Understanding Key Environmental Management Practices Associated with the Environmental and Financial Performance in Selected Manufacturing Firms
Thienel, Gonzalo Andres
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Because of public concern, regulatory forces, stakeholder's pressure, or simply management's belief that it is the right thing to do, implementation of environmental management practices (EMPs) can play an important role in determining the environmental and financial performance (EFPs) of a firm. Many previous studies have examined the relationship between EMPs and EFPs but differences in which EFPs and EMPs were considered, in the source and methods of data collected, in factors such as industry type, firm size, etc. that were considered in selecting sample firms, and in data analysis methods, have produced great inconsistency. Consequently, managers struggle when deciding how to implement a successful environmental management strategy. This study developed three models to predict five EFPs (Return On Assets, Sales Growth Tobin's q, Innovation Process, and Innovation Product) from 19 EMPs (Recycling, Proactive waste reduction, Reactive waste reduction, Consume internally, Create market for waste, Water consumption, Energy consumption, Early supplier involve, Environmental standard for suppliers, Environmental audits suppliers, Environmental awards, Life cycle analysis, Design targets/goals, Environmental risk analysis, Corporate policy/procedure, Environmental mission statement, Environmental department, Surveillance of market, Strategic alliance). These EMPs and EFPs were chosen because they can be measured from corporate financial and environmental responsibility reports. Data was collected for US firms that met five criteria (1) firms with 500 or more paid employees, (2) industry sector is manufacturing, (3) Industry sector has declining contribution to GDP, (4) industry sector concentration is moderate to low, and (5) industry sector has low market volatility. A total of 30 firms from 8 NAICS sectors that met these criteria and which had both corporate financial and environmental responsibility reports became the sample for the study. The multivariate analysis technique, Constrained Analysis on Principal Coordinates (CAP)was used to develop three models (a) the 15 EMPs that were significant (α ≤ 0.05) predictors of at least one of the EFPs (73% of EFP variation explained), (b) the 9 EMPs that were significant predictors of at least 2 EFPs (61% of EFP variation explained), and (c) the 3 EMPs that were significant predictors of at least 3 EFPs (31% of EFP variation explained); none of the EMPs were significant for 4 or all 5 of the EFPs. A second multivariate analysis technique, Canonical Correspondence Analysis (CCA) grouped the EMPs of the above models into three subsets according to whether they occur at the strategic, tactical, or operational management level of firms, CCA identified the relative importance of each management level for the EFPs. CCA found that, when the 15, 9 and 3 EMPs used in the CAP models were grouped into these management level subsets, 69%, 53%, and 28% respectively of EFP variation was explained. CCA analyses found that all three management levels were significant and that the operational level always explained the greatest percent of EFP variation, followed by the tactical and strategic levels. The results suggest that, for firms to be successful in improving EFPs, EMPs from all three managerial levels must be involved. This research is a significant contribution by demonstrating that EMPs can account for a high percentage of the variation in EFPs while using data obtained from corporate financial and environmental responsibility reports that are available at little or no cost. In contrast, many previous studies relied on interview and survey methods that are time consuming and costly to conduct, and often explained a low percentage of EFP variation. This study is unique in that it is the first to use CCA to group EMPs according to management levels to understand the role that these levels play in a successful environmental management strategy. For managers of firms similar to those sampled for this study, the model with 9 EMPs is recommended. It explained a high percentage of the variability in EFPs, and 9 EMPs would be more cost effective to implement and monitor than the 19 that were examined.
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