Organizational Antecedents and Consequences of Environmental Performance

Firms embrace environmental management strategies for a number of reasons. Government regulation pushes firms to comply with environmental standards, thereby creating a need for companies to manage environmental performance outcomes. Pressure for good environmental performance is also exerted by a variety of stakeholders including investors, customers, non-governmental organizations, local communities, and employees. Increasingly, the investment community has recognized that environmental performance is closely linked to firm value. In Measuring the Future: The Value Creation Index, a 2000 study of intangible drivers of firm value by Cap Gemini Ernst and Young, environmental performance was ranked as a key intangible driver of firm value. Financial measures of firm value have also been empirically linked to environmental liabilities (Barth & McNichols, 1994; Blacconiere & Northcut, 1997; Hughes, 2000), environmental awards (Klassen & McLaughlin, 1996), and to toxic emissions (King & Lenox, 2002). Increasingly, customer demands drive firms to embrace better environmental management practices. For example, both Ford and General Motors require that their suppliers achieve environmental management certification under the International Standards Organization (ISO) 14001 guidelines, and many other large organizations are following suit. From a starting point in 1995 of just 257 ISO 14001 certifications awarded to facilities in 19 countries, the latest data available for 2004 shows that over 90,000 certifications have been awarded to facilities in 127 countries around the world (ISO, 2005). In addition to implementing an environmental strategy as a reaction to external pressures, managers realize that effective environmental performance leads to more favorable internal outcomes. The operational performance outcomes associated with implementing a proactive environmental strategy include reduced waste and discharges, increased efficiency, reduced energy and resource costs, lower risk and liability, better corporate reputation, and reduced compliance costs (Sharma & Vredenburg, 1998; Hart & Ahuja, 1996; Hart, 1995).