The impact of environmental management systems on financial performance in fashion and textiles industries

With rising environmental concerns from consumers and stakeholder groups, environmental management has become an important responsibility for today's fashion and textiles manufacturers. The production of fashion and textiles related products often requires high levels of energy and water consumption, and emits large quantities of pollutants to the environment. Therefore, the adoption of environmental management systems (EMSs) is important and could have a significant impact on these firms' operational performance. This study presents empirical evidence on the performance impact of EMS adoption in the fashion and textiles related industries (FTIs). Although EMSs have emerged as a passport to business in the FTIs, their actual impacts on firms' financial performance have not been explored. We reveal that the adoption of ISO 14000, the most popular EMS, improves manufacturers' profitability in the FTIs over a three-year period as measured by return-on-assets (ROA). Based on our sample, we find that profitability improvement started during the implementation stage and continued at least one year after the firm obtained ISO 14000 certification. We also find that profitability improvement is mainly due to improvement in cost efficiency, measured by return-on-sales (ROS). Specifically, certified firms improved up to 2.9% in ROA and 3.3% in ROS over the three-year period since they implemented ISO 14000. We conclude that there is a positive impact of EMS adoption on firms' financial performance in the FTIs.