Environmental management practices: good or bad news for innovations delivering environmental benefits? The moderating effect of market characteristics

Abstract

We examine empirically whether environmental management practices (EMPs) (environmental audits, ISO 14001 standard, etc.) promote (or not) additional innovations delivering environmental benefits. Using a large sample of French firms (N=4114) and simultaneous equations model (SEM), we found that EMPs positively influence the decision of firms to introduce innovations delivering environmental benefits, but this positive relationship is moderated by market characteristics. The findings indicate that EMPs promote such environmental-related innovations when the market of the main activity of the firm is growing. However, when the market is uncertain or competitive, this relationship turns out to be negative.

Keywords:

• environmental management
• innovations
• environmental benefits
• moderation effect

JEL Classification:

• Q50
• O31
• L22

Acknowledgements

The authors are grateful to two anonymous reviewers for their comments and suggestions that helped them to improve the manuscript. They also gratefully acknowledge the financial support for this work from the AFNOR Performance des Organisations endowment in collaboration with the Paris-Dauphine Foundation.

Notes

1. A larger theoretical and empirical literature is devoted to the drivers of environmental innovations broadly defined (e.g. Rennings 2000; Brunnermeier and Cohen 2003; Yalabik and Fairchild 2011; Horbach et al. 2012), but we focus here on the studies exploring the relationship between EMPs and environmental innovation.

2. These small accomplishments should not be lowered, notably because they promote awareness around environmental issues in their daily business operations. Even if improving environmental performance was not the first motivation of many certified organizations, after some cycles, things change. They start seeing the value of going through this process, they really embrace it, and the environmental management system becomes an essential component of that organization's management practices (Mil-Homens 2011).

3. More details about the design and scope of these surveys are available on www.enquetecoi.net (Survey COI-TIC 2006-INSEE-CEE/Treatments CEE), http://www.insee.fr/fr/methodes/default.asp?page=sources/sou-enq-communaut-innovation-cis.htm, and http://www.insee.fr/fr/methodes/default.asp?page=definitions/enquete-annuelle-entreprises.htm.

4. In France, the SIREN code is unique for each firm and does not change over time. It is available in the three used datasets.

5. The count structure implies a logical ordering, e.g. having two environmental benefits is better than having only one, but this figure depends on the firm's objective. For example, a firm may consider that having a reduction of CO₂ emissions is better than having two other environmental benefits. We thank an anonymous reviewer for pointing out this issue.

6. The ISO Survey of Certifications 2007 (17th Cycle).

7. Further details on this Stata module can be found in Roodman (2009).

8. In order to show how the results change by controlling for endogeneity, we also run a Tobit regression and provide the estimation results where EMP, EMP_GROWTH, EMP_UNCERTAINTY, and EMP_COMPETITION are all treated as exogenous variables (Appendix 2). Findings are quite different from those obtained using the SEM model.

9. Rather than leading to environment-related innovations, organizational and technological innovations are eventually complements. This simultaneity is anyhow acknowledged in various parts of the paper.