The influence of ISO 14000 on firm performance

PurposeEconomic prosperity has often come at the expense of the natural environment. Environmental degradation has surfaced in problems such as pollution, increased carbon dioxide emissions via burning of fossil fuels and environmental waste. Ignoring the ecological costs through indiscriminate use of non‐renewable resources may lead to increase in the cost of doing business in the future. This unsustainable trend exacerbates inter‐generational poverty and equity. Responsible firms have resorted to ISO 14000 certifications, which comprise guidelines for environmental management systems which promote green, efficient production processes. However, ISO 14000 is not a performance standard and does formulate financial key performance indicators. Nonetheless, extant literature has documented the perception that ISO 14000 certification leads to increased competitive advantage, pre‐emption of regulations, increased financial performance, enhanced reputation and reduction of cost of business. This study seeks to bridge the lacuna in research on the influence of ISO 14000 certification on firm financial performance in Malaysia.Design/methodology/approachMethodologically, certain matching criteria have been used to enhance the comparability of ISO 14000 certified firms with their non‐certified counterparts based on the work of Collins, and Collins and Porras.FindingsThe findings indicate that ISO 14000 certification improves average return of equity but not necessarily in terms of sales and capitalisation.Originality/valueThe study suggests that there may be a business case for ISO 14000 certification terms of return on equity in the medium term within the Malaysian context.