Deciding on ISO 14001: Economics, Institutions, and...

long range planning

Long Range Planning 35 (2002) 269-290 www.lrpjournal.com

Deciding on ISO 14001:Economics, Institutions, andContext

Pratima Bansal and William C. Bogner

ISO 14001 is an international standard for environmental management systems thatwas introduced in September 1996. It has gained wide recognition among businesses,much like its sister standard on quality management systems, ISO 9000. As a result,managers in almost every organization will evaluate whether the organization shouldbecome ISO 14001 certified. However, most analyses of ISO 14001 intended to guidemanagers in their evaluation have focused on the merits of ISO 14001, such asimproved competitiveness, management control, and regulatory compliance. Very fewarticles provide a balanced picture of the costs and benefits of ISO 14001—includingthe conditions under which adoption will be most effective. This article redresses thisgap by providing an analysis of not only why firms may choose to certify based oneconomic and institutional considerations, but also, when certification might beappropriate based on the firm’s context. �c Published by 2002 Elsevier Science Ltd.

In 1998, the Jutras division of Meridian Magnesium Inc., whichmanufactures magnesium automotive parts, reported that itsaved almost $2 million soon after its $45,000 investment on anISO 14001 certified environmental management system (EMS).1

The company reduced its use of electricity, natural gas, and lubri-cants, while producing less solid waste and contaminated water.These were not just one-time savings: they were expected to con-tinue into perpetuity. Not all their ISO 14001 projects were win-ners, however. Jutras implemented ten projects for their EMS inthe first year with an initial goal of saving over $460,000 in costs.Four of the projects did not result in any savings and one haddisappointing but positive results. The remaining projects, how-ever, provided larger than expected returns. The cost savings

0024-6301/02/$ - see front matter �c 2002 Published by Elsevier Science Ltd.PII: S 0 0 2 4 - 6 3 0 1 (0 2 ) 0 0 0 4 6 - 8

Pratima (Tima) Bansal is an

assistant professor and

Shurniak Professor of

International Business in the

General Management area

group of the Richard Ivey

School of Business at the

University of Western Ontario

(Canada). Her research is

primarily in the area of

corporate sustainable

development and international

business. Her research has

been published in a book

titled Business and the Natural

Environment, the Academy of

Management Journal, Academy

of Management Executive, The

Independent, and the Ivey

Business Journal. She received

her doctorate from the

University of Oxford.

William C. Bogner is an

Associate Professor of

management at the J. Mack

Robinson College of Business

and Georgia State University in

Atlanta, Georgia (USA). His

research and teaching interests

are in the fields of strategic

management and international

business. He is the author of

Drugs to Market and numerous

articles on competition in the

global pharmaceutical industry.

Professor Bogner holds J.D.

and Ph. D. degrees from the

University of Illinois.

Deciding on ISO 14001270

increased the competitiveness of a firm that prides itself on beingthe low cost leader in an increasingly competitive automotiveparts industry. The benefits to the environment were a bonus.And there was yet another bonus from ISO 14001 that had notbeen anticipated: the preference for ISO certified suppliers by itskey customers, Ford and General Motors, and the social legit-imacy earned from stakeholders pressuring for greener businesspractices. The company now posts its ISO 14001 certification onits web site as one of its main achievements.

Although this type of vignette presents ISO 14001 in a positivelight, not all firms have embraced the standard with enthusiasm.While over 22,000 facilities in 98 countries were ISO 14001 certi-fied by December 31, 2000, many firms had decided to delaycertification or reject it altogether.2 The significant financialrewards realized by the Jutras Division of Meridian Magnesiumhave not been perceived by many of its peers, even though mostanalyses of ISO 14001 attempt to convince the reader that sucha system is of significant strategic importance and a panacea ofopportunity. Writers typically tout the potential for lower costs,increased competitiveness, market share growth, higher profits,and regulatory compliance, such as those experienced by Merid-ian Magnesium.3

The costs of ISO 14001, however, are not trivial. Managersneed to undertake a careful analysis of the relevance of ISO 14001to their firm before they decide to jump on the ISO 14001 band-wagon. While managers can estimate the direct costs of certifi-cation with the help of good internal cost accounting, evaluatingthe intangible costs and benefits and the indirect impacts on thefirm’s performance is more difficult. In this article, we providebackground perspectives and evaluation criteria for those aspectsof ISO 14001 certification, looking specifically at the marginalbenefit of ISO 14001 certification over an in-house EMS. Thisarticle, then, identifies why firms may certify and in which con-texts, based on economic and institutional considerations.Armed with relevant decision-making criteria, we present man-agers with an analytical tool to assist them in determining if ISO14001 is appropriate for their firm.

The insights provided here build on three studies:

1 an investigation of the motivations of environmental respon-siveness by interviewing members of 53 firms in the UKand Japan;4

2 an investigation of the factors that influence the adoption ofISO 14001 based on a statistical analysis of 46 matched pairsof certified and non-certified firms and interviews with mem-bers of six firms in the US;5 and

3 an investigation of the contexts that explain adoption basedon interviews with 16 pulp and paper companies in Canada.6

Details of these studies are provided in text boxes later in thispaper. While these studies form the foundation of this paper,many of the anecdotes provided here are based on published

sources because the interviewees were promised complete confi-dentiality.

What is ISO 14001?The International Organization for Standardization (ISO)developed the ISO 14000 series of standards based on the needexpressed at the United Nations Conference on Environment andDevelopment (UNCED) in Rio de Janeiro in 1992 for improvedenvironmental quality. The Geneva-based ISO had achieved con-siderable success in motivating organizations to systematicallyaddress and improve product and service quality with the ISO9000 series of standards. The UNCED envisioned a similar setof voluntary standards to encourage the systematic improvementof environmental quality. In September 1996 the first of the ISO14000 series of standards, ISO 14001, was issued.

ISO 14001 sets the criteria for an environmental managementsystem (EMS). An EMS dictates requirements for the organiza-tion’s structure, responsibilities, practices, procedures, processesand resources, so that responsible corporate environmental man-agement is institutionalized in the organization. Currently thereare several certifiable EMSs, including a British standard (BS7750), European standard (EMAS), a worldwide standard (ISO14001), and several industry specific standards such as Respon-sible Care designed by the American Chemistry Council. ISO14001 has the widest geographical and industry coverage of anyEMS certification system. Generally, the wider the application ofthe standard, the more flexible and less stringent its require-ments. For example, EMAS requires that the environmental pol-icy and programs be made public, whereas ISO 14001 onlyrequires disclosure of the firm’s environmental policy.

A firm has a number of choices as it approaches the ISO 14001decision: it may choose to certify its EMS through an inde-pendent agent; it may choose to self-declare its adherence to ISO14001; or, it may pick and choose only certain elements of anISO 14001 EMS. In this paper we focus on firms that have beenISO 14001 certified by an accredited registrar. Like many ISOstandards, ISO 14001 is voluntary—there are no legal require-ments to certify. Also, ISO 14001 does not set performance stan-dards. Instead, ISO 14001 focuses on management processesrather than specific environmental outcomes. If the firm meetsthe management system requirements dictated by the standard,then it can register its conformance with a third party. Eitherthe entire organization or specific facilities, such as manufactur-ing plants or operating facilities, can be certified.

An ISO 14001 certification is based on the principles of contin-ual improvement: scope, plan, implement, check, and correct.The first step in setting up such a system requires that a firmidentify all its “environmental aspects,” which are defined asinteractions between the firm and the environment, and the per-tinent environmental regulations. The firm must inventory allthe products and processes that interface with the natural

Long Range Planning, vol 35 2002 271

the wider the

application of the

standard, the less

stringent its

requirements.

% a ‘win–win’

situation for firms

and the environment

% good ecology is

good economy


environment. In the second major step, the firm develops a planto mitigate its “environmental impacts,” which are defined aschanges that occur because of the environmental aspects. Thisrequires that the firm develop an environmental policy, set goalsand targets, delegate responsibility for handling the environmen-tal management system, set up documentation processes, andchange its organizational structures and systems so that the pol-icy can be enforced and the goals and targets met. The third steprequires that the firm implement its policy and work towards itsgoals and objectives. That means that the EMS must be com-municated, employees trained and empowered, and proceduresdocumented. Once completed, the firm’s actual environmentalimpacts must be identified and any nonconformance with thegoals must be addressed. The fifth and final step requires thatthe firm assess the EMS through a management review processand make any changes deemed necessary. The firm now has anopportunity to re-evaluate its systems and structures, as well asits goals, objectives, and policy, thereby permitting continualimprovement.

Implementing an environmental managementsystem

The costs and benefits of an EMSA good EMS will do two things. First, it will allow the firm touncover ways in which the firm can reduce its environmentalimpacts while simultaneously reducing costs or increasing pro-ductivity. Second, it will coordinate the environmental activitiesof the firm to achieve greater organizational efficiency and effec-tiveness.

The tradeoffs faced in implementing an EMS have been dis-cussed widely. Elements of an effective EMS are likely to lead tosource reductions, process intensification, and improved wastemanagement, all of which are directly related to lower costs. Pro-ponents argue that the reduction in such costs often exceeds thecosts of the EMS, leading to a ‘win–win’ situation for firms andthe environment. In these situations, good ecology is good econ-omy. Anecdotal evidence is often cited where a project or processreturned many times its cost while reducing adverse environ-mental impacts.7 For example, large firms with systems that longpre-date ISO 14001 include 3M and Dow. 3M claims that its4,700-plus projects have reduced 807,000 tons of pollutants andcut costs by $827 million, since it launched the program in 1975.Dow estimates that, in its home state of Michigan, the $3.1million invested in its source reduction initiative are producing$5.4 million in savings annually thus far.8

However, such numbers can be criticized as naı̈ve for fourreasons. First, the costs and benefits of a firm’s total environmen-tal effort are seldom aggregated. Thus, isolated projects such asDow’s source reduction initiative may be successful while thewhole scheme may not be. Second, pointing to “win–win” out-

comes does not explain to a manager how the systems and struc-tures should be constructed to produce these results on an ongo-ing and comprehensive basis. It is one thing to capture the low-hanging fruit once; it is something quite different to producesimilar net results year after year. Third, the scope of the environ-mental impact for a given product or plant is often greater andmore subtle than just the pollutants or waste created. When mea-sured against a tougher standard of total environmental impacts,the gains may be more difficult to identify and may not be asimpressive.9 Fourth, engaging in a comprehensive environmentalmanagement system will inevitably expose environmental risks.Unless the firm is able to afford ‘cleaning up’, an EMS may createfinancial difficulties rather than reducing them. Thus, there hasbeen more emphasis recently on the one-time cost savings fromenvironmental management and less on the value of the on-going internal systems that are developed through environmentalmanagement and the rewards from being responsive to exter-nal agents.

Realistically, firms may find that many environmental projects,like other capital investments, do not return the projected gains.A good EMS will, however, produce projects that can makestrong gains if sustained, such as continuing source reductionsavings. And although managers may not like the fact that theirEMS shows their firm’s environmental impact to be larger thanthey anticipated, a good EMS that regularly identifies new areaswhere impacts had not been considered in the past can be valu-able in alerting management to potential liabilities.

Changes in business processesIn addition to potentially gaining cost savings along with itsenvironmental initiatives, an effective EMS allows firms to inte-grate environmental management into their overall managementsystems. A firm attempts not only to meet regulations, but alsoto develop targets and goals that will help it achieve ongoingimprovements. Goals are often expressed as percentage improve-ments over previous levels, such as a 1% reduction in energyusage per year, rather than as fixed levels of toxic emissions. Incontrast, firms that merely comply with existing regulations oftenfail to take into account recent changes in scientific knowledge,technological sophistication, or production economics on anongoing basis. Thus these firms are under the constant risk ofhaving to make radical changes in their processes quickly if theregulations change significantly. Generally, a better way torespond to changing knowledge and technology is to retain goalflexibility and to have systems in place that can adapt continually.

An EMS also takes firms away from the hit-and-miss one-offapproach to managing their environmental events. An effectivesystem requires that resources be coordinated where they willhave the greatest impact and new knowledge can be spread acrossunits. It is the imposition of such a structured system throughoutthe firm that often drives many of the opportunities to increasecost savings. When the EMS is part of an industry-wide effort


An EMS also takes

firms away from the

hit-and-miss one-off

approach to

managing their

environmental events


such as Responsible Care or a broader standard such as ISO14001, employees may be more willing to accept the additionalefforts required of them as these will be perceived as externallyimposed conditions that cannot be resisted easily.

The cost savings and administrative benefits tradeoffs dis-cussed here can be gained from an EMS without receiving ISO14001 certification. Managers considering an EMS, as well asthose that already have one in place, have to evaluate the mar-ginal benefits of making their system compliant with ISO 14001and seeking certification. Clearly, ISO 14001 certification has toprovide benefits beyond those mentioned here and those benefitshave to be significant enough to justify the marginal costsinvolved. Prior research, outlined in the textbox titled ResearchBackground Note #1, identifies two major reasons why firms arelikely to respond to ecological initiatives, the insights from whichcan be applied to ISO 14001.

The economic implications of ISO 14001Certifying an EMS for ISO 14001 is neither easy nor cheap. Interms of time, for example, the Niagara Mohawk Power Stationspent six person-months developing its EMS and another 700hours preparing for certification.10 Estimates of the financial costof certification vary widely based on the size of the facility, theamount of preparation needed to implement an EMS, andwhether the firm had previously adopted the sister standard, ISO9000. Smaller, stand-alone sites may be certified for as little asUS$10,000, while a large industrial site may cost as much asUS$200,000. However, there are significant economies of scaleas subsequent sites within the same firm seek certification. Witheach effort, learning and certification costs diminish.11

In addition to the costs of certification, firms must factor inthe annual costs of maintaining the documentation. While theadministrative burden is not nearly as onerous as with ISO 9000,it must be acknowledged. The Global Environmental TechnologyFoundation has estimated the costs of auditing and paper work

Research Background Note #1Research context: This study developed a model that explains corporate ecological responsivenessby identifying motivations for adopting ecological initiatives.Data sources: In-depth interviews were conducted, archival documents were collected and obser-vations made from 1993–1995. In total, data from 53 companies in the UK and Japan in multipleindustries were collected. Analytical induction was used to develop a model of ecological responsive-ness.Key findings: The data revealed the importance of economic and institutional factors in influencingecological responsiveness. The study also showed that organizational field and issue characteristicsmoderated these factors.Citation: P. Bansal and K. Roth, Why companies go green: a model of ecological responsiveness, Acad-emy of management Journal 43(4), 717–736 (2000).

to be US$5,000 to US$10,000 annually per facility.12 Firms withISO 9000 systems in place will find that the auditing requiredby both standards for both certification and maintenance canbe combined.

What are the direct economic benefits managers can expect togain from this certification? Because EMSs help reap the organi-zational efficiencies gained from responsible environmental man-agement, ISO 14001 primarily provides the marginal benefit ofcertification. One clear benefit, then, is the ability to sell to cus-tomers that are going to require ISO 14001 certification. IBM,Xerox, Honda, Toyota, Bristol-Myers Squibb and Quebec Hydrohave encouraged their suppliers to be ISO 14001 certified. FordMotor Company and General Motors have taken larger steps inthis direction. On September 9, 1999, the purchasing division ofFord announced that all their production and non-productionsuppliers worldwide should be ISO 14001 certified by 2003.13

Within two weeks, General Motors followed with a similarannouncement. The suppliers to these firms will have little choiceif ISO 14001 becomes a de facto requirement for selling in anyvalue chain that ends with these firms. When such requirementsare imposed, the lack of certification, no matter how effectivethe EMS, may cost an upstream firm some important customers.

Not all types of customer pressures are equal. Business cus-tomers may exert coercive pressure for ISO 14001, such as thatimposed by Ford and GM, so that their decision to purchasefrom upstream suppliers will be influenced by ISO 14001 certifi-cation. These business customers have significant economicinfluence over their suppliers. End consumers, however, oftenhave less economic power so they are unlikely to withhold pur-chases just because the firm does not have ISO 14001 certifi-cation. For example, an individual looking to buy a computerhas relatively little economic power when s/he switches from onecomputer manufacturer to another because of ISO 14001 certifi-cation. If IBM chose a different supplier of monitors because ofISO 14001 certification, the economic impact on the monitorsupplier could be significant. By responding to these pressures,a firm can enhance profits and potentially build a competitiveadvantage. The most likely pressures for certification from aneconomic perspective are summarized in Table 1.

Table 1. Checklist of economic pressures to certify for ISO 14001

✓ Our firm is often behind rivals in being certified.✓ Our customers are asking about ISO 14001 certification. They are

showing a serious interest in whether we have it or are going to

pursue it.✓ Some members of our customer’s industry or other down-stream

industries have begun requiring suppliers to be ISO 14001 certified.

✓ Other firms in our industry with whom we compete are ISO 14001certified and they let customers know it.


% the lack of

certification may cost

an upstream firm

some important

customers

While the economic

pressure from end

consumers may be

relatively small, their

institutional clout

may be significant


Institutional pressures for ISO 14001Institutions are the “structures and activities that provide stabilityand meaning to social behavior.”14 Coming in the form of lawsimposed by government and in the social norms or individualvalues that have developed over time, they are particularlyimportant when there is considerable uncertainty, as withenvironmental performance metrics.

Many managers think primarily of the government and regu-lations when thinking about the institutions related to ISO14001. There is, however, a broader conceptualization of insti-tutions, of which government regulations are only a part. Outsideindividuals and groups impose norms of operating that definewhich business activities are deemed to be acceptable. To theextent that firms conform to institutional demands, they developbetter stakeholder relationships. These stakeholders support thefirm (or at least restrain their opposition), which in turn lessensthe uncertainty surrounding certain events. Unlike economicbenefits that enhance firm performance, conforming to insti-tutional pressures helps protect firm performance by bestowingsocial legitimacy on the firm.

If a firm frequently fails to comply with institutional pressures,then it is subject to greater scrutiny. Employees may not putforward best efforts; customers may purchase elsewhere; the localcommunity may resist corporate presence or expansion; andgovernments may exercise more regulatory oversight. A minorenvironmental incursion can result in a major stakeholder reac-tion. Operating against institutional norms can reduce access toresources, result in the loss of firm revenues and legal sanctions,and ultimately may even threaten firm survival.

One way to conform to institutional pressures is to associatethe firm with acceptable signals. In respect to the naturalenvironment, this can be done by associating with environmentalinterest groups, by applying eco-labels to products such asEnergy Star, or by conforming to widely accepted standards suchas ISO 14001. The ISO 14001 standard signals conformance toa wide range of stakeholders because it is not specific to a countryor to an industry, it is endorsed by an external agency, andrequires levels of documentation that provide further credibilityto the standard. ISO 14001 certificate holders must maintain sys-tematic documentation of a firm’s environmental aspects, of theactions it has taken to reduce and improve on past performance,and of its compliance with local environmental laws and regu-lations. While the firm does not have to disclose this docu-mentation, the fact that it exists will satisfy some stakeholders.

Conforming to institutional pressures delivers a number ofbenefits that do not show up clearly on the income statement.First, it helps to build trust and long-term relationships withstakeholders. For example, when a firm is looking to expand itsfacility, the local community is more likely to endorse such anexpansion plan if the firm has acted responsibly in the past andshows that it will continue to do so in the future with ISO14001 certification.

Second, watchdog agencies and interest groups, such as theUS Environmental Protection Agency and GreenPeace, may bemore accommodating in the event of an environmental incident.Given that watchdog agencies have limited resources, they preferto focus their efforts on those firms that have not historicallyshown due diligence. ISO 14001 will put in place the monitoring,compliance, and continual improvement that help to deflect thescrutiny and interest of these organizations. A summary of theinstitutional pressures for ISO 14001 certification are providedin Table 2.

Developing organizational imageISO 14001 certification can help to enhance the firm’s image. Anorganization’s image is the cumulative assessments of the firmby its stakeholders over time. If the firm conforms to stakeholderexpectations, it builds legitimacy. As we indicated earlier, thishelps to build stronger relationships and trust with its stake-holders, and in doing so, can assist the organization in the faceof adverse economic or political conditions. Bansal and Clellandfound that firms perceived as more ‘legitimate’ generally experi-ence less unsystematic market risk over an extended period.15

If the firm exceeds stakeholder expectations, it can enhanceits reputation and gain a competitive advantage, thereby securinghigher financial returns than its competitors. In building legit-imacy, firms merely need to engage in the same behaviors astheir competitors. To build reputation, firms must differentiatethemselves from their competitors. With ISO 14001, firms havethe opportunity to do both. Conforming to expectations withISO 14001 certification helps establish legitimacy, while initiatingnew actions as part of continual improvement, such as reportingtheir environmental impacts and engage in stakeholder dialogue,can build reputation.

The extent to which firms will benefit from either legitimacyor reputation enhancement after ISO certification is not uniform.

Table 2. Checklist of institutional pressures to certify for ISO 14001

✓ Our industry receives a high level of scrutiny from groups andindividuals concerned about the natural environment.

✓ Members of our industry have sought to establish environmental

standards in the past as a way of increasing social legitimacy withexternal individuals and groups.

✓ There is a real potential that concerns about the natural environment

raised by external individuals and groups may result in increasedregulation of our firm.

✓ Individuals and groups that are concerned about the natural

environment usually consider our industry/firm as a target for theirpolitical action.

✓ Other firms in our industry are achieving ISO 14001 certification,

which may lead to external individuals and groups to questioningwhy we have not.


To build reputations,

firms must

differentiate

themselves from their

competitors


Just as with economic considerations the context in which thefirm operates will determine the extent to which ISO 14001 willmeaningfully benefit the firm.

The relevant contextsFrom prior research (see Research Background Notes #1 and #2),it was possible to discern the contexts that encourage and rewardISO 14001 certification. While the costs for ISO 14001 are veryreal, the economic and institutional benefits are often long term,diffused, and sometimes invisible. Further, the benefits accruenot only from improved performance but also from avoidingdamaging impacts. In looking more broadly at firms’ willingnessto undertake environmental efforts voluntarily, Reinhardt pointsout that, “[i]nstead of asking whether it pays to be green, weought to be asking about the circumstances under which it mightpay”.16 As we sought to identify motivations of adoption of ISO14001, our analysis identified four major “contexts” in which theeconomic and institutional benefits would be more salient andtip the balance towards seeking certification. Although there issome overlap among the four contexts, the greater the numberof contexts relevant to the firm, the greater the number of asso-ciated benefits that will accrue from ISO 14001 certification.

Coming cleanThe environmental impacts of some industries are often per-ceived to be worse than those of other industries. Operating inor working with firms in these industries creates the first contextin which the economic and institutional benefits are heightened.For example, stakeholder groups carefully scrutinize the activitiesof firms in the mining, forestry, and chemical industries. Firms

Research Background Note #2Research context: Given that there was early evidence to suggest that firms were not subscribing toISO 14001, this study aimed to uncover the reasons why firms certified.Data sources: Interviews were conducted with two auto manufacturers, two electronics companies,and a manufacturer of commercial imaging products. Quantitative data were also collected from 46certified companies and their non-certified matched pairs. Data on the firm’s industry, size, and financialdata were collected. As well, information from Compustat, news reports, annual reports, and public andcompany web sites were collected. Differences in approach to quality management and corporate andsocial responsibility, prior environmental reputation, international scope, size, and financial statisticswere analyzed.Key findings: Certified firms were found to be larger and have higher export sales than non-certifiedfirms. There were no differences in commitment to quality and social responsibility, but certified firmshad a better environmental reputation prior to certification and were more international than non-certified firms. There were no differences in financial performance. Managers of non-certified firms feltthere was little marginal value in ISO 14001 and other environmental management systems.Citation: P. Bansal, The corporate challenges of sustainable development, Academy of ManagementExecutive, forthcoming.

in these industries have long recognized the need to be proactivein managing institutional pressures. Further, these firms face realeconomic threats if customers and shareholders pull back sup-port for their firm because of the firm’s visible environmentalimpacts. The disposal of the Brent Spar in the North Sea resultedin considerable public scrutiny as GreenPeace launched a verywell publicized campaign against Royal Dutch Shell. Even thoughthe actual environmental impact of Shell’s proposed plan to dis-pose of the oil platform was considered by some experts to bepreferable to the method proposed by GreenPeace, consumersthroughout Europe boycotted Shell gasoline. Although firms in‘dirty industries’ are never likely to fully escape the scrutiny ofspecial interest groups regardless of how well they perform, ISO14001 certification may help in their efforts to deflect some ofthe negative scrutiny.

Because of the heavy exposure of these industries, some busi-ness customers are also likely to make certification demands onsuppliers. These are firms that will not want to be perceived asoutsourcing their environmentally sensitive activities to otherfirms that may have less regard for the natural environment. Notsurprisingly, auto manufacturers are pushing for supplier certi-fication, in part, because the auto industry has been a majorfocus of environmental groups. Proactive suppliers are beginningto anticipate such requirements. For example, prior to theannouncements by Ford and General Motors, Elf Atochem certi-fied their specialty chemical plant in Kentucky that serves theauto industry for just this reason.17 With a wide range of compo-nents being supplied by firms large and small, ISO 14001becomes a one-size-fits-all requirement that business customerscan point to when showing that they are not avoiding the burdenof their environmental irresponsibility. Whether addressing suchviews is portrayed as high-minded “corporate responsibility” oras self-serving “political correctness,” the reality is that suchforces are part of the business environment and those firms thatmanage them more effectively will have an advantage over thosethat do not. And once again, the fact that this is a requirementbeing imposed by customers may actually make it easier for man-agement to gain employee cooperation in meeting the certifi-cation requirements.

Easing globalizationAs firms spread their operations and transactions across nationalborders they will also experience incentives for ISO 14001 certi-fication. Even though domestic standards and customers may notbe making demands, firms may discover that their internationalcustomers require ISO 14001 certification to ensure that thatenvironmental risks are minimal. For example, Bahia Sul Cellu-lose was the first firm to be ISO 14001 certified in Brazil and itdid so in anticipation of ISO 14001 certification being requiredby its European customers.18 Broad-based empirical support forsuch export-oriented incentives was found in a study of China-based businesses, both Chinese and foreign owned. Firms with


ISO 14001 has the

potential to provide a

standardized

environmental

passport for

exporter(s)


significant sales to foreign customers in developed countries weremore likely to be ISO 14001 certified than firms with primarilydomestic customers.19

The incentives for suppliers up the value chain to become ISOcompliant for major customers are to likely increase even morefor firms that export extensively. The concern that firms may beexporting environmentally unsound practices is magnified whenthe suppliers are outside the customer’s home country becauseof the difficulties in monitoring suppliers. ISO 14001 has thepotential to provide a standardized environmental passport forthe exporter regardless of their national location or industrymembership.

For large multinationals that are extensively globalized, ISO14001 may provide a systematic transnational approach to coord-inating various national environmental programs and regulationsand help the firm develop global capabilities.20 ISO 14001 simul-taneously requires responsiveness to local regulations at the plantsite while allowing for full firm wide integration. This approachpermits a high degree of standardization and coordination acrossnational borders of environmental efforts of the firm. Forexample, Ford Motor Company may have been able to achieveits goals without ISO 14001, but pursuing worldwide certificationhas provided a good system for coordinating their global efforts,and the company has moved quickly towards ISO 14001 in orderto be the first in the industry. Similarly, in late 1996, IBM decidedto certify its twenty-five global manufacturing and developmentoperations under one certificate rather than proceeding site-by-site. IBM considered it important to demonstrate respect for itshost country in order to maintain a long-term relationship andreduce their liability of foreignness.

It has been speculated that the host governments of developingcountries, such as Mexico, Brazil, China, and India, may requiresome form of environmental certification standard for foreigndirect investment in polluting industries.21 If governments makeISO 14001 a requirement for importing, then it may create abarrier to trade, particularly in respect to smaller firms.22 As ofnow it remains unclear how governments will react to ISO 14001.While international pressures are relevant to firms engaging inor intending to engage in foreign operations, there is little incen-tive for purely domestic firms to certify. It is not surprising thatEuropean and Japanese firms have more quickly embraced ISO14001 because of the larger international export focus of Euro-pean and Japanese firms relative to the US and Canada, whichare each others’ strongest trading partner.

Managing network relationshipsThe nature of a firm’s network of relationships also creates arelevant context. Firms develop relationships with other firmsthrough their business transactions, and those that have numer-ous linkages with customers, suppliers, and the local communityare more likely to realize benefits that accrue from ISO 14001.Firms that have numerous suppliers can control their security of

supply and protect their own reputation through ISO 14001. Forthose with numerous customers, such as in the retailing sectors,ISO 14001 provides credibility and trust among the many cus-tomers who interact with the firm. For example, Loblaws, a lead-ing food retailer in Canada, and B&Q, a leading home improve-ment retailer in the UK, have been proactive in their posturetowards ISO 14001. ISO 14001 can help to deflect scrutiny andcriticism if challenges to the firm’s environmental practices aremade, and these challenges will be more frequent because of thenumber of relationships in which the firm is involved.

These numerous relationships extend not only to firmsoperating in certain industries, but also firms operating in somecultures. For example, members of the Japanese consumer elec-tronics industry have strong relationships with stakeholders andcompetitors through a strong industry association. In contrast,the US trucking industry is very fragmented and firms feelneither external social pressure nor within-industry pressure toconform to an industry norm. It is not surprising, therefore, thatcountries with tight social relationships, such as in Japan, havehigher levels of acceptance of ISO 14001 when compared to veryindividualistic countries such as the US and Canada. Russo foundthat the presence of a Japanese parent was significant inexplaining the likelihood of ISO 14001 certification.23 The band-wagon effect that comes from pressures for conformity leadsfirms in similar industries to quickly adopt similar standardseven in the absence of direct requirements from customers ofgovernments.

Imitating competitorsAnother context that may give rise to ISO 14001 certification isone in which a number of other firms have certified to the stan-dard in the industry. Even in the absence of performance enhanc-ing pressures for conformity, firms will want to avoid the nega-tive inferences that could come from stakeholders as a result ofnot being certified. The widely understood ISO 14001 stamp ofapproval makes it difficult for a firm with an effective non-certi-fied EMS to show that they are as responsible as their competi-tors if most of their competitors are certified. Alternatively, ifthere are few firms that are certified within the industry, therewill be less incentive for a firm to be certified. Consequently,once the number of ISO 14001 certifications reaches a thresholdlevel, there is likely to be a rash of additional certifications. Russoalso found some support for this assertion: when controlling forfirm size and industry, he found that firms did indeed imitateeach other.24

Limitations of ISO 14001The impression may have been given that if a firm finds itselfin one or more of the contexts in which ISO 14001 will confereconomic and institutional benefits, then the firm can expect tobenefit from certification. There are, however, drawbacks to ISO14001 that may limit such benefits.


The bandwagon

effect leads (to) firms

quickly adopt(ing)

similar standards

even in the absense

of direct requirements

% once the number

of ISO 14001

certifications reaches

a threshold, there will

be a rash of

additional

certifications


Who registers the registrars?One of the proposed strengths of ISO 14001 is that it relies onorganizational outsiders to certify the facility. All registrars aresupposed to apply the same standard world wide, thus assuringthe international acceptability of the standard. Unfortunately theregistrar’s skills and integrity can differ considerably. Alreadyforeseeing this as a possible limit to the credibility of ISO 14001,accreditation agencies in many countries approve and monitorregistrars for effectiveness. For example, the Canadian Environ-mental Auditing Association has certified over 60 environmentalauditors.25 Until such practices are imposed and recognizedworldwide, the credibility of the standard can be compromised.

Process not performanceISO 14001 has been criticized because it requires firms only toput into place the systems or structures for monitoring environ-mental aspects and reducing environmental impacts. There is norequirement that environmental performance actually beimproved or that specific goals be met. In fact, a firm’s environ-mental performance could even deteriorate while the firm is cer-tified. Because ISO 14001 was developed so that one system fitsall companies in all industries in all countries, its requirementsare often criticized for being diluted. Indeed, the US EPA hasbeen reluctant to endorse the standard because it is not clearthat the standard has any influence on a firm’s environmentalperformance. Given that even relatively heavy polluters can becertified, the standard has been criticized for not setting a suf-ficiently high hurdle. The benefits that ISO 14001 confers willbe limited because it dictates requirements for management pro-cesses and not environmental performance.

Attracting versus deflecting scrutinyWhile ISO 14001 is intended to deflect scrutiny from outsiders,it may actually result in the opposite. Firms that are certifiedmay actually attract greater scrutiny because they are expectedto have a more complete paper trail of their environmentalimpacts and because they could be perceived as touting theirsuperior environmental performance. The Body Shop, forexample, attracted considerable attention in the mid-1990sbecause of the pro-environmental stance that it had taken. Ratherthan evaluating The Body Shop’s environmental accomplish-ments, environmental advocates pointed to the cracks in TheBody Shop’s environmental performance. Further, firms thathave hidden environmental misdemeanors may be reluctant toembark on the path towards certification because the standardwould require that they admit, at least internally, that past mis-takes were made; that a potentially expensive plan to clean upthe problem be developed; and may result in the firm beingexposed to greater scrutiny from external agencies if informationof these past incursions was leaked. Consequently, firms that aremost in need of certification may be least likely to seek it. Therewas evidence of this in a study that showed that firms with better

environmental reputations were more likely to certify for ISO14001.26

Prescriptions for action on ISO 14001These insights into the relevant context can provide some guid-ance when considering the specific decision, both as to whichtypes of firms are most likely to seek certification in general, andwhich criteria can help guide individual managers in makingtheir choice. Tables 1 and 2 offered checklists of the key econ-omic and institutional pressures that managers should considerwhen evaluating their certification decision. Table 3 takes thisprocess a stage further, to develop a systematic way in which toassess the pressures they confront.

Managers need to break each pressure into two parts. In thefirst part, managers should evaluate: how relevant is this pressurefor my firm? On a scale of 1 to 5, with five being the highest,the extent to which the item is actually likely to impact the firmshould be identified. In the second part, managers should evalu-ate: what is the relative importance of this pressure. Some press-ures may be likely, but their occurrence may not worry managerssignificantly. Conversely, a firm may be unlikely to face certainpressures, but if it did, the pressure would be very important.For this evaluation items are weighted from 0.0 to 1.0 with thecondition that the sum of the weights equal 1.0. That constraintforces managers to examine the relative importance of each

Table 3. Assessment of ISO 14001 pressure

Items from Checklists Relevance of Relative WeightedImpact (1–5) Importance of Impact

Impact (0.0–1.0)

Our industry receives a high level of scrutiny fromgroups and individuals concerned about the natural 4 0.2 0.80

environment.

Members of our industry have sought to establish

environmental standards in the past as a way of3 0.2 0.60

increasing social legitimacy with external individualsand groups.

There is a real potential that concerns about thenatural environment raised by external individuals and 5 0.3 1.50

groups may result in increased regulation of our firm.

Individuals and groups that are concerned about thenatural environment usually consider our industry/firm 4 0.25 1.00

as a target for their political action.

Other firms in our industry are achieving ISO 14001

certification, which may lead to external individuals 2 0.05 0.10

and groups to questioning why we have not.

TOTAL 1.0 4.00


% firms that are

most in need of

certification may be

least likely to seek it


pressure to their firm. An example of the outcome of such anevaluation for a hypothetical firm on institutional pressures isillustrated in Table 3.

In the example in Table 3, the management sees the threat ofincreased regulation as highly relevant to the firm, giving it aweight of 5. It was also judged to be of greatest importance,giving it a weight of .3. When those two assigned values are mul-tiplied and summed with the scores of the other items a totalweight is provided: in Table 3 that weight is 4.00. Clearly,depending on the relevance scores, a firm’s total can range froma low score of 1 to a high total of 5. The weights moderate theimportance of the concerns so that they are held in their pro-per balance.

Once both economic and institutional pressures are evaluatedusing this weighting scheme, the scores can be charted to showthe extent to which they translate into a need for firm action. Achart showing such a range of outcomes, along with some predic-tive conclusions, is found in Figure 1. The borders between theoutcomes are soft. Firms finding that their coordinates placethem at or near one of the boundary lines need to be particularlysensitive to the future. While a border-line position may indicatethat a firm has a choice of response, a small change in the firm’scompetitive environment or institutional pressures can move afirm to the right side of either line and into a position wherethe firm has greater incentive to act.

Generally, firms that experience few economic and insti-tutional pressures have little incentive to be certified. Even ifpressures mount in the future, their incentives to certify are likelyto remain small. As the pressures increase, so too does theurgency for certification. To get a sense of the urgency of ISO14001 certification, we can analyze a series of conditions basedon a ranking of either “high” or “low” along the two dimensions.The resulting categories provide archetypes against which man-agers can compare their firm.

Figure 1. ISO 14001 action matrix

Big and dirtyThe multi-national firm in an industry that is perceived as pollut-ing and has many supplier/buyer relationships will find itself inthe “act now” region in the upper left-hand corner of Figure 1.These firms will likely face extensive demands from customersfor ISO 14001 certification and these firms will find that certifi-cation has a major impact on their perceived legitimacy amongnon-customer stakeholders as well. Table 4 provides support byidentifying firms that had at least four US facilities certifiedwithin the first year of the standard being available. Most of thesefirms are widely recognized because of their size and the largesupplier network with which they are involved. In addition,many of these firms operate in industries that are high profiletargets for stakeholder action: such firms have long recognizedthe need to address both of these pressures with their existingEMS.

Further evidence of the type of firm found in the “act now”corner are seen in the study of forestry firms described inResearch Background Note #3. In that study woodland oper-ations were found to be more likely to be certified than con-verters. Woodland operations provide the raw materials, or for-estry products, for the processing operations, and converters takepaper and convert it into more easily handled units such as forwrap and packaging. The environmental impacts of woodlandoperations are more visible than converters and they are oftenowned by large multinationals: as such, they clearly fit in the‘Act Now’ region of Figure 1.

Lean, clean and unseenAt the other end of Figure 1 lies the “elective action” corner inthe lower right. Here we find firms like the local card shop and

Table 4. Number of US facilities certified per firm for firms with �4 certified facilities

Company Name Industry US Facilities Worldwide Employeesi

Certified

Lockheed Martin Defense 20 165,000

NIPSCO Industries Power Generation 15 6,035Lucent Technologies Telecom Equipment 12 141,600

Sony Corp Electronics 11 173,000Ford Motor Automobiles 6 345,172

Niagara Mohawk Power Power Generation 5 8,400

ST-Microelectronics Semiconductors 5 28,728Akzo Nobel Chemicals 4 68,900

IBM Computers 4 291,067

Philips Electronics Electronics 4 264,685Rockwell Defense 4 41,000

Sanyo Electric Electronics 4 67,887

i Provided by Disclosure Corporate Snapshots, Disclosure Inc., Bethesda, MD.


% the multi-national

firm in an industry

that is perceived as

polluting will find

itself in the “act now”

region %

% a firm’s

environmental

responsiveness may

only consist of a few

lines for its green-

oriented customers


restaurant. The economic benefits are few and the institutionalpressures low because the environmental impacts of the firm arerelatively invisible and the industry is often highly fragmented.It is difficult for firms in this region of Figure 1 to justify theexpense of ISO 14001 certification. These firms do not feel sig-nificant pressure from customers or external stakeholders. Thecard shop may carry products produced by the forestry industry,but the small size of the individual shops, the local orientationof the business, and the lack of clear linkages to the timber firmsat the other end of the value chain mean that a firm’s environ-mental responsiveness may only consist of carrying a few linesof cards that are printed on recycled paper for its green-ori-ented customers.

In the middleMost firms see either economic pressure or institutional press-ures. These firms in the middle are not confronting significanteconomic or institutional pressures, but could face significantpressures in the future. They are likely to be most impacted byISO 14001, as they are less likely to have an EMS in place, aswould the firms in the ‘act now’ region and yet they face moreintermittent pressures than the firms operating in the ‘electiveaction’ region. Firms in the middle are relative newcomers forwhich the potential strength of the pressures is unclear. Some ofthese firms need to monitor ISO 14001 and their pressuresclosely, while others just need to be prudently aware of the press-ures. A new relationship may bring with it significant pressure,when before there was none. In an example provided earlier, ElfAtochem became certified because it expected that its buyerswould eventually demand it. Auto parts manufacturers have beenparticularly impacted because of the announcement made byFord and GM for their major suppliers to have an acceptableEMS by 2003. Firms in this category may chose to certify earlyto avoid being caught off guard. Such a firm experiences fewinstitutional pressures but may quickly face a high economicneed to retain a customer. Or a firm may be in an industry

Research Background Note #3Research context: From prior research, few managers believed that ISO 14001 offered significantmarginal value over an in-house environmental management system. This project aimed to uncoverwhy there was a high propensity of firms in some industries to certify for ISO 14001.Data sources: Interviews of environmental managers in 16 Canadian pulp and paper companies.Key findings: Most respondents believed that ISO 14001 certification provided little, if any, additionalfunctional value to an in-house EMS except for external recognition, credibility, and procedural legit-imacy. Therefore, if firms did not feel any direct market demand or institutional pressure, they wouldprobably not bother to certify. However, if firms operated in industries where the activities were visibleand where the environmental impacts were difficult for outsiders to assess, they were more likely tobe ISO 14001 certified.Citation: R. Jiang and P. Bansal, Seeing the need for ISO 14001, Academy of Management Meeting,Washington, DC (2001).

in which its peers are jumping on the ISO 14001 certificationbandwagon and slowly and imperceptibly is experiencing decayin its image. Many manufacturing facilities of major electroniccompanies, for example, are ISO 14001 certified partly becauseof this bandwagon effect.

Here too we can apply the example provided earlier of theforestry industry by looking at the converters. These are less vis-ible than the woodland companies, are perceived by the publicto have fewer environmental impacts, and they operate in anindustry that is more fragmented relative to woodland oper-ations. On the other hand, some of their processing activitiesproduce significant environmental aspects and local communitiesare quite vigilant in monitoring this output. It is not surprising,then, that the propensity for converters to certify is less than thatof woodland operators but more than the card shop owner.While some converters did not have any pressure from any stake-holders and had not sought certification, others were workingtowards an ISO 14001 compatible EMS, and would seek certifi-cation only when the pressures escalate. While pressure for firmsin this region may be low now, the potential for higher pressurein the future remains. Other mid-range firms will experiencesimilar low but meaningful pressures. An occasional customeror interest group inquiry may be made that does suggest someconcern. But if no current customers are demanding certifi-cation, it is unlikely that ISO 14001 is becoming a norm in thedownstream industry, leading to requirements in the near term.Similarly, if stakeholders are not pressuring the firm and makingits operations difficult, then for any number of reasons the firmmay be operating below this group’s radar.

This middle segment can include some small firms in highlyfragmented industries. Dry cleaning firms, for example, do nothave powerful customers and are not perceived generally asheavy polluters. But dry cleaners must dispose solvents that areoften toxic and operate in a highly regulated industry. While theymay be small local business establishments like the card shops,they clearly fall into the middle range. Only by working throughthe exercise set out in Figure 1 and Table 3 can an accuratedetermination be made as to where an industry, or a segmentof an industry, will lie.

Approaching an ISO 14001 decisionThe ISO 14001 certification decision is not easy. Yes, ISO 14001certainly helps firms comply with regulations and controlenvironmental impacts, but these accrue through most EMSs.Given that the costs of ISO 14001 certification are real and thateconomic benefits are not always easy to see, it is often not clearif a firm should certify.

In this paper, we provided a tool for analyzing the importanceof ISO 14001. Responding quickly to economic pressures may


While pressure in this

region may be low,

the potential for

higher pressure in the

future remains

Responding quickly to

economic pressures

may offer competitive

advantages and

improve(d) profits

The authors would like to thankCharles Baden-Fuller and threeanonymous reviewers for theirinsightful comments. They wouldalso like to thank Trevor Hunterin reviewing previous drafts ofthis paper and the SocialSciences and Humanities Councilof Canada (SSHRC) for fundingpart of this study. The order ofauthorship is alphabetical andtheir contribution equal.


even offer the opportunity to gain competitive advantage andimprove profits. Responding quickly to institutional pressuresmay preserve strong stakeholder relationships that can assist thefirm in the future. In all of these cases, the extent of these threatsand opportunities depend on the firm’s context.

We started this discussion with an illustration of the enormousfinancial rewards realized by the Jutras Division of MeridianMagnesium Inc. It is not clear whether these rewards requiredISO 14001 certification. However, it is likely that pushingtowards certification forced employees and management to thinkabout the firm’s environmental impacts and keep pushingtowards refining their environmental management system. Inspite of all of the pressures listed here, the fact remains that ISO14001 is voluntary. Some firms in industries such as chemicalsand forestry, where pressure for some sort of EMS certificationmight be expected, may still not seek it, while others in industriesthat are under little pressure will be certified quickly. However,most firms will have to consider ISO 14001 within the next fewyears, and for many that will require a systematic evaluation ofthe dimensions highlighted in this article.

References1. M. Rowan, ‘Instant’ Payback on ISO 14001 Investment,

Plant, also available at www.plant.ca.2. ISO, The ISO Survey of ISO 9000 and ISO 14000 Certifi-

cates. ISO Tenth cycle (2000). Available at:http://www.iso.ch/iso/en/iso9000-14000/pdf/survey10thcycle.pdf. See also P. Bansal, Taking Stock of ISO 14001 Certifi-cations, Academy of Management Meeting, Toronto, Onta-rio (2000).

3. For example, “The ISO 14000 series has the potential to cre-ate dramatic improvements in corporate management thatextend far beyond the management of corporate environ-mental impacts. It can create significant improvements inorganizations through the opportunities for strategic learningand building capabilities in corporations that extend todiverse functions and facilities.” (M. J. Epstein and M-J. Roy,Using ISO 14000 for improved organizational learning andenvironmental management, Environmental Quality Manage-ment Autumn, 21 (1997). Other positive evaluations of ISO14001 include: S. Jackson, The ISO 14001 ImplementationGuide: Creating an Integrated Management System, Wiley,New York (1997); O. Boiral and J-M. Sala, Environmentalmanagement: should industry adopt ISO 14001? BusinessHorizons 41, 57–64 (1998); J. Cascio, G. Woodside and P.Mitchell, ISO 14000 Guide: The New International Environ-mental Management Standards, McGraw Hill, New York(1996).

4. P. Bansal and K. Roth, supra.

5. P. Bansal, The corporate challenges of sustainable develop-ment, Academy of Management Executive (forthcoming).

6. R. Jiang and P. Bansal, Seeing the need for ISO 14001, Acad-emy of Management Meeting, Washington, DC (2001).

7. N. Walley, and B. Whitehead. It’s not easy being green, Harv-ard Business Review May–June, 46–52 (1994).

8. More about Pollution Prevention Pays, 3M Worldwide,www.3m.com; Michigan Source Reduction Initiative, Tomor-row, April–March 2000, p. 4 (Dow Advertorial).

9. S. Hart, Beyond greening: strategies for a sustainable world,Harvard Business Review January–February, 66–76 (1997).

10. C. Kolarz, ISO 14001 Certification, Globenet, GlobalEnvironmental & Technology Foundation, 05/26/98,www.iso14000.net

11. A. P. Lally, ISO 14000 and environmental cost accounting:the gateway to the global market, Law and Policy in Inter-national Business 29, 501–538 (1998); R. V. Watkins, Buyinginto ISO 14001, Occupational Health & Safety 68(2), 52–54(1999).

12. GETF (1996) http://www.iso14000.net/empire/?subsystemID=1&ComponentID=16161.

13. Ford Becomes First U.S. Company to Require ISO 14001Certification from Supply Base, CEEM 1999, InternationalEnvironmental Systems Update, November 2, 1999, and atwww.iso14000.net.

14. W. R. Scott Institutions and Organizations in Sage, ThousandOaks, CA (1995).

15. P. Bansal and I. Clelland, The market risk of corporateenvironmental illegitimacy. Academy of Management BestPaper Proceedings (2000).

16. F. Reinhardt Environmental product differentiation: impli-cations for corporate strategy, California Management Review40(4), 43–73 (1998).

17. K. Sissell Certification: an essential element? Chemical Week160(36), 46 (1998).

18. C. W. Thurston Latin America finds Profit in ISO 14000,Chemical Market Reporte 253(7), 18 (1998).

19. P. Christmann and G. Taylor, Globalization and the environ-ment: determinants of firm self-regulation in China, Journalof International Business Studies, forthcoming.

20. A. M. Rugman and A. Verbeke, Corporate strategies andenvironmental regulations: an organizing framework, Stra-tegic Management Journal 19(4), 363–375 (1998).

21. R. Wilson, The developing world looks to ISO 14000 forhelp, Pollution Engineering 30(2), 37–38 (1998). T. L. Kamis,Greening the industrial process, China Business Review 24(3),24 (1997).

22. A. Zuckerman Using ISO 14000 as a trade barrier, Iron AgeNew Steel 15(3), 77 (1999).

23. M. V. Russo and N. S. Harrison, An empirical study of theimpact of ISO 14001 registration on emissions performance,


www.3m.com


paper presented at the 9th Greening of Industry Conference,Bangkok, Thailand (2000).

24. Russo and Harrison (2000) (see Reference 23).25. M. Rowen, ISO 14000 and Relentless Global Competition,

surpa.26. P. Bansal, Taking stock of ISO 14001 certifications, Academy

of Management Meeting, Toronto, Ontario (2000).

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