The economic viability of Environmental Management Systems: an application of Analytical Hierarchy Process as a methodological tool to rank trade-offs

Environmental management systems [EMS] are now a well established management tool in the ‘greening’ of industry. There is a large body of literature on methodological procedures and application strategies for implementing EMS. Associated with this proliferation of ‘how to’ manuals has been a limited discussion of why a firm ought to implement a management tool that inevitably affects the bottom line of profitability. We argue that there has been much less by way of methodologically rigorous and academically objective analysis of the motivation for EMS application. Much of this literature is coined in terms of the potential benefits (social, ethical and financial) with arguably an insufficient emphasis on potential real cost burdens. This arises in part because researchers and analysts in the field want firms to adopt EMS. This can be motivated by environmental zeal and/or an enthusiasm to promote the sales of ‘how to’ manuals by accentuating the positive. The aim of this research is provide an objective and methodologically robust motivational analysis in the field of EMS applications. The methodology that we apply - Analytical Hierarchy Process [AHP], a variant of multi criteria analysis- has not to our knowledge been applied in the ‘greening’ of industry. Most methodologies relating to semi-structured interviews of respondents who have applied environmental management tools are either open-ended or apply a 5 point Likert scale or equivalent, where 1-5 corresponds with how important the respondent considers a given factor(e.g. affect on longrun profitability) is in stimulating EMS adoption. The outcome of such studies in general is that many factors contribute but that the extent to which one factor is more or less important remains unresolved. Under AHP, respondents make pair-wise ratings of importance between various attributes (e.g. profitability, corporate social responsibility) as well as between the ‘qualities’ or levels within an attribute (e.g. long term profitability, short term profitability). The outcome of the AHP is a set of attribute and quality weights that reflect their relative importance as well as their implied ranking. In this study, five attributes (profitability; compliance with legislation; competitiveness; social impacts and environmental impacts) with a total of 13 qualities were tested across a sample of respondents from SMEs that already had an EMS in place. The attributes ranged from financial (e.g. increases in production efficiency), social (e.g. improved public perceptions) to environmental (e.g. reduced emissions). We chose to investigate the motivations for on-going EMS adoption as managers would then have had the time to learn the extent to which the potential benefits had actually been realised and the costs incurred.. The results are interesting in that the most important factors were increased long term profitability and the opportunity to enter new product niches. The latter may arise owing to ‘supplier challenges’ applied by larger firms to their SME suppliers. A high scoring was achieved for improving local community relations. The highest score for the environmental attribute was reduced resource usage, linked to decreasing production costs. This score was significantly higher than CSR-type global concerns such as emissions reductions. However, overall environmental outcomes were not rated highly which perhaps suggest that the case that CSR stimulates the adoption of corporate eco-change might be overstated in the literature.