Environmental Management Practices and Financial Performance of SMEs in Ghana

Purpose The chapter investigates the relationship between environmental management practices (EMPs) and financial performance (FP). Design/Methodology/Approach The study is based on a sample of 187 SMEs and uses data on six EMPs (energy, water, waste, material, emissions, and biodiversity) collected through a self-administered questionnaire from owner-managers of SMEs. Ordinary least squares regression is employed to model the hypothesized paths. Findings The results suggest a positive and significant relationship between EMPs (energy, water, and material) and FP. There is also a significant positive relationship between an aggregate EMP measure and FP. However, other EMPs (waste, emissions, and biodiversity) are not significantly associated with FP. Overall, these results provide empirical support to the mostly normative suggestion that the conflicting results on the environmental management and financial performance relationship are partly due to the EMP measure used. Research Limitations/Implications The study is based on cross-sectional data, and therefore, it is impossible to determine any changes over time. Longitudinal studies could help confirm the relationship between EMP and FP over a longer period. From a policy perspective, this results mean that the Ghanaian EPA must monitor more closely for violations of laws and regulations relating to waste, emissions, and biodiversity since SMEs do not have incentives to manage these impacts without commensurate return. Originality/Value The study contributes by documenting evidence of the relationship between multiple measures of EMP and FP. This unlike most existing studies has enabled us to report evidence of how each EMP measure affects FP differently and where win–win opportunities are for SMEs. Thus, the win–win opportunities are associated with some EMP measures but not all.