model has been applied (Moneva,Ortas 2010)
Summary of literature - highlights
The main reasons for obtaining the differences in the sign of the relationship, when linking CEP and CFP, are the different methodologies used for measuring these constructs, along with the varying time periods and geographic areas considered.
With regards the findings from the paper, the results produced support the theory that firms who manage to acquire higher rates with regards environmental performance subsequently show greater financial performance levels in the future (Moneva,Ortas, 2010)
With regards limitations in the research the lack of a long series of data for environmental performance for companies poses a barrier for a broader analysis of the study. The research highlights the usefulness of the multivariate model in relation to the analysis of financial and environmental performances of firms (Moneva,Ortas, 2010)
With regards the practical implications of the findings within this paper the paper highlights the need for managers to take into consideration environmental management factors when drafting policies (Moneva,Ortas, 2010)
Article 3: "Impact of environmental management system implementation on financial performance: A comparison of two corporate strategies",
Kevin Watson, Beate Klingenberg, Tony Polito, Tom G. Geurts, (2004),"Impact of environmental management system implementation on financial performance: A comparison of two corporate strategies", Management of Environmental Quality:
An International Journal, Vol. 15 Iss: 6 pp. 622 - 628
The purpose of this paper is to test and propose a framework to quantify Environmental management systems improvements in order to determine the influence of EMS strategies on the financial performance of a firm (Watson et al, 2004)
Literature - highlights
This article shares similarities and shares a commonality with the first article in that Friedman's theory is also referenced.
This is one measure of an organization's overall performance, and from the stakeholder strategic purpose, it is the purpose of the firm (Friedman, 1970).
The study proposes to determine whether the ECOQ framework can be utilized to
garner support for EMS strategies by establishing a link between environmental
stewardship and financial performance. To test this relationship, two propositions are
formed: (Watson, 2004)
The findings from the research conducted in this paper suggest that there is a positive link between the implementation of an Environment Management Strategy and the financial performance of a firm (Watson et al, 2004)
This can be linked to Molina's paper in that positive link is developed between environmental management and financial performance.
Article 4: The Effect of Corporate Environmental Performance. on Financial Outcomes - Profits, Revenues, and Costs: Evidence from the Czech Transition Economy
Dietrich & Earnhart . (2010). The Effect of Corporate Environmental Performance. on Financial Outcomes - Profits, Revenues, and Costs:
Evidence from the Czech Transition Economy
This article analyses the effect that corporate environmental performance has on the financial performance of a firm. In detail it assesses the strength of the link between good environmental performance and profits and in which direction. The article divides profits and costs in order to identify the channels that environmental management has on profit revenues within a firm. (Earnhart, 2010)
Literature - highlights
This paper examines the link from corporate environmental performance to financial
performance. In particular, we assess whether better environmental performance affects profits, and if true, through which channel: revenues, costs, or both (Earnhart, 2010)
Konar and Cohen (2001) find a significantly positive effect of good environmental performance, as measured by low toxic emissions, on firms' intangible asset values.
Similarly, Austin et al. (1999) demonstrate that good environmental performance, as captured by low toxic emissions and hazardous waste corrective actions, positively affect financial rates of return.
To examine the effect of corporate environmental performance on financial performance, we
exploit data on firms in the Czech Republic between 1996 and 1998, which is an excellent site and time period for our study (Earnhart, 2010)
This article can be compared with Molina and Moneva findings and results in that an overall positive relationship is found between environmental performance and financial performance (Earnhart, 2010)
Overall findings of 4 articles - "green management and financial performance":
All four articles draw similar conclusions in terms of an overall positive link between environmental management and financial performance.
In each of the articles methodologies differ but overall produce the link as being positive - each using different sample sizes in different areas.
Potential gaps in research can also be noted and identified from the four papers with the results not entirely conclusive.
Authors who draw similar research into their papers include Molina and Moneva who cite Milton Friedman in both their papers.
Research suggests also that there is a positive link between firms implementing an Environment Management System on financial performance and that the benefits of such a system outweigh the costs and resources to implement such a system.
Each of the five article reviewed share differences in relation to methodology but all share a commonality in terms of finding positive relationships between environmental management and performance and financial performance.
With regards article 1 by Molina I would deem this article to be a high priority with regards exploring the link between green management and financial performance. The article is exhaustive in nature with regards detail and sources and highlights all of the positives and negatives in the relationship. The methodology is built on solid quantitative analysis from 32 studies.
In article 2, Moneva's study is similar to article 1 with a similar literature review and methodology. A slightly smaller sample size is used in the methodology compared to article 1.
Molina and Moneva's papers are similar in that both have gaps in research and limitations. In the case of Molina, the research does not take into account studies that environmental management influenced environmental performance and Moneva, the lack of a long series of data for environmental performance for companies poses a barrier for a broader analysis of the study.
Environmental Management Systems:
Under the heading Environmental Management Systems I aimed to identify the benefits of implementing such a system, barriers, motives for implementation and success factors.
Article 5: "Implementation of an environmental management system: the experience of companies operating in Singapore", Industrial Management & Data Systems"
Environmental Management Strategies - barriers, benefits and critical success factors
Hesan A. Quazi, (1999),"Implementation of an environmental management system: the experience of companies operating in Singapore", Industrial Management & Data Systems, Vol. 99 Iss: 7 pp. 302 - 311
The paper examines the issues related to firms implementing an Environmental Management System/ ISO 14001 in Singapore. The paper aims to highlight the problems associated with implementation, the critical success factors for such a system and the potential benefits to firm's of having such a system in place (Quazi, 1999)
With regards the methodology seven case studies were carried out on companies that were ISO certified or were currently aiming to obtain certification (Quazi, 1999)
Literature summary - highlights
Barriers to implementation
Barriers that hinder implementation of an environmental management system are identified. These include, complexity of ISO 14001 standard, legal ramifications, lack of incentive to
implement, inappropriate approach to implementation, lack of management commitment,
lack of total employee involvement, cost of implementation and unclear responsibilities
of employees (Quazi, 1999)
Benefits of implementing ISO 14001
The literature indicates that an environmental management system (EMS), if correctly
designed and adopted, may bring tangible benefits and rewards to a firm. The benefits
that can be gained include, operational cost savings, sound business practices, conformance to rules and regulations, conformance to customer requirements, increased access to capital, increased competitiveness, improved image in terms of corporate and marketing, higher standards of safety, lower insurance premiums, and limitation of liability (Quazi, 1999)
Critical Success Factors
The literature review reveals a number of critical success factors that are linked to the adoption of ISO 14001.These factors include interdepartmental implementation teams, top management commitment, employee and stakeholder involvement, appropriate delegation of authority and responsibilities and a focus on business needs (Quazi, 1999)
Evangelos L. Psomas, Christos V. Fotopoulos, Dimitrios P. Kafetzopoulos, (2011),"Motives, difficulties and benefits in implementing the ISO 14001 Environmental Management System", Management of Environmental Quality: An International
Journal, Vol. 22 Iss: 4 pp. 502 - 521
The objective of this paper is to examine the motives and reasons for implementing an Environmental Management System (ISO 14001 standard). Also the benefits of holding such a standard will be highlighted along with the problems with regards adhering to the standard's requirements (Evangelos, 2011)
With regards methodology a research project was conducted in 53 Greek companies who are ISO certified. In order to refine and narrow down the constructs of the ISO motives, benefits and difficulties an explanatory factor analyses was used (Evangelos, 2011)
With regards the results derived from the research they are as follows:
With regards the latent constructs of the ISO 14001 motives, the social requirement, obtaining a competitive advantage and environmentally friendly policy were obtained from the study (Evangelos, 2011)
With regards the reasons for firms to become ISO certified, this was largely influenced by motives that were internal to the firm (Evangelos, 2011)
With regards the difficulties of implementing such a system they came in the form of the ISO 14001 requirements and the sheer determination and commitment of issues regarding environmental performance. However according to the research these difficulties were not important or troublesome for firms (Evangelos, 2011)
With regards the benefits stemming from such a certification these came in the form of better relations with society mainly due to increased environmental performance, better position of the firm in the marketplace, the move from ordinary conventional from practices to more environmentally sustainable practices, increased capacity with regards waste processing. Overall from the benefits derived from the study, the internal benefits to the firm surpassed the external benefits (Evangelos, 2011)
Issues and limitations:
The major limitations derived from the study comprise of the small size of the sample of the participating companies and their diversity with regards their sector and stature. Furthermore the subjective character of the data collected could be classed as a limitation. With regards further research these two limitations open the doors for further analysis and study (Evangelos, 2011)
In terms of the practical implications associated with the study the latent constructs derived from the analysis of ISO may motivate companies that are not currently certified to adopt an Environmental Management System in line with ISO 14001. In terms of companies currently ISO certified they can improve on their position in order to increase their environmental performance (Evangelos, 2011)
Article 7: "Environmental management system certification and its influence on corporate practices: Evidence from the automotive industry", International Journal of Operations & Production Management"
P. González, J. Sarkis, B. Adenso-Díaz, (2008),"Environmental management system certification and its influence on corporate practices: Evidence from the automotive industry", International Journal of Operations & Production Management, Vol. 28 Iss: 11 pp. 1021 - 1041
The objective of this paper is to study the differences that exist in the implementation stage of environmental practices in companies that are certified in ISO 14001 or have an Environmental Management System and those that have neither. Also the paper investigates companies who are certified in relation to whether they make environmental demands of suppliers to them (Gonzalez, 2008)
A study consisting of survey data from automotive suppliers was completed. 157 interviews were conducted on Spanish managers (Gonzalez, 2008)
Results from the study conclude that there is a positive relationship between the holdings of an EMS particularly ISO 14001 and eco-management and audit scheme, and the environmental demands that these organizations impose on their suppliers (Gonzalez, 2008)
The environmental demands on suppliers grow with customer organization size, but the degree of internationalization, measured by the levels of imports and exports, does not show a significant link to these pressures (Gonzalez, 2008)
Overall evaluation of the 3 articles under Environmental Management Systems:
Overall from the research the authors highlight the positive impacts of ISO certification and the implementation of ISO standards.
In article 5, Quazi describes in detail the various benefits, barriers to implementation and critical success factors for adopting ISO 14001 certification. He provides a detailed but structured literature review on the matter.
In article 6, Evangelos conducts a similar study but focused on the motives behind ISO certification. This provided the reader with another aspect of why firms adopt ISO standards. His findings were that these motives were mainly internal to the firm.
In article 7, Gonzalez bases his paper on comparing firms that are ISO certified and those who are not and highlights the performance of these firms. Hs results conclude that firms who possess ISO certification excel compared to firms who have no certification.
In summary, all 3 articles focus on the same issues regarding EMS with an overall positive relationship derived from the findings between implementation of an EMS and better performance
Innovation and green management
Under the heading Innovation and Green Management, the aim is to research whether there is a positive or negative link between innovation and green management practices.
Article 8: "Impact of environmental regulations on innovation and performance in the UK industrial sector", Management Decision"
Ramakrishnan Ramanathan, Andrew Black, Prithwiraj Nath, Luc Muyldermans, (2010),"Impact of environmental regulations on innovation and performance in the UK industrial sector", Management Decision, Vol. 48 Iss: 10 pp. 1493 - 1513
The literature highlights the role of environmental regulations in inducing innovation and improving performance. The whole objective of the paper is to study the links between innovation, regulations and organisational performance in the UK using sector level data (statistical data) (Ramanathan, 2010)
With regards methodology the paper utilises structural equation modelling to study and compare/contrast the links among the three variables simultaneously and equally (Ramanathan, 2010)
With regards results gathered from the study the results indicate that in the UK environmental regulations are important in increasing financial and economic performance of sectors in industry. Also the research provides results that in the short term environmental regulations imposed can impact innovation negatively and in turn innovation negatively impacts economic performance in these sectors (Ramanathan, 2010)
With regards the value of such a study this is the first study in the United Kingdom to both focus on three variables simulataneously using secondary sector data (Ramanathan, 2010)
Article 9: "Environmental management accounting and innovation: an exploratory analysis",
Aldónio Ferreira, Carly Moulang, Bayu Hendro, (2010),"Environmental management accounting and innovation: an exploratory analysis", Accounting, Auditing & Accountability Journal, Vol. 23 Iss: 7 pp. 920 - 948
In the modern age increased awareness regarding issues of an environmental nature has encouraged firms to implement Environmental Management Accounting. This has said to produce many benefits to users including an increase in innovation. The purpose of this study is to investigate the link and also the role of strategy with EMA use and innovation (Ferreira, 2010)
With regards methodology a survey is utilised in this paper produced and designed to management accountants and financial controllers in major Australian businesses (Ferreira, 2010)
Findings from the study suggest that the use of Environmental Management Accounting has a positive relationship with process innovation but not with product innovation (Ferreira, 2010)
In terms of limitations the sample size was relatively small with the results needed to be interpreted carefully. Also the research proposes that EMA is associated with process innovation therefore enhancing environmental performance (Ferreira, 2010)
Overall evaluation of the 2 articles under innovation and green management:
In relation to article 8, Ramanathan reaches the conclusion that the research provides results that in the short term environmental regulations imposed can impact innovation negatively and in turn innovation negatively impacts economic performance in these sectors.
He emphasizes that in the long terms innovation does not always be negatively influenced by EMS or environmental regulations.
In article 9, Ferreira focuses on the area of Environmental Management Accounting and its influence on innovation. His findings slightly differ to article 8 that overall a positive relationship exists between EMA and process innovation but not product innovation.
In relation to environmental performance and financial performance literature shows that there is a mainly positive link between the two. This is evident through the findings of Molina and Lopez with backup evidence present from Watson and the Czech study
In terms of environmental management systems, there is an overall positive link between being ISO certified or having an EMS than not possessing one in terms of business performance. Interest findings in article 5 by Quazi provide a detailed insight into the barriers of implementation, benefits and success factors of having an EMS or being ISO certified
In terms of green management and innovation, Ramanathan reaches the conclusion that the research provides results that in the short term environmental regulations imposed can impact innovation negatively and in turn innovation negatively impacts economic performance in these sectors, whereas, Ferreira focuses on the area of Environmental Management Accounting and its influence on innovation. His findings slightly differ to article 8 that overall a positive relationship exists between EMA and process innovation, but not product innovation.