Does ISO 14001 Adoption Impact On Company’s Performance in Indonesia?

Abstract

Stakeholder pressure and winning in competition trigger companies to adopt environmental management systems (EMS). Nevertheless, environmental management adoption does not always have positive impact on organizational performance. Previous studies indicated that the relationship between environmental management systems and financial performance still vague. This study investigates the indirect impact of environmental management systems on financial performance through environmental performance as a mediator. Data were collected from government institutions and Indonesia Stock Exchange. PLS-SEM was utilized in analyzing the data. The findings suggest that direct and indirect effects of EMS adoption on financial performance are insignificant. However, the study shows that environmental management system significantly affects environmental performance and environmental performance impact on financial performance significantly. The conclusion implies, implementing an environmental management system lead to better environmental performance and higher financial performance. More incentive should be provided to attract more company involved in environmental management best practices. The future study considers company’s maturity in adopting EMS, do different test for beyond compliance and compliance companies, and its impact on environmental performance and financial performance, uses marketbased indicators to assess financial performance as well.