Skip to main content
SpringerLink
Log in

The Financial Impact of ISO 14001 Certification: Top-Line, Bottom-Line, or Both?

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

It is not easy being green, but it does beg the question: Does being green pay off on the bottom-line? Unfortunately, that question of becoming ISO 14001 to reap financial benefit remains widely unanswered. In particular, corporate practice is interested in how environmental management impacts firms’ finance through top-line impact, bottom-line impact, or both—as this paves the way for an investment of environmental management. As current findings are mixed, our study tracks financial performance of publicly traded US firms between 1996 and 2005 to test whether ISO 14001 leads to improved financial performance. Employing a rigorous event-study approach, we compare certified firms to different control groups based on several matching criteria that include industry, size, and/or ROA. In the short run, ISO 14001 certification makes only a minor impact on the bottom-line, according to our results. However, these same results show a significant financial improvement over the long haul with ISO 14001 certification. Additionally, this long-term improvement also makes a significant improvement in top-line performance. Thus, we conclude that environmental management pays off along both dimensions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. According to ISO, a total of 5,225 US firms were certified by 2009 (ISO 2010). If we compare our final list to the total number of certifications by 2009, it included approximately 80 % of the ISO 14001 certified firms. Though not complete, we believe that our final list is a good representation of the actual ISO 14001 certified firms. While the number of certifications per year is released by the ISO, unfortunately, given that companies work with different certifying agencies, the details regarding certified firms and their certification dates are not publicly available.

  2. This percentage corresponds closely to Corbett et al. (2005) who indicate that 67 % of ISO 9001 and ISO 14001 certified firms within the United States stated that they are either privately held or foreign owned.

  3. In case of Corbett et al. (2005), their analyses and results were based on a final sample of 554 firms. These 554 firms were arrived from a list of 21,482 certifications that had 7,238 US firms listed in Compustat, resulting in an effective representation of 7.7 % (i.e., 554/7,238). Though our final sample size of 219 is lower than that of Corbett et al. (2005), it is a better representation of the ISO 14001 certified firms within the USA. Specifically, our final sample size is 16.3 % of the total US public firms listed in Compustat (i.e., 219/1,346).

  4. This relative increase in the median ROA value is calculated by taking the corresponding percentage value of 0.0354 % from Table 2 (i.e., the lowest for the period t − 2 to t − 4 across panels (a) through (d) and dividing it by the median starting ROA value of 4.96 %. This ratio (0.0354/4.96 = 0.007) is then converted to relative percentage increase by multiplying it by 100. In effect, we could say that at the minimum, ROA went from 4.96 to 4.995 %. All the relative increase in median values of ROA and other financial indicators were done in a similar fashion.

  5. Financial leverage is a measure of the total debt a company takes to acquire assets. Profit margin (ROS) is calculated by dividing net income over sales.

References

  • Aarts, F. M., & Vos, E. (2001). The impact of ISO registration on New Zealand firms’ performance: A financial perspective. TQM Magazine, 13(3), 180–191.

    Article  Google Scholar 

  • Albuquerque, P., Bronnenberg, B. J., & Corbett, C. J. (2007). A spatiotemporal analysis of the global diffusion of ISO 9000 and ISO 14000 certification. Management Science, 53(3), 451–468.

    Article  Google Scholar 

  • Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives, 22(4), 45–62.

    Article  Google Scholar 

  • Aragon-Correa, J. A., & Sharma, S. (2003). A contingent resource-based view of proactive corporate environmental strategy. Academy of Management Review, 28(1), 71–88.

    Google Scholar 

  • Bansal, P., & Bogner, W. C. (2002). Deciding on ISO 14001: Economics, institutions, and context. Long Range Planning, 35(3), 269–290.

    Article  Google Scholar 

  • Bansal, P., & Hunter, T. (2003). Strategic explanations for the early adoption of ISO 14001. Journal of Business Ethics, 46(3), 289–299.

    Article  Google Scholar 

  • Barber, B. M., & Lyon, J. D. (1996). Detecting abnormal operating performance: The empirical power and specification of test statistics. Journal of Financial Economics, 41(3), 359–399.

    Article  Google Scholar 

  • Boiral, O. (2003). ISO 9000: Outside the iron cage. Organization Science, 14(6), 720–737.

    Article  Google Scholar 

  • Cheah, E. T., Chan, W. L., & Chieng, C. L. L. (2007). The corporate social responsibility of pharmaceutical product recalls: An empirical examination of U.S. and U.K. markets. Journal of Business Ethics, 76(4), 427–449.

    Article  Google Scholar 

  • Christmann, P. (2000). Effects of “best practices” of environmental management on cost advantage: The role of complementary assets. Academy of Management Journal, 43(4), 663–680.

    Article  Google Scholar 

  • Conover, W. J. (1999). Practical nonparametric statistics (3rd ed.). New York: Wiley.

    Google Scholar 

  • Consolandi, C., Jaiswal-Dale, A., Poggiani, E., & Vercelli, A. (2009). Global standards and ethical stock indexes: The case of the Dow Jones Sustainability Stoxx Index. Journal of Business Ethics, 87(1), 185–197.

    Article  Google Scholar 

  • Corbett, C. J., & Klassen, R. D. (2006). Extending the horizons: Environmental excellence as key to improving operations. Manufacturing & Service Operations Management, 8(1), 5–22.

    Article  Google Scholar 

  • Corbett, C. J., Montes-Sancho, M. J., & Kirsch, D. A. (2005). The financial impact of ISO 9000 certification in the United States: An empirical analysis. Management Science, 51(7), 1046–1059.

    Article  Google Scholar 

  • Curkovic, S., & Sroufe, R. (2011). Using ISO 14001 to promote a sustainable supply chain strategy. Business Strategy and the Environment, 20, 71–93.

    Article  Google Scholar 

  • Darnall, N., & Edwards, D. J. (2006). Predicting the cost of environmental management system adoption: The role of capabilities, resources and ownership structure. Strategic Management Journal, 27(4), 301–320.

    Article  Google Scholar 

  • Delmas, M. (2001). Stakeholders and competitive advantage: The case of ISO 14001. Production and Operations Management, 10(3), 343–358.

    Article  Google Scholar 

  • Dick, G. P. M., Heras, I., & Casadesús, M. (2008). Shedding light on causation between ISO 9001 and improved business performance. International Journal of Operations and Production Management, 28(7), 687–708.

    Article  Google Scholar 

  • Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: What are they. Strategic Management Journal, 21(10/11), 1105–1121.

    Article  Google Scholar 

  • Florida, R. (1996). Lean and green: The move to environmentally conscious manufacturing. California Management Review, 39(1), 80–105.

    Article  Google Scholar 

  • Gunthorpe, D. L. (1997). Business ethics: A quantitative analysis of the impact of unethical behavior by publicly traded corporations. Journal of Business Ethics, 16(5), 537–543.

    Article  Google Scholar 

  • Handfield, R. B., Walton, S. V., Seegers, L. K., & Melnyk, S. A. (1997). Green value chain practices in the furniture industry. Journal of Operations Management, 15(4), 293–315.

    Article  Google Scholar 

  • Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20(4), 986–1014.

    Google Scholar 

  • Hart, S. L., & Ahuja, G. (1996). Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance. Business Strategy and the Environment, 5, 30–37.

    Article  Google Scholar 

  • Hendricks, K. B., & Singhal, V. R. (1997). Des implementing an effective TQM program actually improve operating performance? Empirical evidence from firms that have won quality awards. Management Science, 43(9), 1258–1274.

    Article  Google Scholar 

  • Hendricks, K. B., & Singhal, V. R. (2001). The long-run stock price performance of firms with effective TQM programs. Management Science, 47(3), 359–368.

    Article  Google Scholar 

  • ISO. (2010). The ISO survey of certifications (up to 31 December 2009).

  • Jacobs, B. W., Singhal, V. R., & Subramanian, R. (2010). An empirical investigation of environmental performance and the market value of the firm. Journal of Operations Management, 28(5), 430–441.

    Article  Google Scholar 

  • Jiang, R. J., & Bansal, P. (2003). Seeing the need for ISO 14001. Journal of Management Studies, 40(4), 1047–1067.

    Article  Google Scholar 

  • Ketokivi, M., & Schroeder, R. (2004). Perceptual measures of performance: Fact or fiction? Journal of Operations Management, 22(3), 247–264.

    Article  Google Scholar 

  • King, A. A., & Lenox, M. J. (2000). Industry self-regulation without sanctions: The chemical industry’s responsible care program. Academy of Management Journal, 43(4), 698–716.

    Article  Google Scholar 

  • King, A. A., & Lenox, M. J. (2001). Does it really pay to be green? An empirical study of firm environmental and financial performance: An empirical study of firm environmental and financial performance. Journal of Industrial Ecology, 5(1), 105–116.

    Article  Google Scholar 

  • King, A. A., & Lenox, M. (2002). Exploring the locus of profitable pollution reduction. Management Science, 48(2), 289–299.

    Article  Google Scholar 

  • King, A. A., Lenox, M. J., & Terlaak, A. (2005). The strategic use of decentralized institutions: Exploring certification with the ISO 14001 management standard. Academy of Management Journal, 48(6), 1091–1106.

    Article  Google Scholar 

  • King, A. A., & Shaver, J. M. (2001). Are aliens green? Assessing foreign establishments’ environmental conduct in the United States. Strategic Management Journal, 22(11), 1069–1085.

    Article  Google Scholar 

  • Klassen, R. D., & McLaughlin, C. P. (1996). The impact of environmental management on firm performance. Management Science, 42, 1199–1214.

    Article  Google Scholar 

  • Klassen, R. D., & Whybark, D. C. (1999). The impact of environmental technologies on manufacturing performance. Academy of Management Journal, 42(6), 599–615.

    Article  Google Scholar 

  • Krut, R., & Gleckman, H. (1998). ISO 14001: A missed opportunity for sustainable global industrial development. London: Earthscan Publications.

    Google Scholar 

  • Lee, Y. C., Hu, J. L., & Ko, J. K. (2008). The effect of ISO certification on managerial efficiency and financial performance: An empirical study of manufacturing firms. International Journal of Management, 25(1), 166–174.

    Google Scholar 

  • Levinthal, D. A., & March, J. G. (1993). The myopia of learning. Strategic Management Journal, 14, 95–112.

    Article  Google Scholar 

  • Lie, E. (2001). Detecting abnormal operating performance: Revisited. Financial Management, 30(2), 77–91.

    Article  Google Scholar 

  • Matusik, S. F., & Hill, C. W. L. (1998). The utilization of contingent work, knowledge creation, and competitive advantage. Academy of Management Review, 23(4), 680–697.

    Article  Google Scholar 

  • McMillan, G. S. (1996). Corporate social investments: Do they pay? Journal of Business Ethics, 15(3), 309–314.

    Article  Google Scholar 

  • Melnyk, S. A., Sroufe, R. P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21(3), 329–351.

    Article  Google Scholar 

  • Montabon, F., Melnyk, S. A., Sroufe, R., & Calantone, R. J. (2000). ISO 14000: Assessing its perceived impact on corporate performance. Journal of Supply Chain Management, 36(2), 4–16.

    Article  Google Scholar 

  • Naveh, E., & Marcus, A. (2005). Achieving competitive advantage through implementing a replicable management standard: Installing and using ISO 9000. Journal of Operations Management, 24(1), 1–26.

    Article  Google Scholar 

  • Orsato, R. J. (2006). Competitive environmental strategies: When does it pay to be green? California Management Review, 48(2), 127–143.

    Article  Google Scholar 

  • Paulraj, A., & de Jong, P. (2011). The effect of ISO 14001 certification announcements on stock performance. International Journal of Operations and Production Management, 31(7), 765–788.

    Article  Google Scholar 

  • Rao, S. M., & Hamilton, J. B. (1996). The effect of published reports of unethical conduct on stock prices. Journal of Business Ethics, 15(12), 1321–1330.

    Article  Google Scholar 

  • Rothenberg, S., Pil, F. K., & Maxwell, J. (2001). Lean, green, and the quest for superior environmental performance. Production and Operations Management, 10(3), 228–243.

    Article  Google Scholar 

  • Russo, M. V. (2009). Explaining the impact of ISO 14001 on emission performance: A dynamic capabilities perspective on process and learning. Business Strategy and the Environment, 18(5), 307–319.

    Article  Google Scholar 

  • Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534–559.

    Article  Google Scholar 

  • Russo, M. V., & Harrison, N. S. (2005). Organizational design and environmental performance: Clues from the electronics industry. Academy of Management Journal, 48(4), 582–593.

    Article  Google Scholar 

  • Sharma, S., & Vredenburg, H. (1998). Proactive corporate environmental strategy and the development of competitively valuable organizational capabilities. Strategic Management Journal, 19(8), 729–753.

    Article  Google Scholar 

  • Sroufe, R. (2003). Effects of environmental management systems on environmental management practices and operations. Production and Operations Management, 12(3), 416–431.

    Article  Google Scholar 

  • Starik, M., & Rands, G. P. (1995). Weaving an integrated web: Multilevel and multisystem perspectives of ecologically sustainable organizations. Academy of Management Review, 20(4), 908–935.

    Google Scholar 

  • Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

    Article  Google Scholar 

  • Verkataraman, S., & Ramanujam, V. (1986). Measurement of business performance in strategy research: A comparison of approaches. Academy of Management Review, 11(4), 801–814.

    Google Scholar 

  • Wai, A., & Cheung, K. (2011). Do stock investors value corporate sustainability? Evidence from an event study. Journal of Business Ethics, 99(2), 145–165.

    Article  Google Scholar 

  • Zhao, J. (2006). The effect of the ISO-14001 environmental management system on corporate financial performance. Unpublished dissertation.

  • Zollo, M., & Winter, S. G. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13, 339–351.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Accounting and Finance, Coggin College of Business, University of North Florida, 1 UNF Drive, Jacksonville, FL, 32224, USA

    Pieter de Jong

  2. Department of Entrepreneurship and Relationship Management, University of Southern Denmark, Engstien 1, 6000, Kolding, Denmark

    Antony Paulraj

  3. Louvain School of Management, CORE, Université Catholique de Louvain, 34 Voie du Roman Pays, 1348, Louvain-la-Neuve, Belgium

    Constantin Blome

Authors
  1. Pieter de Jong
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Antony Paulraj
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Constantin Blome
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Constantin Blome.

Rights and permissions

Reprints and permissions

About this article

Cite this article

de Jong, P., Paulraj, A. & Blome, C. The Financial Impact of ISO 14001 Certification: Top-Line, Bottom-Line, or Both?. J Bus Ethics 119, 131–149 (2014). https://doi.org/10.1007/s10551-012-1604-z

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1604-z

Keywords

Search

Navigation