Do environmental management systems enhance eco-innovation and environmental performance?

Posted on: 1 May 2024 in Research

Research by Professor Jordi Surroca provides evidence of the positive impact green patents have on environmental performance, but results dispute the idea that environmental management systems (EMSs), such as the ISO 14001 standard, always foster the development of green knowledge and technological capabilities.

As part of an international research project with academics from British, Spanish and American universities, Jordi’s study¹ seeks to assess the environmental impact of eco-innovations and test whether EMS with standardised guidelines enhance this relationship.

While the study supports the expectation that green patents reduce firms’ environmental footprint, findings highlight the complex relationship between eco-innovation, EMS and environmental performance.

Surprisingly, the analysis shows how the adoption of the ISO 14001 standard undermines, rather than boosts, the positive impact of green innovations on environmental performance, as it introduces organisational rigidities that hinder the evolution of a firm’s green dynamic capabilities.

The study provides evidence of the inhibiting effects of EMS, which are particularly noteworthy for companies with less complex and more bureaucratic organisational structures, that compete in turbulent industries, and whose headquarters are located in liberal market economies (LME).

These findings challenge the widely held view of EMS as platforms that allow new green technological knowledge to flourish and help develop solutions to improve corporate sustainability.

Developing green knowledge and dynamic capabilities 

In the face of increasingly pressing sustainability challenges, firms have a wide range of choices to improve environmental performance, including eco-innovation and the adoption of EMS.

Eco-innovation is the capacity to generate technological knowledge and develop solutions to reduce environmental impact.

Eco-innovators can do this by, for example, delivering new or improved products and services, or implementing processes, practices, and systems to save resources (eg energy, water, raw materials) and reduce emissions.

A useful measure of eco-innovation are green patents, which represent a way to transform experience into meaningful learning, through three subsequent knowledge building processes:

1. Experience accumulation – employees generate tacit green knowledge via experience, which is then shared within their teams and across the firm
2. Knowledge articulation – disseminating this knowledge generates a better collective understanding of causal links between actions and outcomes (ie eco-innovation and environmental performance). This results in adaptive adjustments to existing routines that contribute to eco-effectiveness
3. Knowledge codification – finally, the articulated knowledge is codified into written tools (eg manuals, blueprints, patent filings), facilitating green knowledge diffusion and the generation of new proposals and changed routines

Jordi’s research starting point was that these processes involved in the generation of eco-innovation, are also critical for the development of dynamic capabilities linked to environmental improvements.

In other words, eco-innovation enhances the ability to integrate, build and reconfigure internal and external competencies and knowledge, for embedding social and environmental considerations into practical solutions to tackle growing and rapidly changing sustainability challenges.

Based on these premises, the study’s main thesis is that only firms with relevant green dynamic capabilities will be able to develop novel sustainable solutions to cope with current environmental demands.

Alongside this, the team hypothesised the positive influence of eco-innovation on environmental performance is strengthened when firms adopt an EMS, such as the ISO 14001.

This internationally agreed standard sets the requirements for an environmental management system, aimed at improving the organisation’s sustainability output.

The team expected adherence to the ISO 14001 norm to enhance the three learning processes by:

• Generating routines (eg via staff training, standardisation of processes, etc) that develop green tacit knowledge through experience
• Encouraging firms to take a more systematic approach to how green experiential knowledge is shared and articulated (eg via periodical monitoring)
• Including guidelines, models and an extensive list of documentation requirements, that illustrate how firms can codify knowledge

The impact of EMS on the relationship between green patents and environmental performance 

To evaluate if the ISO 14001 norm helps to boost eco-innovation and corporate sustainability, the team first tested the strength of the green patents-environmental link.

They assembled a unique data set, for the period 2014-16, from over 250 corporations distributed across 13 industries and headquartered in 7 countries, bringing together firm-level eco-innovation, EMS and environmental performance, and financial data from five different sources.

A quantitative analysis showed that, while green patents positively impact environmental performance, EMS adoption unexpectedly hampers, rather than enhances, this relationship. 

A series of additional tests indicated the negative influence of EMS adoption varies depending on the firm’s institutional framework, industry turbulence and structural complexity.

Accordingly, firms with headquarters based in coordinated market economies (CME), such as Germany and France, demonstrated a greater ability to adjust their eco-innovation processes to the requirements imposed by the EMS, than those located in LME, such as the UK and US.

This finding highlights how disturbing the rigidities imposed by EMS are for firms competing in institutional contexts (ie LME) which require high levels of flexibility to improve their competitive positions, through continuous change an innovation. 

For highly turbulent industries (newer and more competitive), where firms need to constantly update their knowledge and technological capabilities to survive, results showed EMS adoption has a stronger hindering impact on innovation than in more mature industries.

Finally, the analysis also confirmed the lower the corporations’ geographical reach, as an indication of the structural complexity of the organization, the more likely the EMS adoption will become an obstacle for eco-innovation and, subsequently, environmental performance. 

EMS adoption and organisational rigidities

The team interpreted the results as evidence that EMS may act as an obstacle rather than a facilitator for the evolution of firms’ green dynamic capabilities.

To investigate further, they conducted a qualitative analysis of 20 post hoc interviews with elite informants, including business scholars, EMS consultants and auditors, and senior managers.

An overwhelming majority of interviewees mentioned EMS could act as a deterrent to achieving sustainability from eco-innovation.

Informants highlighted the rigidity and bureaucracy of standardised EMS as factors that can diminish the employees’ (and the firm’s) predisposition to build new green capabilities, with standardisation being perceived as a hassle, rather than a tool to enhance environmental performance.

Although these results cannot be generalised, they are consistent with previous studies that point to over-documentation², over-procedurisation3, extra unnecessary routines⁴ and increased internal control⁵, as mechanisms likely to cause organisational rigidity.

In light of the study findings, firms in highly polluting industries need to promote flexibility in their green innovation processes to achieve better performance outcomes.

The results also stress the need for standard-setting organisations to find the right balance in the standardisation of practices when re[1]designing standards, such as ISO 14001.

Standardisation should provide some degree of structure, whilst leaving room for the flexibility firms need to deploy dynamic capabilities, and achieve superior green performance.

1 Valero-Gil, J, Surroca, J.A., Tribo, J.A., Gutierrez, L., Montiel, I. (2023), Innovation Vs. Standardization: The conjoint effects of eco-innovation and environmental managements systems on environmental performance, Research Policy, 52, pp 1-15. DOI: 10.1016/j.respol.2023.104737

2 Boiral, O., Guillaumie, L., Heras-Saizarbitoria, I. and Tayo Tene, C.V. (2018), Adoption and outcomes of ISO 14001: a systematic review, International Journal of Management Reviews, 20, pp 411–432. DOI: 10.1111/ijmr.12139

3 Boiral, O. (2011), Managing with ISO systems: lessons from practice, Long Range Plan, 44, pp 197–220. DOI: 10.1016/j.lrp.2010.12.003 

4 Lopez-Mielgo, N., Montes-Pe´on, J.M. and Vazquez Ord´as, C.J. (2009), Are quality and innovation management conflicting activities?, Technovation, 29, pp 537–545. DOI: 10.1016/j.technovation.2009.02.005 

5 Alonso-Pauli, E. and Andre, F.J. (2015), Standardized environmental management systems as an internal management tool, Resource and Energy Economics, 40, pp 85–106. DOI: 10.1016/j.reseneeco.2015.02.001   

Professor Jordi Surroca Chair in Strategic Management and Head of the Strategy, International Business and Entrepreneurship Subject Group