Advanced Natural Resources Stewardship and Environmental Advocacy

European Management Journal Vol. 20, No. 2, pp. 159–171, 2002  2002 Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain 0263-2373/02 $22.00 + 0.00PII: S0263-2373(02)00026-9

Adopting Corporate Environmental Management Systems: Motivations and Results of ISO 14001 and EMAS Certification DAVID MORROW, UBS Asset Management, Zurich DENNIS RONDINELLI, Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Multinational and domestic corporations around the world are adopting environmental management systems (EMS) and certifying them by international standards. ISO 14001 is becoming the dominant international standard for assessing environmental management processes and in Europe many firms are also registering their EMS according to the Eco- Management and Audit Scheme (EMAS). Yet, rela- tively few studies have explored the motivations of firms adopting and certifying EMS and even fewer have examined the results or impacts on the compa- nies that do so. The few empirical analyses and case studies that have been done on corporate EMS pro- vide insights into motivations and results primarily for large multinational corporations in the United States and Europe. We compare these findings with those of five in-depth case studies of smaller dom- estic energy and gas companies in Germany.  2002 Elsevier Science Ltd. All rights reserved.

Keywords: Environment, Environmental manage- ment, ISO 14001, EMAS, EMS, Energy, Gas

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 159

Introduction

The adoption of environmental management systems (EMS) as frameworks for integrating corporate environmental protection policies, programs, and practices is growing among both domestic and multi- national companies around the world. Many compa- nies that adopt an EMS follow industry standards, such as ‘Responsible Care’ in the chemicals sector, or international guidelines such as ISO 14001 or the European Eco-Management and Audit Scheme (EMAS).

The growth of EMS as a process for integrating cor- porate environmental policies and programs has been quite rapid over the past decade. The concept of external certification expanded with the introduc- tion of the British Standard 7750 in the early 1990s, followed by the development of EMAS in 1993, and the promulgation of the ISO 14000 series in 1996. By mid-2001 more than 30300 organizations worldwide had their EMS certified under ISO 14001 guidelines established by the International Organization for Standardization in Switzerland. In Europe, nearly 4000 companies have registered under EMAS guide-

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

lines (Peglau, 2001). Other companies are adopting major components of industry or international stan- dards for environmental management without for- mally certifying them. Eli Lilly (1999), the inter- national pharmaceutical company, for example, uses the ISO 14001 framework to allow each of its inter- national sites to develop an EMS and then decide if it should seek official certification.

Many multinational corporations have designed, cer- tified, and implemented environmental management systems under ISO 14001 because it provides a har- monized standard for managing a corporation’s environmental impacts (Tibor and Feldman, 1996). ISO 14001 is a set of guidelines by which a facility— a single plant or a whole organization—can establish or strengthen its environmental policy, identify environmental aspects of its operations, define environmental objectives and targets, implement a program to attain environmental performance goals, monitor and measure effectiveness, correct deficiencies and problems, and review its manage- ment systems to promote continuous improvement (Weaver, 1996).

An increasing number of multinational corporations (MNCs) have adopted and certified their EMS. The Ford Motor Company was one of the first MNCs to embrace ISO 14001 series guidelines for all of its manufacturing facilities. By 1998, Ford had certified all 140 of its manufacturing plants in 26 countries, and by 1999 it was requiring that all its suppliers and manufacturing facilities worldwide also adopt and certify an EMS as a condition for continuing to do business with Ford (Wilson, 2001). General Motors, Daimler-Chrysler, Toyota and other automobile manufacturers are also requiring all of their manufac- turing facilities around the world to adopt EMS and to certify them by international standards and encouraging and assisting their suppliers to do the same (Sabatini, 2000). In 1997, IBM (2000) received the first single worldwide ISO 14001 certification that covered corporate headquarters and 11 of its 28 plants that manufactured microelectronic technology, data storage systems, personal systems, servers and networking hardware. IBM certified the EMS of its 17 other sites in 1998 and added facilities in Thailand and Ireland in 1999. The Royal Dutch/Shell Group (2000) certified 90% of its major installations under ISO 14001 by 1999. Pharmaceutical company Bristol- Myers Squibb (2000) had 19 of its plants worldwide certified according to ISO 14001 standards by 2000 and now Bristol-Myers Squibb, Germany, informs hospitals how to implement ISO 14001-type environ- mental standards at their facilities. By 2000, more than 100 U.S. companies in the electronics and sem- iconductor industry had their EMS certified by ISO- 14001 registrars (Sissel, 2000).

As more corporations consider the possibilities of adopting an EMS and as they, government agencies, and environmental interest groups consider the

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 161

implications of doing so, several questions arise for which answers are only beginning to emerge. First, is an EMS only a management tool that only large multinational corporations have the resources and incentives to adopt or can smaller domestic firms also benefit from developing and certifying an EMS? Second, what motivates corporations—large or small, domestic or multinational—to adopt an EMS and vol- untarily comply with external standards for design- ing and implementing it? Third, do corporate motiv- ations for adopting EMS vary from country to country? And, fourth, what are the results of implementing an EMS and how are companies impacted by certification?

This article explores these questions by reviewing the literature on corporate environmental management systems and the relatively few empirical studies that have been done of their adoption and certification. We compare these findings with those of five in- depth case studies of energy and gas companies in Germany that are implementing environmental man- agement systems. Investigation of the German com- panies in the energy and gas industry offers insights into why small- and medium-sized domestic German firms adopt and certify an EMS and the results they obtain from doing so. Germany was selected because of its large number of EMAS and ISO 14001 certifi- cations. The energy and gas sector was chosen for study because of its major environmental impacts.

What are Environmental Management Systems?

Although corporations in most industrialized coun- tries have adopted environmental protection prac- tices required by government agencies since the early 1970s, these regulations largely focus on control of water and air emissions and waste disposal. Govern- ment regulations usually require companies to reduce or eliminate their toxic air and water pollution by using technologies that control or clean emissions at the ‘end of the pipe’ (Rondinelli, 2001). During the 1970s and 1980s many corporations, attempting to get ahead of complex, costly, and rapidly changing environmental regulations, began to adopt voluntary pollution prevention practices that sought to reduce or eliminate from manufacturing processes the sources of pollutants, rather than controlling them after emission.

As more companies began to use pollution preven- tion techniques and to recognize the relationships among them, some firms started to integrate their environmental management practices into more com- prehensive systems. Industry associations and government and international organizations saw the advantages of setting standards that corporations can use as guidelines. The two most frequently used

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

guidelines for EMS design and certification are the international standard, ISO 14001, and the European standard, EMAS. ISO 14001 provides guidelines by which corporations or other organizations design and implement an EMS that identifies the organiza- tion’s environmental policy, the environmental aspects of its operations, legal and other require- ments, a set of clearly defined objectives and targets for environmental improvement, and a set of environmental management programs (Jackson, 1997).

ISO 14001 also requires a system of implementation and operation, including a clear structure of responsi- bility for environmental management, programs for training, awareness and competence among all employees of the facility, internal and external com- munication of the EMS, a system of environmental management documentation, a documentation con- trol system, procedures for operational controls of environmental impacts, and emergency preparedness and response. ISO 14001 includes provisions for cre- ating a system of checking and corrective action that includes monitoring and measurement, reporting non-conformance and taking corrective and prevent- ative action, and record-keeping with regard to environmental management. It calls for EMS audits and a management review process through which senior management reassesses the suitability, effec- tiveness, and adequacy of the environmental man- agement system at appropriate intervals to assure continuous improvement.

The Eco-Management and Audit Scheme (EMAS) is similar to ISO 14001 in its components and require- ments (Sulzer, 1999). A main difference between ISO 14001 and the European standard, until recently, was that EMAS was applicable only at the site level, while ISO can be applied at the facility, company or organi- zational levels. EMAS was revised in April 2001 and now can be applied across entire organizations. Nevertheless, important distinctions between the two standards remain. Unlike ISO 14001, EMAS requires organizations to produce an environmental state- ment; it is more rigorous in mandating reductions in environmental impacts to levels not exceeding those corresponding to economically viable applications of best available technology; and it requires organiza- tions to make much more information publicly avail- able, thereby enhancing a facility’s transparency.

Companies seeking EMAS registration (which is done by a State authority) must report environmental effects and legal requirements at the site, while ISO makes certification (by a private registrar) voluntary. ISO 14001 certification allows the company to decide how to have its EMS verified and what information it should disclose. EMAS requires internal system compliance and performance audits, and external verification must be conducted at least once every three years. ISO only suggests system audits against internal benchmarks. EMAS requires compliance

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002162

with environmental regulations and stipulations on continuous environmental improvement. ISO 14001 elicits commitment to environmental improvement, but does not stipulate the extent to which perform- ance must be improved.

In brief, ISO 14001 and EMAS have different aims. ISO 14001 provides guidelines that can be implemented by almost any type of organization in any country and was designed primarily to improve management. EMAS, on the other hand, is designed to bring about changes in environmental perform- ance.

Motivations Adopting Corporate Environmental Management Systems

Advocates of environmental management systems and international standards for EMS certification claim many benefits that should motivate corporate executives to adopt an integrated system of environ- mental management.

Proponents claim that integrated programs of pol- lution prevention can save companies money by improving efficiency and reducing the costs of energy, materials, fines, and penalties and that devel- opment and certification of EMS can increase investor confidence in a company and give it international competitive advantages (Kirkpatrick and Pouliot, 1996). Adopting an EMS not only focuses a com- pany’s attention on negative environmental impacts but also ensures that responsibility is appropriately assigned for maintaining high environmental stan- dards throughout the organization.

Clark (1999) points out that many multinational com- panies are adopting EMS to satisfy customer press- ures and to ensure that their suppliers are operating in environmentally and socially responsible ways. Some are doing so in response to peer pressure as more corporations adopt environmental manage- ment systems and require their second and third tier suppliers to do so as well. Growing interest among corporate stakeholders—within and outside of the firm—is also driving more corporations to adopt EMS and to certify them.

Advocates of ISO 14001 claim that an international standard assists corporations to simplify and inte- grate their environmental protection programs into a more coherent framework (Cascio, 1994). An inter- national standard makes it easier for corporations to develop voluntary EMSs and for shareholders, government regulatory agencies, insurance compa- nies, and financial institutions to assess a company’s commitment to improving environmental perform- ance and reducing risks (Donaldson, 1996). Adoption of an EMAS registered- or ISO 14001-certified EMS

Among the high adopters

commitment to environmental

improvement was the

strongest motivator

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

helps companies reduce their environmental inci- dents and liabilities, increase efficiency of operations by removing waste from production and distribution processes, increase awareness of environmental impacts of operations among all employees, and establish a strong image of corporate social responsi- bility (IISD, 1996). Unlike regulation, ISO 14001’s vol- untary approach gives companies the flexibility to develop EMSs that are appropriate to their oper- ations, characteristics, location, and levels of risk (Rondinelli and Vastag, 1996).

Much of the information about actual corporate motivations for adopting and certifying an EMS is anecdotal. AlliedSignal Aerospace, for example, used an ISO 14001-certified EMS to integrate its total qual- ity management system (already certified under ISO 9000) with its environmental management system. Warner- Lambert Corporation sought ISO 14001 certification ‘to drive day- to-day environmental expertise and responsibility down to the plant level, identify cost- reduction opportunities, and keep the CEO out of jail as regu- latory demands become more complex and time- consuming’ (Victory, 1997:100). SGS-Thomson Microelectronics (1996), a global semiconductor com- pany, certified its facilities according to both ISO 14001 and EMAS to maintain its competitive position in the United States and Europe and to help ensure that suppliers and contractors maintain strong environmental standards. Baker Petrolite, a specialty chemicals corporation, committed to ISO 14001 certi- fication all of its facilities in order to integrate its cor- porate-wide environmental, health and safety man- agement systems (Kreuzer, 2001).

In one of the few in-depth analyses of the motiv- ations and impacts of certifying an EMS by ISO 14001 standards, Rondinelli and Vastag (2000) found sev- eral reasons why executives of Alcoa’s Mt. Holly aluminum plant in South Carolina sought certifi- cation. The plant’s managers, who registered the plant’s quality management system under ISO 9002 in 1992, saw an ISO 14001-certified EMS as an exten- sion of its system for quality improvement. They believed that ISO 14001 certification would demon- strate publicly the company’s commitment to protect- ing the environment and gaining competitive advan- tage with both domestic and international customers. They expected that the programs developed in the EMS could help conserve materials and energy and perhaps facilitate obtaining permits from local and state government agencies, improve industry- government relations and, possibly, obtain regulat- ory relief. The Mt. Holly plant managers expected the EMS to help reduce costs, eliminate incidents that resulted in liabilities, contribute to developing and sharing new environmental solutions, improve main-

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 163

tenance, ensure conformance to policy, and better meet vendor requirements.

An international survey of 33 companies in the busi- ness and institutional furniture industry indicated other reasons why they would seek ISO 14001 EMS certification (Ruddell and Stevens, 1998). Among the strongest motivations (83% each) were to prevent potential negative environmental impacts, improve employee environmental awareness, and respond to customer demand. More than 65% were motivated by the prospect of improving corporate image and about 50% by the hope of gaining market access.

Interviews of executives in six printed circuit board companies in Hong Kong also reveal the motivations for seeking EMS certification in that industry. Chin

and Pun (1999) found that manufacturers were driven mainly by external pressures— improving company image, demands from customers and regulatory agencies, and the pressures of environmental laws and regulations—and the anticipation of cost savings to

adopt an EMS and certify it to ISO 14001 standards. The Hong Kong companies were also motivated by the desire to stay ahead of environmental legislation by adhering to international standards.

A study by the Multi-State Working Group of 50 private and public facilities that developed EMS as pilot projects in the United States found that 89% of the publicly-traded corporations and 67% of the pri- vately-owned businesses adopted EMS because they were mandated or encouraged to do so by their par- ent organizations (UNC-ELI, 2001). Companies in the sample reported strong motivations for adopting an EMS arising from expectations of improving regulat- ory compliance or achieving regulatory benefits. Many reported customer pressures from domestic and international buyers to adopt and certify their EMS. The strongest motivators, however, were internal: to integrate pollution prevention programs, improve environmental capability, and enhance employee participation in environmental manage- ment activities.

In one of the few large-scale surveys of companies adopting EMS and pollution prevention practices, Florida and Davidson (2001) asked executives of 214 manufacturing companies in Pennsylvania what mot- ivated them to do so. They found that among the high adopters commitment to environmental improvement was the strongest motivator (91.9%), followed by the opportunity to attain corporate goals and objectives (88.7%), economic benefits and improved business performance (87.1%), State and federal regulatory climate (85.5% and 83.9) and improved community relations (85.5%).

One SWL manager noted

that EMAS certification was

something that would ‘enable

the CEO to sleep better at

night’

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

Benefits of Implementing EMS

A growing concern is whether or not the adoption and implementation of EMS delivers tangible bene- fits to companies. Again, much of the evidence is anecdotal. Ford Motor Company claims to have saved millions of dollars and reduced substantially its environmental impact as the result of having adopted ISO 14001-certified EMS for its plants world- wide (Wilson, 2001). In its 40-year-old, 2.4 million square foot engine plant in Lima, Ohio, for example, Ford claims to have involved all its employees in the implementation of the EMS that reduced water con- sumption by nearly 757,000 liters a day, eliminated its production of boiler ash, and increased the use of returnable packaging from 60% to 99%.

IBM reports that the worldwide registration of its EMS helped the corporation to validate the abilities of all of its manufacturing and design facilities to meet consistently and effectively the requirements of the corporate EMS and the chances for continual improvement. The EMS gave IBM disciplined tools with which to pursue environmental improvements and to assess their value (Balta and Wood- side, 1999). The process made environmental management ‘system dependent’ rather than ‘person dependent’ by improv- ing documentation of important requirements, pro- cedures, and processes. IBM discovered that ISO 14001 certification increased the awareness and par- ticipation in environmental activities by employees and contractors who did not previously know much about the corporation’s environmental policy or their role in supporting it.

ABB Automation—which received ISO 14001 certifi- cation of its Columbus, Ohio, plant in 1998—reported that implementation of its EMS helped the company reduce costs of energy and of hazardous waste hand- ling and disposal (O’Conner, 2000). Certification allowed the company to communicate more effec- tively its environmental achievements to its current and prospective customers and to adopt environmen- tally beneficial procedures earlier than originally planned. ABB Automation also saw increased employee morale from the company’s commitment to protecting the environment.

The Honda Transmission Manufacturing of America facility in Ohio, which certified its EMS in 1997, reports both immediate and long-term benefits (McManus and Sanders, 2001). Honda educated its entire staff on the importance of the organization’s environmental objectives and raised the priority of environmental improvements. As a result of EMS implementation, Honda reduced environmental and

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002164

safety incidents significantly, developed and enforced contractor-training requirements, and sub- stantially reduced costs associated with environmen- tal incidents. Moreover, this Honda plant recorded noticeable improvements in environmental perform- ance in the areas of waste and wastewater generation, recycling, improved lighting control, and adoption of reusable packaging. The plant saw substantial sav- ings from improvements in waste production and energy consumption.

In their study of Alcoa’s Mt. Holly plant, Rondinelli and Vastag (2000) found that three years after ISO 14001 certification, managers identified four sets of positive impacts—improvements in employee aware- ness, operational efficiency, managerial awareness, and operational effectiveness. The most significant impact of the ISO 14001 process was in improving the environmental awareness of managers and work- ers, and in clarifying everyone’s responsibility for environmental improvements. Employee training programs increased awareness of the importance of

waste reduction throughout the plant and encouraged many departments to track and moni- tor their waste. The process of developing the EMS for ISO 14001 certification also gener- ated procedural improvements. In developing and certifying the EMS, managers were required to improve existing practices for processes, equip-

ment, and areas of the plant that could increase emis- sions. The Environmental Department had to develop and maintain environmental management manuals for wastewater management, cooling water treatment, waste management, chemical manage- ment, air quality control, storm water pollution prevention, spill prevention, control and counter- measure plans, and emergency preparedness and response. The EMS required more and better record keeping and documentation, which led to improved controls in several of the plant’s departments.

In an early survey of the perceived impacts of ISO 14000 in 1997—before many companies had actually certified their EMS—Montabon et al. (2000:16) and his associates found that among 116 manufacturing com- panies of all sizes in the United States that were cur- rently implementing or had successfully implemented an ISO 14001-certified EMS, most reported that it had a positive and significant impact on perceived efficiency and effectiveness of perform- ance on all dimensions except operational lead-times, which were slightly negatively impacted. The authors conclude that ‘…those firms that have attained this level of certification are not only more environmentally responsible but also more efficient (and potentially better suppliers).’

In their study of high-adopting firms of EMS and pol-

By June 2001, Germany

had 2666 of the 3937 EMAS

registered sites in Europe

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

lution prevention practices in Pennsylvania, Florida and Davidson (2001) found that these respondents reported major sources of in-plant improvement, including increased pollution prevention, recycling, reduction or elimination of air emissions, worker health and safety, and solid waste reduction or elim- ination. These plants also reported much higher lev- els of information sharing, community relationship activities, use of the Internet to provide environmen- tal information, and citizen surveys than companies that were not high adopters. Similarly, the study of printed circuit board manufacturers in Hong Kong also found that managers perceived positive impacts of adopting and certifying EMS, including costs sav- ings through reduction of waste and energy con- sumption, improved environmental performance, and reduced legal consequences and economic losses (Chin and Pun, 1999).

EMS Adoption in the German Energy and Gas Industry

Are smaller domestic companies driven by the same motivations as large multinational companies to adopt and certify EMS, and do small companies achi- eve the same benefits and impacts as larger compa- nies? To explore these questions, Morrow carried out in-depth case studies of five energy and gas compa- nies in Germany that had registered their EMS under EMAS or ISO 14001.1 Germany is a good location for examining the motivations and impacts for EMS adoption because it is a country that has been enthusiastic about both ISO 14001 and EMAS certifi- cation, so much so that it has been called ‘EMAS Land’ (Freimann, 1999). By June 2001, Germany had 2666 of the 3937 EMAS registered sites in Europe. In addition, German organizations had received 2400 ISO 14001 certifications, almost 1000 more than those in the United States. As of mid-2000, 24 regional or municipal electric utilities had facilities with EMAS certification.

Of the five companies with EMS that we studied, the Municipal Utility of Leipzig (Stadtwerke Leipzig or SWL) had one EMAS-certified facility; the Energy Provider of Halle (Energievorsorgung Halle GmbH, or EVH) certified all of its facilities through EMAS and had a company-wide certification through ISO 14001. Two firms, Verbundnetz Gaz (VNG) and the Municipal Utility of Düsseldorf (Statwerke Düssel- dorf or SWD), were ISO 14001 certified. The Middle Germany Energy Provider (MEAG) had a non-certi- fied EMS.

The German energy and gas companies we studied were of mixed ownership—they were owned by

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 165

some combination of private energy companies and municipal governments. MEAG is owned by the Ger- man energy giant RWE (52.5%), as well as Isar- Amperwerke (12%) and a holding company com- prised of eastern German municipalities from the States of Sachsen-Anhalt and Thueringen (35.5%). MEAG has a 40% stake in SWL and a 20% stake in EVH. The other 60% of SWL is owned by Leipziger Versorgungs- und Verkehrsgesellschaft, which in turn is owned 100% by the city of Leipzig. EVH is also owned by Stadtwerke Halle (60%), RWE (16.7%), and Isar-Amperwerke (3.3%). The city of Düsseldorf owns 80% of SWD, while RWE owns the remaining 20%. VNG is owned by eight foreign and domestic companies. The largest shareholders are Ruhrgas AG (35%), Wintershall Erdgas Beteiligungs-GmbH (16%), and a holding company comprised of 14 eastern Ger- man towns and municipal distributors (14%), includ- ing Leipzig and Halle.

Motivations for Adopting an EMS

Insights into why German companies of different sizes in a cross section of industries participate in EMAS come from a comprehensive study of 1264 registered sites in 1998 and 1999 by the German Fed- eral Environmental Agency (Umweltbundesamt, 2000). Table 1 (below) indicates that among the most important reasons that German companies registered their EMS was to achieve continuous improvements

in environmental performance, identify weaknesses and poten- tial uses of energy sources, motivate employees, improve their image, and increase legal certainty. Companies were also motivated to improve their internal organization and docu-

mentation, detect and minimize environmental and liability risks, and reduce specific environmental impacts.

In the five German energy and gas companies that we studied, the motivations for adopting or certify- ing an EMS were not much different from those reported by the study of the broader sample of com- panies in Germany. The employees interviewed in all five German energy and gas companies reported that improved documentation and increased efficiency were primary motives for developing and registering their EMS (See Table 2 below).

Prior to the adoption of the EMS at SWD, for example, managers had no way of knowing which regulations the company had to comply with, or if it could fulfil them. ISO 14001-certification of its EMS was seen as a way SWD could minimize risk and liability. VNG executives saw EMS certification as a way to make the firm’s documentation on environ-

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

Table 1 Why German Companies Participate in EMASa

Motivation Rating

To achieve continuous improvement of environmental performance 8.7 To identify weaknesses and potential use of energy sources 8.3 To motivate employees 8.3 To improve company image 8.0 To increase legal certainty 8.0 To improve internal organization 7.8 To detect and minimize environmental and liability risks 7.8 To reduce company specific environmental impacts 7.2 To achieve cost savings 6.8 To respond to customer and other pressure group demand 4.9 To enhance process and product environmental innovation 4.7

aN=1264, Rating: 0=unimportant, 5=reasonably important, 10=important. Source: Umweltbundesamt, 2000.

Table 2 Comparison of Motivations Among Five German Energy and Gas Firms for EMS Implementation and Certificationa

Motivation SWL EVH SWD VNG MEAG

Regulatory compliance and legal Primary Primary Primary Primary certainty Improve documentation Primary Primary Primary Primary Primary Increase efficiency Primary Primary Primary Primary Primary Enhance employee awareness Primary Secondary Secondary Improve environmental Primary performance Image Secondary Primary Primary Secondary Regulatory relief Secondary Primary Primary Secondary Cost savings Secondary Secondary Secondary Competitive advantage Secondary Primary Primary Primary

aSource: Compiled by authors.

mentally-related material and personnel expendi- tures more comprehensive. At MEAG record-keeping was decentralized to the department level and each facility kept different sets of records. One manager noted, ‘prior to implementation of the EMS, we couldn’t know everything was in order’. The EMS would help MEAG standardize environmental pro- cedures for data collection and record-keeping and allow uniformly reported information to flow back to the company’s environmental coordinator.

Four of the five companies reported that regulatory compliance and legal certainty were primary motiva- tors. Environmental managers at SWL, for example, were concerned that gaps existed in their knowledge of environmental laws and problems and that EMAS certification would enable the company to avoid non- compliance with German federal, state and local laws. One SWL manager noted that EMAS certifi- cation was something that would ‘enable the CEO to sleep better at night’. The most significant motivation for implementing an EMS at MEAG was to achieve and maintain regulatory compliance. An EMS would provide some assurance that MEAG would be able to integrate new requirements into its existing system effectively, rather than be forced to reassess and

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002166

revamp its environmental management activities in the light of every statutory change.

Three of the five companies sought competitive advantage through EMS adoption. EVH saw EMAS certification as a way to enhance its competitiveness by showing that its plants were certified as environ- mentally-friendly, and thereby hoped to convince people to switch from coal heating to district heating. Enhancement of the company’s image as a socially responsible firm was a primary motivator in two companies and a secondary motivator in two compa- nies, as was the prospect of regulatory relief. VNG’s managers were interested in certification because ‘above all, it would benefit our image. We are an environmentally friendly company. The certification would show that we place a lot of value on safety.’ Managers at EVH believed that EMAS would serve as a symbol of the company’s commitment to protect- ing the environment.

None of the companies saw cost savings as a primary motivator although it was identified as a secondary motivation in three companies. SWD’s managers hoped that EMS certification and implementation would help the company develop a clearer idea of

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

Table 3 Benefits German Companies Gained from Participating in EMASa

Benefit Rating

Better organization and documentation 7.7 Increased legal certainty 7.1 Improved image 6.9 Greater employee motivation 6.6 Reduced resource use 5.8 Enhanced plant safety 5.7 Opportunity to set the example for suppliers 5.0 Optimization of process flows 4.9 Improved cooperation with authorities 4.5 Positive market effects 4.3 Cost savings 4.2 Competitive advantages/safeguard of the site 4.0 More favorable insurance/loans 2.3 Opportunity to use public funds for development purposes 2.1

aN=1264 Rating: 0=not applicable, 5=partially applicable, 10=fully applicable. Source: Umweltbundesamt, 2000.

how much money was being spent on environmental management and to identify the potential for cost savings. Only one company reported enhanced employee awareness as a primary motivator and in two companies it was a secondary motivator. SWD’s managers saw certification of its EMS as a way to heighten employee awareness, particularly of environmental management responsibilities that remained at the plant level.

Impacts and Results of EMS Adoption and Certification

The German Federal Environmental Agency’s study of 1264 companies participating in EMAS also pro- vided insights into the benefits or results that they

Table 4 Comparison of Impacts in Five German Energy and Gas Firms of EMS Implementation and Certificationa

SWL EVH SWD VNG MEAG

Regulatory Improvement Improvement Improvement Improvement Improvement Compliance and Legal Certainty Documentation Improvement Improvement Improvement Improvement Minor Improvement Efficiency Improvement Improvement Improvement Employee Improvement Improvement Improvement Improvement awareness Environmental Not related to EMS Minor improvement Not related to EMS Improvement Not related to EMS Performance Image Unclear Unclear Improvement Some improvement Regulatory Relief Significant None None Relief below

expectations Cost Savings Significant Insignificant Insignificant Insignificant Competitive None Insignificant In winning some Not applicable until Advantage proposals 2001

aSource: Compiled by authors.

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 167

achieved from EMS development and registration. The most applicable benefits perceived by these com- panies were better organization and documentation of their environmental activities, increased legal cer- tainty, improved image, and greater employee motiv- ation. They considered reductions in resource use, enhanced plant safety, the opportunity to set an example for suppliers, and optimization of process flows as partially applicable. Less applicable benefits included improved cooperation with authorities, positive market effects, cost savings, competitive advantages, or more favorable insurance rates. (See Table 3.) Managers interviewed in the five German energy and gas companies reported mixed results from their implementation of EMS. (See Table 4.) Although they perceived strong impacts in some areas that motivated them to adopt EMS originally, not all of their expectations were met.

Even if the EMS did not

affect someone directly, it

typically affected everyone

indirectly

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

Like the cross-section of German companies sur- veyed by the Federal Environmental Agency, all five of our energy and gas case companies reported improvements in regulatory compliance and legal certainty, as the result of developing and registering their EMS. EMS implementation served two main functions for these companies. First, it gave compa- nies a reason to take the time to comb through Ger- many’s complex and extensive environmental laws and regulations (some public utilities have as many as 2000 pieces of applicable environmental legal requirements to fulfill) in order to determine their stance on compliance. For example, prior to EMS implementation, SWD’s managers did not know if the firm was violating laws or regulations because it had never taken the time to check. Second, the knowledge gained by going through the process of coming to terms with applicable laws and regulations enabled environmental managers to more easily adapt to the relatively frequent changes that occur in German environmental regulations.

Four companies saw significant improvements in their environmental documentation and a fifth com- pany saw minor improvements. Each EMAS and ISO 14001-certified company saw certification as a con- firmation from an independent third party that the company was doing a success- ful job of understanding and addressing applicable Euro- pean, German, State, and local environmental laws and regu- lations. Furthermore, certifi- cation provided each company with an extra sense of security that it had not overlooked something important that could eventually lead to a major violation.

All of the companies had inadequate environmental documentation prior to EMS implementation. Inad- equate documentation led to a lack of consistency in terms of when and how environmental activities were conducted. Lack of comprehensive docu- mentation made it difficult to identify problems, because each employee had a different perception of how the environment was managed at the company. Before firms could write an environmental handbook or more detailed procedures, however, they were for- ced to improve the fundamental flaws in their environmental management processes. SWL, EVH, SWD, and MEAG each made substantial strides in centralizing and systematizing their activities during this phase. For VNG, centralization meant combining environmental, safety, and quality management into one department. Once processes and responsibilities for tasks were clearly defined, SWL, EVH, and SWD were then able to write comprehensive environmen- tal handbooks describing these processes and responsibilities in detail. Detailed environmental handbooks have also led to an increased level of organizational security in much the same way that

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002168

the regulatory compliance process did. Thus, EMS did not increase bureaucracy, as some critics believe. Companies with EMAS certifications, SWL and EVH, had the most transparent environmental docu- mentation: they were the only companies willing or able to provide detailed documentation and copies of their environmental statements for this study.

The same companies reported improvements in employee awareness. Considerable resistance to EMS implementation was encountered at each certified company. SWL, SWD, and VNG had hoped that an EMS would increase employee awareness of environ- mental issues. Each certified company did indeed report substantial improvement in employee aware- ness, and attributed such improvement to EMS implementation and certification. Universal EMS acceptance has not yet been achieved, however, at every company. SWL and SWD in particular noted that they are still in the process of overcoming resist- ance, which has been heightened to a certain extent by deregulation of the industry in Germany, and by the consequent focus on cost reduction in the elec- tricity sector.

Nevertheless, most companies reported significant improvements, and indeed this is one area in which

results of EMS implementation and certification exceeded ex- ante expectations. During EMS implementation, many employeeswere consulted and educated on environmental issues. Additionally, the EMS became accessible to all employees. Even if the EMS did

not affect someone directly, it typically affected everyone indirectly by virtue of its general goals, such as continual environmental improvement, increased recycling, and waste reduction. Each certi- fied company introduced more consistent training and audits that served not only to remind employees about environmental issues, but also to encourage improvement. EMS certification was important in that it gave more weight to each company’s emphasis on environmental management. Because of the inclusion of a third-party auditor, employees have been more likely to take the EMS more seriously.

With the exception of SWD, no company in this study had been highly motivated to implement an EMS by the expectation that its environmental performance would improve substantially. Although each com- pany reported environmental improvements after the adoption of the EMS, only EVH thought ex post that an EMS had improved its environmental perform- ance. The consensus was that investment in mod- ernizing power plants and grids resulted in the most significant environmental improvements, and that these investment decisions were made on the basis of economic and regulatory rather than environmental considerations. Clearly, environmental improve-

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

ments were recognized as important secondary effects.

Unlike the cross section of German companies that reported improved image as an applicable benefit, the energy and gas companies were uncertain of the impacts of EMS certification on their image. SWL and EVH perceive that their image has improved through the increased transparency of their operations. Public response to these overtures has been disappointing, however. SWL and EVH have received numerous inquiries about their environmental statements, but most of these inquiries have come from academics, students, and other companies, rather than from cus- tomers. Other studies have found this to hold true for many other German companies (Gerlin, 1995). Thus, EMAS certification does not seem to be making much impression on the intended audience. This is especially important because both SWL and EVH were motivated to certify their EMSs to demonstrate their environmental accomplishments to their cus- tomers in increasingly competitive retail markets. Thus, this is an area in which certification has not met expectations. Perhaps the recent revision of EMAS guidelines, which now allow the use of an EMAS logo in advertising, will rectify the situation.

Like other German companies, the energy and gas firms saw relatively weak impacts on competitive advantage, although most had hoped for such an advantage prior to EMS certification. Only one com- pany in this study, SWD, reported that ISO 14001 cer- tification had resulted in an advantage in winning contracts. Again, each of the certified companies had expectations for some form of regulatory relief prior to undertaking the certification process. No across- the-board relief has resulted from certification, how- ever, because no European or German federal relief initiatives have been generated. VNG was exempt from a new requirement that firms covered by the EU Accident Ordinance have to draft and submit a safety concept to the EU. Strictly speaking, however, this relief was not related to VNG’s EMS, but rather to its Integrated Quality Management System.

Of the companies in this study, SWL was the major winner in terms of regulatory relief. In Germany, States are free to decide how companies must report environmental data to them. The State of Saxony chose to require all power plants to report their data via real-time monitoring. Because of lobbying from the Environmental Alliance of Saxony, however, this requirement was not applied to facilities with EMAS certification. As a result, SWL has been able to save between DM 250,000 and DM 300,000. Because the data reporting requirement decision is left open to the States, however, firms in other States could not expect such relief. The Environmental Alliance of Saxony-Anhalt, for example, to which EVH belongs, has not been as successful in persuading State officials to agree to such exemptions.

Cost savings were not really an important motivating

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 169

factor for German energy and gas firms to implement and certify an EMS. For three of the five companies, ex post analyses showed cost savings were insignifi- cant. SWL had tried to do a cost-benefit analysis prior to EMS implementation, but was unsuccessful because it was unable to usefully quantify expected benefits such as improved efficiency and organiza- tional security. Except for SWL, which was spared from having to implement a costly real-time emis- sions monitoring system, cost savings have not been measurable. Environmental management systems have broadly increased efficiency, but these benefits remain difficult to quantify. EMS implementation costs for SWL and EVH, the only companies reporting such information in detail (and the only two EMAS certified firms in this study), were sub- stantial but not higher than expected in either case. EVH spent approximately DM 260,000 ($115,000) on EMS implementation alone. The costs associated with certification, including continuing personnel costs of training, added about DM 88,000 ($39,000). SWL spent 169 man-days on EMS implementation and cer- tification, not including DM 55,000 ($24,000) in con- sultants’ fees. VNG reported partial costs of DM 25,000 for EMS implementation and DM 13,000 for an auditor for certification.

Conclusions

In brief, a review of the relatively sparse body of anecdotal information, case studies, and survey research on environmental management systems indicates that several factors motivate companies to implement and certify EMS. Among multinational and large corporations in the United States, the desire to integrate environmental, health and safety man- agement with total quality management systems, the requirement of parent corporations to improve environmental performance, the preference for get- ting beyond regulatory compliance, and finding cost- cutting opportunities are frequently mentioned as motivators to adopt EMS. Large multinational com- panies, especially in the chemical, electronics and automobile industries, also seem to be motivated by the desire to extend environmental management standards to their suppliers. Among companies operating in international markets, especially in the United States and Europe, ISO 14001 or EMAS certi- fication is an indicator of environmental responsi- bility and is often seen as a way of developing com- petitive advantage.

The German Federal Environmental Agency’s sur- veys of German companies participating in EMAS identify the desire to improve environmental per- formance, make better use of energy sources, mot- ivate employees, improve company image, increase legal certainty, and upgrade environmental docu- mentation as leading motivators. The small- and medium-sized energy and gas companies that we

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

studied had similar motivations but somewhat differ- ent priorities. They were primarily motivated by the desire to improve documentation, ensure regulatory compliance, and increase the efficiency of their oper- ations.

Although, in general, the motivations of companies in the United States and Germany are similar, differ- ences in priorities may be due to the more specific concerns of small- and medium-sized companies with organizing themselves more comprehensively and effectively to deal with environmental regu- lations and domestic competition. Because gas and energy industries in Germany are undergoing deregulation, they are especially motivated to find ways of cutting costs and improving efficiency in order to enhance their competitiveness. None of the five companies we studied expected significant environmental performance improvements from the EMS because they had adopted, or were in the pro- cess of switching to, cleaner and more sophisticated technology and equipment.

Most of the case studies and surveys show that it is difficult to attribute environmental improvements directly to the adoption and certification of EMS. Environmental management systems seem to be instrumental, however, in bringing about a variety of impacts. The studies indicate that EMS implemen- tation and certification do help companies to inte- grate their environmental, health and safety manage- ment systems and in some cases their environmental and quality management systems. Perhaps because EMS certification requires strong employee partici- pation and environmental training programs, many firms report increased employee awareness of the environmental aspects of their jobs and of their responsibilities for reducing negative impacts. ISO 14001-certified companies also report environmental performance improvements, especially in the areas of waste recycling, air and waste emissions reductions, materials reuse, energy and water conservation, and environmental and safety incidence reduction.

German firms participating in EMAS that were sur- veyed by the German Federal Environmental Agency thought that the most applicable benefits were better organization and documentation of their environ- mental management activities, increased legal cer- tainty, improved company image, and greater employee motivation. The five German energy and gas companies that we studied similarly reported improvements in regulatory compliance and legal certainty, improved documentation, improvements in employee awareness, and some degree of improvement in efficiency as the result of implementing and certifying their environmental management systems.

Much more research needs to be done on a broader sample of companies to determine whether or not the motivations for adopting and certifying environmen-

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002170

tal management systems are fulfilled by the benefits and impacts of doing so. Anecdotal information, and the relatively few case studies and surveys of compa- nies participating in ISO 14001 and EMAS seem to indicate that companies both perceive benefits and experience positive impacts from implementing environmental management systems, and that these benefits generally meet ex ante expectations. Those benefits tend to focus on management improve- ments, employee awareness, systematic and inte- grated documentation and procedures, and selected environmental performance improvements. Docu- menting cost savings, increased competitive advan- tage, regulatory relief, and operational improvements is more difficult, both in large multinational corpora- tions and small- and- medium sized domestic compa- nies.

Note

1. Interviews in the German energy and gas companies were carried out by David Morrow over a nine-month period in 2000. A written questionnaire was used to determine the content and extent of each company’s environmental man- agement activities, as well as to obtain information on capacity variables that can affect certification. The ques- tionnaire was translated into German and crosschecked with native German speakers. In addition, on-site inter- views were conducted with three to four environmental managers, chief executives, and upper level managers in each company. The survey and interviews were sup- plemented with archival data from each company.

References

Balta, W. and Woodside, G. (1999) IBM’s experience implementing ISO 14001 on a global basis: Does ISO 14001 achieve its intended goals? Journal of the Forum for Environmental Law, Science, Engineering and Finance 3(9), 1–10.

Bristol-Myers Squibb Company (2000) Our Environment: Build- ing Upon Our Success. Bristol-Myers Squibb, New York, NY.

Cascio, J. (1994) International environmental management standards. ASTM Standardization News 22(4), 44–49.

Chin, K-S and Pun, K-F (1999) Factors influencing ISO 14000 implementation in printed circuit board manufacturing industry in Hong Kong. Journal of Environmental Planning and Management 42(1), 123–134.

Clark, D. (1999) What drives companies to seek ISO 14000 certification? Pollution Engineering International Summer, 14–15.

Donaldson, J. (1996) US companies gear up for ISO 14001 cer- tification. InTech 34(4), 34–37.

Eli Lilly. (1999). Environmental Health and Safety Report. Eli Lilly, Indianapolis, Indiana.

Florida, R. and Davidson, D. (2001) Gaining from green man- agement: Environmental management systems inside and outside the factory. California Management Review 43(3), 64–84.

Freimann, J. (1999) Umweltmanagementsysteme im urteil des unternehmenspraxis: Ergebnisse einer empirische unter- suchung [Environmental management systems in prac- tice: Results of an empirical investigation]. In Betreibliches Umweltmanagement in Deutschland: Eine Positionsbestim- mung aus Sicht von Politik, Wissenschaft und Praxi, ed. K. Bellman, pp. 265–282. Deutscher Universitäts Verlag GmbH, Wiesbaden, Germany.

ADOPTING CORPORATE ENVIRONMENTAL MANAGEMENT SYSTEMS

Gerlin Consulting Gruppe (1995) Oeko-Audit in nordrhein-west- fälischen Unternehmen. [EMAS in Companies from North Rhine Westphalia] Ministerium fu! r Wirtschaft, Mittel- sand und Technologie NRW, Dusseldorf.

International Institute for Sustainable Development (1996) Global Green Standards: ISO 14000 and Sustainable Develop- ment. IISD, Winnipeg, Canada.

IBM (2000) Environment and Well Being: Progress Report. IBM, Armonk, NY.

Jackson, S.L. (1997) The ISO 14001 Implementation Guide: Cre- ating an Integrated Management System. Wiley, New York, NY.

Kirkpatrick, D. and Pouliot, C. (1996) Environmental manage- ment, ISO 14000 offers multiple rewards. Pollution Engin- eering 28(6), 62–65.

Kreuzer, H. (2001) Company-wide ISO 14001 certification. Pol- lution Engineering 33(6), 50.

McManus, M. and Sanders, L. (2001) Integrating an environ- mental management system into a business and operating culture: The real value of an EMS. Pollution Engineering 33(5), 24–27.

Montabon, F., Meinyk, S.A., Sroufe, R. and Calantone, R.J. (2000) ISO 14000: Assessing its perceived impact on cor- porate performance. The Journal of Supply Chain Manage- ment 36(2), 4–16.

O’Conner, R. (2000) ISO 14001 certification—A case study. ABB Automation, Inc., Columbus, Ohio.

Peglau, R. (2001) The number of ISO 14001/EMAS regis- trations in the world. http:/www.ecology .or.jb/isoworld/english/analy14k.htm

Rondinelli, D.A. (2001) A new generation of environmental policy: Government-business collaboration in environ- mental management. Environmental Law Reporter 31(8), 10891–10905.

Rondinelli, D.A. and Vastag, G.A. (1996) International environmental management standards and corporate policies: An integrative framework. California Manage- ment Review 39(1), 106–122.

Rondinelli, D.A. and Vastag, G. (2000) Panacea common sense

DAVID MORROW, DENNIS RONDINELLI, UBS Asset Management, Kenan-Flagler Business Gessnerallee 3, 8098 Zurich, School, University of North Switzerland. E-mail: David. Carolina at Chapel Hill, Morrow@ubs.com 27559–3490, USA. E-mail:

dennis rondinelli@unc.edu David Morrow works on environmental management Dr. Rondinelli is the Glaxo and socially responsible Distinguished International investing issues for UBS Professor of Management at Asset Management in Zur- UNC—Chapel Hill. His ich. As a Fulbright Fellow research focuses on inter-

based in Leipzig, he also carried out research on the national business, MNCs, corporate environmental environmental management practices of German management, and the public role of the private sector. energy and gas companies. He is author of more than 200 journal articles and has

edited or authored 16 books.

European Management Journal Vol. 20, No. 2, pp. 159–171, April 2002 171

or just a label? The value of ISO 14001 environmental management systems. European Management Journal 18(5), 499–510.

Royal Dutch/Shell Group (2000) People, Planet and Profits: The Shell Report. Shell International BV, The Hague, The Netherlands.

Ruddell, S. and Stevens, J.A. (1998) The adoption of ISO 9000, ISO 14001, and the demand for certified wood products in the business and institutional furniture industry. For- est Products Journal 48(3), 19–26.

Sabatini, J. (2000) In search of ISO. Automotive Manufacturing and Production 112(3), 96.

Sissel, K. (2000) ISO 14001: Autos and electronics drive certi- fication. Chemical Week 162(14), 42–43.

SGS-Thomson Microelectronics Inc. (1996) Certification to ISO 14001 and EMAS. In ISO 1400 Case Studies: Models for Implementation, ed. M.B. Bower, pp. 106–110. CEEM Information Services, Arlington, VA.

Sulzer, G. (1999) EMAS—environmental management in the European union. In ASQ’s 53rd Annual Quality Congress Proceedings, pp. 150–157. American Society for Quality, Milwaukee, WI.

Tibor, T. and Feldman, I. (1996) ISO 14000: A Guide to the New Environmental Management Standards. Irwin, Chicago.

Umweltbendesamt (2000) EMAS in Germany, Systematic Environmental Management: Report on Experience 1995 to 1998. Federal Environmental Agency, Berlin, Germany.

University of North Carolina and Environmental Law Insti- tute (UNC-ELI) (2001) Drivers, designs and consequences of environmental management systems. Environmental Law Institute, Washington D.C.

Victory, K.M. ed. (1997) ISO 14000: From Rio to Kyoto and Beyond. Cutter Information Corporation, Arlington, MA 100 pp.

Weaver, G.H. (1996) Strategic Environmental Management: Using TQEM and ISO 14000 for Competitive Advantage. Wiley, New York, NY.

Wilson, R.C. (2001) Ford spreads the word about its EMS suc- cess. Pollution Engineering 33(6), 32–33.