Do internal and external environmental management contribute to the triple bottom line?

Purpose – The purpose of this paper is to investigate the effect of both internal and external environmental management (EM) on the triple bottom line (TBL), which embraces environmental, economic, and social performance. Both direct and indirect effects are estimated in order to capture the overall relationships between EM and performance. Furthermore, the paper contributes to the ongoing debate of measuring the latent variable “performance” as a formative rather than reflective construct. Design/methodology/approach – A conceptual model is drawn up based on the existing literature in EM and considering the TBL paradigm. The model is tested on a large sample of Italian firms; thus, the unit of analysis is represented by single firms. A structural equation model (SEM) is tested to analyze the data, and its estimation is performed using both Lisrel and PLS – namely, covariance‐ and component‐based SEM. Findings – Covariance‐based SEM shows that internal EM is a successful driver of TBL. EM directly improves environmental and social performance, but contributes only indirectly to the economic bottom line. In contrast, external EM is a less effective driver, contributing only positively to environmental performance and exerting only an indirect, marginal impact on economic performance. When using a formative mode to measure performance and component‐based SEM, internal EM has a positive direct and indirect influence on the TBL; however, external EM does not directly improve economic performance. Research limitations/implications – Data collection was completed at the end of 2008 and comprises only data about Italian firms. Items in the questionnaire allow for a two‐year lag period. Practical implications – When targeting to meet the TBL, managers should concentrate their efforts on internal EM, which is more effective than external EM. Originality/value – The paper tests the direct and indirect impacts of internal and external EM on the TBL measuring performance using a formative model and showing the different results obtained in the causal relationships.