An Examination of the Relationship Between Environmental Practices and Firm Performance

Recently, there has been a great deal of interest in the research literature regarding how environmental practices (EPs) can improve firm performance. According to Rondinelli and Vastag (1995), firms may have been reacting to an increasingly difficult regulatory environment or responding to market pressure. Either way, the responses of firms to environmental pressures has led to practices that impact profitability. Currently, more firms are trying to understand the benefits of a proactive approach to environmental policies. Some firms may be motivated to become environmentally proactive since it could lead to more efficient use of resources and improve corporate image. Despite this intuitive argument, many firms are reluctant to take a more aggressive and proactive approach to EPs, due to a dearth of evidence that benefits exceed the costs of pursuing these initiatives. This attitude is attested to by the relatively low number of ISO 14000 certifications that have been issued to U.S. firms (NIST 1998, ISO 2001).