The Influence of Environmental
Performance on Financial Performance in the
Maritime Transport Industry
Date: 31/1/2014
1st Supervisor: Dr. Johan Lindeque 2st Supervisor: Dr. Sebastian Kortmann
Student name: Konstantinos Thomopoulos Student number: 10292128
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Abstract:
The maritime transport industry is one among the biggest economic sectors in the modern
world, it is estimated that maritime transport, accounts for the transportation of 90% of the world’s
trade resources. This highly competitive sector has recently become subject to a very important
regulatory restructuring involving the inclusion of mandatory measures aiming at the reduction of the
sector’s Green House Gas (GHG) emission footprint. This development is of the highest importance
as it signifies the first ever mandatory GHG emission regulation regime adopted for an international
industry sector. Under this scope, a very interesting research field unveils itself, as the question as to
whether a more sustainable course is also more profitable for the companies operating in the sector.
Since this development is relatively new, this research focuses on the experience gained by the
companies that have had the foresight of being proactive in their environmental strategies, by
acquiring an environmental management certification since 2009, and examines whether they have
outperformed their non-certified equivalents in respect to their financial performance until 2011. The
results fail to exhibit the existence of any significant relationship; however, this outcome clearly
contradicts the generally accepted views on the costs of environmental stewardship, by showing that
the financial performance of companies which acquire environmental certification is not negatively
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Contents table:
1. INTRODUCTION 3
2. CONTEXTUAL BACKGROUND 5
3. LITERATURE REVIEW AND HYPOTHESES BUILDING 10
3.1INSTITUTIONAL SETTING AND STAKEHOLDER PRESSURES 12
3.1.1REGULATORY PRESSURES AND NGOS 15
3.1.2MARKET PRESSURES 15
3.1.3SOCIAL PRESSURES 16
3.1.4SHAREHOLDER PRESSURE 16
3.2ENVIRONMENTAL MANAGEMENT SYSTEMS 17
3.2.1ISO14000 21
3.2.2ENERGY EFFICIENCY DESIGN INDEX (EEDI) 24
3.2.3SHIP ENERGY EFFICIENCY MANAGEMENT PLAN (SEEMP) 25
3.2.4ENERGY EFFICIENCY OPERATIONAL INDICATOR 26
4. METHODOLOGY 27
4.1DATA COLLECTION AND OPERATIONALIZATION 27
4.2METHOD OF ANALYSIS: 29
4.3VARIABLES 31
4.3.1FINANCIAL PERFORMANCE (DEPENDENT VARIABLE): 31
4.3.2ENVIRONMENTAL PERFORMANCE (INDEPENDENT VARIABLES): 31
4.3.3CONTROL VARIABLES: 32
5. RESULTS 34
6. DISCUSSION, LIMITATIONS AND CONCLUSION 40
6.1DISCUSSION OF THE RESULTS 40
6.2LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH 42
6.3CONCLUSION 43
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1. Introduction
Sustainable development strategies, that follow a model for growth that secures social equity
and allows economic progress while preserving resources and ecosystems (Comtois & Slack, 2007),
have become a reality. These strategies aim at providing a balanced growth between the economic,
social and environmental pillars of the triple bottom line (TBL) (OECD, 1996). In this regard, the
transportation system must be economically viable while taking into consideration their social and
environmental impact to their hosting communities. Henceforth, the maritime transport has a
significant role to play, as it is one of the largest and most fundamental industrial sectors in the world
and responsible for the movement of 90% of the global trade resources (IMO, 2011). In accordance
with this, the maritime transport industry is particularly well suited to play an important role towards
the achievement of sustainable development.
Despite the fact that maritime transportation is considered to be a “green” mode of
transportation, it is also a fact that ships move on fossil fuel, which means that they are producing
greenhouse gas (GHG) emissions, thus generating negative effects for the environment (IMO,2011).
This latter fact has raised a number of issues, and a debate has recently started where this very subject
has come under the consideration of local and global authorities. Even though the total amount of the
sector emissions is a percentage of only 2.7% in the global scale, there are thoughts that they should
be reduced even more (IMO,2011).
At the same time, another debate has been raging for quite some time now, addressing the very
same issue and it has troubled the academic society, as it has yet to reach a clear conclusion. This
debate is raised around the question of whether it pays off for a business to operate in a more
environmental friendly way or not (Hart, 1995, Konar and Cohen, 2001). In other words, the debate
states whether the benefits gained by promoting environmental friendly practices are capable of
outweighing their implementation cost (Hart 1995, Friedman 1970).
This study indicates that there are many ways to implement sustainable development by taking
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methods is the introduction of an environmental management system (EMS) where the social and
economic dimensions are also examined.
This research target is to combine the literature based on the aforementioned debate and along
with the recent developments in the maritime transportation sector and a quantitative analysis between
the financial and the environmental performance of the maritime transportation companies operating
in the field to provide suggestions about their possible actions. More specifically, it examines whether
the possession of an EMS certification will influence the financial performance and if so in what way.
Thus the research question for the study is as follows; do companies that exhibit environmental
proactiveness by acquiring an environmental certification outperform those that do not possess an
environmental certification.
This study is structured into 6 sections. In section 2 we present a contextual background in
regards to the developments in the maritime sector. After that, in section 3 the literature on the
relationship between environmental management, the involved parties, and some environmental
management systems are reviewed, which leads to the formulation of the hypotheses. The research
methodology is presented in section 4, where the research design, the variables and the method of
analysis are presented. The results are then presented into section 5. And finally, section 6 is devoted
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2. Contextual Background
Every day thousands tones of tradable goods are moved through the use of ships, ships that are
using fossil fuels and thus, producing GHG emissions footprint. Despite its size the maritime industry
sectors contribution to the global CO2 emissions is accounted only for 2,7%, a rather insignificant
percentage when taking into account that maritime transportation is the largest sector in the cargo
transports (IMO, 2011). However, it is expected that the growing trade will make the maritime
transportation sector to grow exponentially, and in the case that there will not be any significant
developments in the energy efficiency it will result to maritime transports being responsible for 6% of
the world’s GHG emissions by 2020 and 15% by 2050 (IMO, 2011). Henceforth, there is a constantly
increasing urgency to create a regulatory framework that will be able to ensure that the sustainability
perspective will be incorporated to the sectors growth.
In the last decades, “the enhancements in the efficiency of engine and propulsion systems as
well as the improved hull design have significantly reduced the harmful atmospheric emissions from
ships” (IMO, 2011). In addition, “larger ships along with a more rational utilization of individual
vessels have also contributed to reducing the amount of energy needed to transport a given unit of
cargo significantly” (IMO, 2011). Furthermore, it is expected that significant emission reductions will
become possible due to the “recent adoption of the first-ever global mandatory measures to reduce
GHG emissions from an international industry sector” (IMO, 2011).
The concept of sustainable development became popular with the publication of Brundtland
report, “Our common future”. In that report the sustainable development was stated as “the ability to
meet the needs of the current generation without compromising the needs of the future generations”.
The development of the concept started gaining an increasing interest ever since (OECD, 1996). In
1992 at the Earth Summit held at Rio de Janeiro, the environmental issues were linked to those of
development. In addition, in 1996 the OECD designated environmentally sustainable transport as one
that does not endanger public health and ecosystems and meet access needs, while using renewable
resources below their rate of generation, and using non-renewable resources below the development
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The organization responsible for the international operations of the Marine sector is the
International Maritime Organization (IMO) and its mission statement is: safe, secure and efficient
shipping on clean oceans (IMO, 2011). IMO has been working on the prevention of the GHG
emissions from ships since the late 1980s by out-phasing ozone depleting substances from both
refrigerant and firefighting systems. Moreover, “the prevention of air pollution in form of cargo
vapours and exhaust gas has been targeted by adopting strict limits for nitrogen oxides and sulphur
oxides in ship exhaust gas” (IMO, 2011).
“Although the discussions on GHG emission from ships within IMO have started since the late
1980s, it wasn't until the 1997 when the International Convention for the Prevention of Pollution from
Ships (MARPOL) Conference Resolution 8 on ‘CO2 emissions from ships’ triggered the IMO to
undertake a study on GHG emissions from ships and to consider feasible emissions reduction
strategies” (IMO, 2011). Thus, “the first IMO Study on GHG Emissions from ships was presented to”
the Maritime Environmental Protection Committee (MEPC) 45 in October 2000, which identified
technical and operational measures that could potentially reduce the GHG emissions; however, the
same study suggested that these measures alone would not be able to prevent a total growth in
emissions from ships (IMO, 2011).
During MEPC 55 (October 2006) “it was agreed that IMO should continue to take the leading
position in developing GHG strategies and mechanisms for international shipping and cooperate
closely with other relevant UN bodies so as to avoid unilateral action”(IMO, 2011). At MEPC 55 it
was also deemed necessary to update the “IMO Study of Greenhouse Gas Emissions from Ships”
from 2000. Thus the ‘Second IMO GHG Study’ was presented at MEPC 59 (July 2009) (IMO, 2011).
The second IMO GHG study managed to depict the impact of the maritime transportation
industry to the world. The study indicated that the estimated carbon dioxide emitted in the atmosphere
from shipping operations in 2007 was 1047 million tones which corresponded to the 3.3% of the
global emissions for the same year, while the amounts for the international shipping were 870 million
tones and 2.7% respectively (IMO, 2011). Exhaust gases seemed to be the main source of
atmospherically pollution with CO2 being the most important GHG substance emitted. The study
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by 2030 due to an increase in the world trade. Taking this under consideration, the study recognized
that there is a potential for an emissions level reduction up to 75% below the existing levels by
implementing technical and operational measures (IMO, 2011).
At the MEPC 59 the committee examined and agreed upon undertaking several of the proposed
technical and operational measures in order to achieve better GHG emissions level for the
International Shipping Industry (IMO, 2011). Through better operational effectiveness and by aiming
to improve the energy efficiency through improved design and propulsion technologies for new and
existing ships (IMO, 2011). The four most important measures that the Committee approved to
circulate were the “Interim Guidelines on the Method of Calculation of the Energy Efficiency Design
Index for New Ships (EEDI), the Interim Guidelines for Voluntary Verification of Energy Efficiency
Design Index, the Guidance for the Development of a Ship Energy Efficiency Management Plan
(SEEMP) and the Guidelines for Voluntary use of the Energy Efficiency Operational Indicator
(EEOI). These were initially intended for trial purposes on a voluntary basis” (IMO, 2011).
However, “in October 2010, MEPC 61 considered amendments to MARPOL Annex VI as a
potential manner for introducing non-mandatory technical and operational measures into the IMO's
regulatory regime” (IMO, 2011). All the affiliated “parties to MARPOL Annex VI subsequently
requested the Secretariat General to circulate” (IMO, 2011) a text proposing amendments to
MARPOL Annex VI in order to make mandatory the EEDI and the SEEMP for the new ships. The
circulated text of the proposed amendments was considered for adoption at MEPC 62 in July 2011
(IMO, 2011).
Finally, in July 2011 MEPC 62 decided to add another chapter on energy efficiency to
MARPOL VI which concerns the Regulations on the prevention of air pollution from ships and which
would make the undertaking of technical and operational measures mandatory (IMO , 2011).
Despite some initial objections, after a voting procedure the vast majority (59 out of the 64
involved parties in the MARPOL VI) decided that the adopted measures to reduce GHG emissions
from international shipping should be mandatory (IMO, 2011). Specifically, the new added chapter in
MARPOL VI on regulations on energy efficiency for ships proposes that, EEDI will be mandatory for
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added new requirements for surveying and certificating. The new international energy certification
was also included. All those regulations will apply for all merchant ships of 400 gross tonnage or
more, regardless their flag, nationality or owner’s nationality and will take force from January 1st
2013 (IMO, 2011).
It is important to note that, the countries voting in favour of the “amendments represent the 80%
of the world’s merchant shipping tonnage flagged in developing and developed countries and the 75%
of the CO2 emitted” (IMO, 2011), thus enhancing the universality of the measures but also their
effectiveness (IMO, 2011). In addition, “MEPC 62 also agreed on a work plan to further develop the
guidelines related to EEDI and SEEMP and to include development of the remaining EEDI and
SEEMP related guidelines and EEDI frameworks for ship types, sizes and propulsion systems not
covered by the current EEDI requirements” (IMO,2011). “MECP 62 agreed to hold an Intercessional
Meeting of the Working Group on Energy Efficiency Measure for Ships to develop guidelines on the
method of calculation of EEDI for new ships, SEEMP, Survey and Certification of the EEDI and for
determining minimum propulsion power and speed to enable safe manoeuvring in adverse weather
conditions” (IMO, 2011).
The decision to make the regulations of MARPOL VI mandatory is really important, as it
represents the first ever mandatory GHG emission regulation regime adopted for an international
industry sector. However, what still remains unknown is how this development will affect the
companies operating in the maritime sector. Major players in the industry such as Maersk, Mitsui
O.S.K. and Nippon Yusen, acknowledge that the international regulations described above will have
significant financial impacts (Helfre and Boot, 2013). Mitsui states that cap-and-trade schemes and
EEDI place its competitiveness at risk, but agrees with Maersk that the regulations can also generate a
competitive advantage (Helfre and Boot, 2013). Maersk states that regulations will have a direct
impact on its performance in the next one to five years and considers the EEDI/SEEMP and the
SOx/NOx emissions standards as having the highest magnitude of impact. However, all shipping
companies believe that the exact costs associated with the regulations would be difficult to determine
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Companies that are the best prepared to comply with new GHG regulations will be the ones that
have an adequate governance structure in place (e.g. a board committee addressing ESG and climate
change related issues), strong fleet management programs backed by group-wide emissions reduction
targets, and a good track record in terms of fleet management (e.g. a carbon intensity that is in line or
below the industry average) (Helfre and Boot, 2013).
This study aims to provide sufficient evidence on how the undertaking of voluntary
environmental friendly strategies have affected the companies of the sector within the past 3
economical years (2009-2011), in order to provide sufficient evidence about the link between the
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3. Literature Review and Hypotheses Building
Environmental management has been gaining an increasing interest in the past decade (Darnall,
2008). Due to the fact that environmental impact of the global economy operations is becoming all the
more visible, the search for alternative ways has become a necessity. Under this scope, a large number
of scholars have focused their research around this issue and have tried to determine whether it is
profitable for corporations to undertake such practices or not (Porter and Var de Linde 1995, Hart
1995, Wagner 2005).
In the article ‘What is Green’ Miller et al. (1995) propose that ‘Green is the continuous process
with respect to improving environmental performance. He further states that, it would be erroneous to
suggest that being “green” is a fixed state that users of the environment can eventually reach, rather
than, “green” is a path to be taken, with obstacles, wrong turns, and achievements along the way.
Companies do not become “green”, they become “greener” (Miller et al., 1995). In their article Porter
and Van der Linde (1995) provide among the most popular arguments in the field of environmental
management. They argue that environmental investments could be profitable, and that could happen
because there is a possibility that those corporations will develop a competitive advantage through
greener strategies, greater innovations but also due to supportive government regulations
(Karagozoglou et. al. 2000). In a similar line of argument based on different theoretical perspective,
Hart (1995) uses the resource based view and argues that a firm with innovative environmental
strategies can develop firm specific capabilities which can in turn be sources of competitive
advantage.
Furthermore, there many other reasons why companies are undertaking environmental
initiatives, with those being usually driven from a regulatory or social pressure. However, Hoffman
(2005) suggests that in order to be able to fully understand these initiatives we must see the strategic
issue driven by market pressure. Greenhouse Gas (GHG) controls represent a market transition were
companies will be facing new competitive environments. In this new environment some will try to
capitalize from the changes while others to resist them, the winners and the losers will be determined
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However, the benefits from green management are not that easily gained, it requires strong
commitment from all the members of the corporation, from top to bottom (Taylor, 1992). That means
that there are some requirements that must be satisfied. Some of those are, that the organization must
be viewed as a whole rather than a combination of smaller entities, it must have a long term
perspective, conviction on being the best, it must be committed on quality, be able to communicate
with its customers and its employees, and finally be considered as part of its surrounding community
(Taylor, 1992).
According to Konar and Cohen (2001), the relationship between a firm’s environmental and
financial performance has been following two distinct paths as far as the analysis is concerned: it
either compares financial and environmental performance over time; or it analyzes the effect of
environmental performance to the market value of a publicly traded firm (Konar and Cohen, 2001).
Sharma (1998), based mostly on the theoretical perspectives being used, categorizes the
previous researches into three main streams. The first one is focusing on the concept of sustainable
development and attempts to redefine in a broad way the global societal role of Business Corporation,
this stream is supported by studies of scholars such as Hart (1997), Shrivastava (1995a) and many
more. Sharma (1998), argues that most of this literature does not addresses the impact of a sustainable
development model on competitiveness in a sufficient way. The second group of researchers base
their argumentation mostly on a cost-benefit framework, which is that by investing in environmental
practices the organization will get a pay off within an time period through reduced costs of regulatory
compliance, lower waste disposal, energy and material services, etc. (Sharma, 1998). Finally, the third
identified group within the literature attempts to depict the way that the firms may gain competitive
advantage in ways of waste/efficiency cost savings from environmental strategies with the prime
advocates of this academic stream being Porter and Van der Linde (1995).
The main reason for this differentiation in both the theoretical and analytical frameworks of the
previous researches is that in the first place there is a lack of a commonly established variable to
measure an organizations environmental performance (Wahba, 2008). Secondly, there is still not a
consensus about whether a better environmental performance leads to a better financial performance
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of the environmental initiatives are easily identified and quantified, while the benefits are not always
visible, especially in the short-term (Sharma, 1998).
Summing it up, it would seem that there are still many contradictions regarding the appropriate
way to research the benefits of good environmental performance and which should be the theoretical
background needed to be used. However, in an effort to compensate for those differences, we’ll
present in the following sections the most important theories in the field, as well as the interest parties
that affect the organizations decision, in a way that it will allow us to develop the hypotheses which
will answer this study’s question.
3.1 Institutional setting and stakeholder pressures
With the current global trend towards air emission reductions in all sectors, the maritime
transportation industry is experiencing an increased pressure from stakeholders in general, and
regulators in particular, to reduce its impact and improve its efficiency (IMO, 2011).
Institutional theory suggests that organizations that operating within similar social frameworks
of norms, values and assumptions often behave similarly to gain social approval (Scott, 2001). This
theory in fact contradicts the notion that organizations seek only the short-term profits and recognize
the importance of gaining social legitimacy for the long-term survival of the organization (Suchman,
1995).Organizations having achieved legitimacy are those whose actions are seen or presumed to be
desirable or appropriate within some socially constructed system of norms, values, beliefs and
definitions (Suchman, 1995). Hoffman (1997) argues that legitimacy expands beyond the firm’s or
facility’s boundaries, to the broader community of which the firm/facility is a part of. According to
that, it can be said that the firm has its unique stakeholders who are both influencing and are
influenced by the firm’s actions (Freeman, 1984). Furthermore, the companies operate within a given
environment, where according to the Institutional theory they are trying to achieve legitimacy though
isomorphism (Dimaggio and Powell, 1991).
In the Neo-institutional theory it is argued that the organizations and their strategies are
influenced by their broader institutional setting in which they operate, and an institutional setting that
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aspects can be the culture, the history, the policy etc. (Doh et al., 2006). Thus, it is important to
understand that there is a variation both institutional and in the surrounding environment. The
legislation as well as the pressing groups (e.g NGOs) may differ from one country or region to
another by setting different standards or targets thus making the companies practices differ as well
(Doh et al., 2006).
The recent developments indicate that there is a new institutional infrastructure being created in
the field of corporate responsibility, and in this new context it is expected that the organizations will
be held accountable by the external stakeholders for their environmental impact (Waddock, 2008).
According to that, organizations must act properly in order to sustain their legitimacy status and retain
what has been referred by some managers as their “license to operate” (Waddock, 2008).
Wood (1991) suggested that the stakeholders have predetermined contracts and commitments,
internally and externally, and that those commitments need to be fulfilled. This assumption is based
on the logic that there are implicit and explicit costs for the firm for failing to fulfil them (Wahba,
2008). Thus, organizations should identify, evaluate and assess the stakeholders and their relationship
with them, in order to; best navigate in both the public and the private strategic environment in which
they operate. By doing so, they will account for a range of relationships, responsibilities, and
interaction in their strategy formulation and implementation (Doh & al., 2006).
Mitchell et al. (1997) in their article, “Towards a theory of stakeholder identification and
salience: Defining the principle of and what really counts” clarify the role of the stakeholders, as well
as who are the parties that have the greater impact on a company’s decision and who the managers
should hear when the time comes. They define three major classes of stakeholders by the possession
of one, two or three of the following attributes: First the power of the stakeholders to influence the
firm, second the legitimacy of the stakeholder’s relationship to the firm and third the urgency of the
stakeholder’s claim on the firm. Depending on the combination of the above mentioned attributes that
the stakeholder’s possess, the stakeholders can be: Dormant, discretionary, demanding, dominant,
dangerous, dependent or definite, each of these categories has a different level of impact on the firm’s
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In general, the Stakeholder theory research falls under three different approaches, the
descriptive, the normative and the instrumental (Margolis et al. 2003). The descriptive aspect of the
stakeholder theory focuses on whether and in to what extend the managers attend to the various
stakeholders and act to according to their interests (Margolis et al. 2003). Thus, descriptive approach
asks questions like: Which firms respond to what issues; what are the environmental/social
consequences; how do they generate these responses; what is the range of activities; how is it
implemented; is it truly a response to sustainability? etc. Salzmann et al. (2005) suggest that
“descriptive studies have largely concentrated on the managers’ attitude towards corporate
sustainability management and related concepts”. The normative approach to stakeholder theory
examines whether the managers ought to attend only to shareholders, or whether if other stakeholders
should be attended as well, and if so, which are the reasons that give these stakeholders justifiable
claims to the firm (Margolis et al. 2003). Thus the normative approach seeks the answers to issues
like: How should firms respond; what should be their reasons; what is the role of features of the issue,
features of the firm, and features of the impact of a firm’s response for making decisions on
sustainable management;; is it wrong when a firm’s performance goes down but still performs its
central function? (Margolis et al., 2003). Lastly, the Instrumental approach of stakeholder theory
sheds light to the consequences (especially the economic benefits) of attending to a range of
stakeholders and it can be either descriptive by investigating the beneficial for the firm consequences,
either normative where the basis is that there are benefits for the firm from attending to the
stakeholders claims (Margolis et al. 2003).
All these considered, it is safe to say that the organizations receive stakeholder pressure and are
subjected to it, depending on how important the stakeholders are for the organization. Thus, it is
useful to examine certain aspects of the mentioned stakeholder pressure and some of the relevant
parties exercising it, in regards to how they are forcing the organizations towards environmental
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3.1.1 Regulatory pressures and NGOs
Regulatory pressures include the legal mandates, stating that the organizations should use
pollution control technology, attend pollution thresholds, and report their pollution emissions to
reduce their impact to the natural environment (Waddock, 2008). A failure to comply usually leads to
legal sanction, possible loss of operating permit, fines and penalties which eventually constrain the
strategic actions of business (Waddock, 2008). Hoffman (1997) argues that the possibility of a legal
sanction is the primary reason for the organizations to involve in proactive environmental activities.
It is however possible, for the regulatory pressures to create a competitive advantage as well.
When organizations anticipate stricter regulations and have already lowered their emissions bellow
the reporting thresholds (Porter and Var de Linde, 1995). By doing so, they eliminate the need to buy
and install costly pollution control technologies. In addition to that, it is possible for the proactive
organization to form collaborative relationships with the government and assist in the forming of a
regulatory template and influence the environmental policy agenda (Porter and Var de Linde, 1995).
Finally, through these collaborations the organizations can their promote environmental learning,
capacity building, and trust between facilities and regulators (Darnall et. al., 2008)
3.1.2 Market pressures
Nowadays a constantly increasing market pressure is created, as consumers and facilities
become more aware of the natural environment and their environmental footprint (Darnall et. al.,
2008). The increased awareness has been probably caused by the improved availability of information
towards the industrial environmental impact and practices (Darnall et. al., 2008). Under these
conditions it is reasonable that the organizations reputation will be affected as well as its ability to
market its products. By responding to these market pressures the organizations gain moral legitimacy
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3.1.3 Social pressures
Social legitimacy is of vital importance for the long-term survival and competitiveness of a
company (Suchman, 1995). In order for an organization to gain social legitimacy, it must respond to
the demands of various stakeholders with social background, these could be environmental
organizations, community groups, labour unions and trade associations (Hoffman, 2000). These
stakeholders are changing the people’s perceptions, by influencing the public sentiment they alter the
accepted norms and exercise pressure to the organizations to become environmentally responsible
(Hoffman, 2000). The increased awareness of the social actors has also been caused by the improved
availability of information towards the industrial environmental impact and practices (Darnall et al.,
2008). Environmental degradation, disasters and any negative environmental impact resulting from
the industrial activity results into increased scrutiny, giving rise to social demands for improved
environmental management practices (Darnall, 2008).
3.1.4 Shareholder pressure
Friedman (1970) suggested that it is very much likely that the expected cost for a firm undertaking social-environmental responsibility will outweigh the potential benefits, and thus it is
expected to harm the firm’s profitability. This argument is raised due to the fact that some firm’s may
undertake such initiatives while others do not, and since the potential benefits gained by
social-environmental responsibility are not pre-determined it would seem that it creates a disadvantage in the
short term (Friedman, 1970). The main idea behind Friedman’s argument is based in the idea that the
sole purpose of the firm must be to enhance its profitability, and that the only stakeholder important
enough for the organization should be its shareholders.
Despite this argument, it has recently become apparent that the interest in responsible
investment is constantly gaining ground (SRI study, 2012). Organizations managing assets for these
kind of purposes are established, markets created (Dow Jones sustainability Index, FTSE4Good, etc.),
but also there is a constantly increasing amount of invested capital is being directed in that area (SRI
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Environmental, Social and Governance integration directly applies to a 21.8% of the global Asset
Under Management (GSIA). Thus, there is an understanding that there are shareholder concerns
around the implications that a poor environmental reputation will have and how it will affect the
organization. Henceforth, the expectations as far as environmental responsibility is concerned have
increased (Darnall, 2008).
3.2 Environmental Management Systems
During the 1970s and 1980s many companies, began an attempt to get ahead of the complex,
costly and rapidly changing environmental regulation, so they voluntarily started adopting voluntary
pollution prevention practices that sought to reduce or eliminate the sources of pollutants from the
manufacturing process, rather than controlling their emissions (Morrow & Rondinelli, 2002).
As more companies were starting to use pollution prevention techniques and to recognize the
relationships among them, some of them began to integrate those techniques into more comprehensive
management systems (Morrow & Rondinelli, 2002). At that point it became apparent from the
governments, international organizations and several industry associations that it would be
advantageous to create a set of standards that corporations can use as guidelines (Morrow &
Rondinelli, 2002).
This action led to the creation of the EMS systems, which can be referred as a structured
approach to addressing the environmental bottom line (Goh et. al., 2006, Watson et al, 2004). An
environmental management system consists of a collection of internal policies, assessments, plans and
implementation action, affecting the entire organizational unit and its relationships with the natural
environment (Darnall et al, 2008). The creation of the EMS comes in accordance with the Resource
based view of the company as it in fact the manifestation of a company’s CSR efforts. Furthermore,
EMS are regarded as a means to systematically apply business management to environmental issues
in order to enhance a firm’s long-run financial performance by developing processes and products that
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Each facility has a different response depending on the external factors it faces since they are
dynamic and evolving. In accordance to that, they can respond to external pressures in different ways
based on their own resources and the capabilities that have developed over time (Darnall et. al., 2008).
As such, their response time and effectiveness differs significantly. In this sense, the view of the firm
must adapt to take into account the diverse environmental constraints affecting the current
competition (Darnall et. al., 2008). In addition, the existence of environmentally oriented resources
and capabilities with the potential to generate sustainable competitive advantages must also be
considered (Hart, 1995).
There is a major consensus in the literature that organizations which use quality and health &
safety management systems (HSMS) can adopt an environmental management system (EMS) with
greater ease (Kitazawa and Sarkis, 2000). This is due to the similarities expressed between the three
management systems, such as the organization-wide changes and the persistency sawn towards
constantly improving internal operations, but also the commitment of the HSMS towards creating a
safer working environment are strong foundations upon which an EMS can be created. In addition,
the reasoning towards adopting a quality and the HSMS is the same as that of EMS. The long term
strategically planning, and the development of a capacity capable of assessing the progress towards
the achievement of the desirable outcomes, are both aspects results of the same reasoning (Kitazawa
and Sarkis, 2000).
According to the above, an integrated pollution system has the potential to save companies
money by improving efficiency and reducing the costs of energy, materials, fines, and penalties
(Kirkpatrick and Pouliot, 1996). Furthermore, an EMS system can lead to increased investor
confidence towards the company and give it international competitive advantage (Kirkpatrick and
Pouliot, 1996). In addition, there are also advantages like improving the market place, shareholder
advantages, insurance hedging, and higher productivity (Goh et. al., 2006).
There are several other reasons for a company or an organization to adopt a corporate EMS. To
start with cost advantage benefits can be resulted from adopting best practices that focus on the firm’s
production processes (Hart, 1995). These practices can include the redesign of production so that it
by-19
products of processes, and innovating less polluting processes (hart, 1995, Porter and Var de
Linde,1995, Florida, 1996, Cristmann, 2000)
In addition, according to Ambec and Lanoie (2008) there are seven opportunities with which
companies can either increase their revenues or reduce their costs while sawing at the same time
environmental sensibility and act responsible with the earth’s resources. The opportunities to increase
the revenues are: Better access to certain markets, Differentiating the products and selling pollution
control technologies, while the opportunities to reduce their costs are: The risk management and the
relations with the external stakeholders, savings in cost of material, energy and services, reduction in
the cost of capital and lastly to the cost of labor (Ambec and Lanoie, 2008).
Furthermore, Hoffman (2005) argues that there are certain strategic benefits to be gained from
voluntary GHG reductions and that those are clustered into seven different categories:
Operational improvement
Anticipating and influencing climate change regulations
Accessing new sources of capital
Improving risk management
Elevating corporate reputation
Identifying new market opportunities, and
Enhancing human resource management
Because of the many benefits that were mentioned above, there are many MNE’s that adopt
EMS in order to satisfy customer pressures but also to ensure that their suppliers operate in an
environmentally and socially responsible way (Clark, 1999). The peer pressure created by the
companies that have already adopted an EMS and have integrated it to their operations leads to the
adoption of similar practices from their peers in an effort to acquire legitimacy and isomorphism
(Dimaggio and Powell, 1991).
According to Melnyk et al. (2003), the results strongly demonstrate that firms in possession of a
formal EMS perceive impacts well beyond pollution abatement and see a critical positive impact on
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EMS certification experience a greater impact on performance than do firms that have not certified
their EMS.
Hence, on this basis this study will examine if there is any relationship between the possession
of an EMS certification to the financial results of the maritime companies of the gathered sample.
According to the operational, institutional and stakeholder theories, the aspects of which were
analyzed in the literature section above, the main hypotheses are formulated as follows:
H1: There is a significant positive relationship between the implementation of an EMS and the
financial performance of the firm.
H2: The financial performance of the companies that have been implementing an EMS will be
greater than the companies that have not been certified.
So far, there have been several EMS systems created. Hence, for the purpose of gaining an
insight and perspective in the following analysis we will refer in the following sections to the most
acknowledged and to the ones that are currently being considered for mandatory implementation in
the Maritime transportation industry. More specifically, we will refer to ISO 14000 which up to date
is considered the most renowned EMS and its implementation is voluntary. In addition, we will
mention the three new EMS developed targeting specifically the maritime transportation industry,
those are: the Energy Efficiency Design Index (EEDI), the Energy Efficiency Operational Indicator
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3.2.1 ISO 14000
One of the proxies that have been widely used in order to reflect corporate environmental
commitment is the possession of an international environmental management system certification
from the organization. The most renowned environmental management system certification so far is
the ISO 14000 (Wahba, 2008).
The ISO 14000 series was initially released in 1996 and it was revised in 2004, and it is the
Environmental management system (EMS) published by the International Organization for
Standardization. The ISO 14000 series were introduced as an effort to create a relatively common
environmental management system, which will assist firms in meeting increasingly stringent
environmental requirements, while simplifying the process of product export (Donaldson, 1996). The
issue of an internationally accepted standard makes it easier for corporations to develop voluntary
EMS and at the same time it enables shareholders, government regulatory agencies, insurance
companies and financial institutions to assess a company’s commitment to improving environmental
performance and reducing risks (Donaldson, 1996).
The ISO 14000 standards describe the basic elements of an effective EMS. These elements
include creating an environmental policy that sets out objectives and targets, and implementing a
program to achieve those objectives, monitoring and measuring its effectiveness, correcting problems,
and reviewing the system and its overall environmental performance in order to improve it (Goh et al,
2006).
One of the benefits of ISO 14000 standards is, that it is not based on performance criteria, but
rather on compliance. In addition, it does not replace the common environmental performance levels
that a company must comply with, but rather it provides a system for tracking, managing and
improving performance regarding those requirements (Goh et al, 2006). This provides the
organizations with the liberty to achieve compliance through their own means. The reasoning for that
is that better environmental management will indirectly lead to a better environmental performance.
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whether the ISO 14001 actually has any significant results in the environmental performance of the
organization.
The ISO 14000 family of standards deals with many matters concerning the environment, but
the standard that can be characterized as an EMS is the ISO 14001, which is also the world’s most
recognized EMS framework that helps organizations to better manage the impact of their activities on
the environment and demonstrate sound environmental management (Goh. et. al., 2006).
Moreover, ISO 14001 provides guidelines upon which corporations and other organizations can
design an EMS that is specific for the organization and identifies its environmental policy, the
environmental aspects of its operations, its legal and other requirements, and set clearly defined
objectives, targets and management programs for environmental improvement (Jackson, 1997).
The requirements for ISO 14001 are, a system of implementation and operation, including a
clear structure of responsibility for environmental management, programs for training, awareness and
competence among all employees of the facility, internal and external communication of the EMS, a
system of environmental management documentation, a documentation control system, procedures for
operational controls of environmental impacts and emergency preparedness and response are
required (Morrow and Rondinelli, 2002).
Furthermore, the ISO 14001 includes provisions for creating a system that checks and takes
corrective action, which includes monitoring and measurement, reporting non-conformance and
taking corrective and preventing actions, but also record keeping with regard to environmental
management (Morrow and Rondinelli, 2002). Finally, it calls for EMS audit and management review
through which senior management reassesses the suitability, effectiveness, and adequacy of the
environmental management system at appropriate intervals to assure continuous improvement
(Morrow and Rondinelli, 2002).
Thus, in order to acquire the ISO 14001 certification, an organization must fulfill 5 essential
requirements:
1) Commitment and policy
2) Planning
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4) Checking and corrective action
5) Management review and continual improvement
More specifically, organizations that implement the ISO 14001 standard, they must fulfill 5
main sets of requirements in order to get the certification (Link and Naveh, 2006). First, they must
develop and adopt an environmental policy to which top management is committed. Second, they
must design a planning process that identifies all of the environmental issues (legal and other
requirements) of a facility’s operations, which results in a set of a clearly defined objectives and
targets for environmental improvement as well as a set of environmental programs. Third, they must
set up a clear chain of responsibility for environmental management, and programs for training and
raising awareness and competencies among all employees. Fourth the organization must put into place
a system for checking and taking corrective action, monitoring, reporting, and prevention. Lastly, a
management review process is established through which top management reassesses the suitability of
the EMS at appropriate intervals to ensure continuous improvement (Link and Naveh, 2006).
By acquiring an ISO 14001 certification, a company is able to demonstrate to its customers,
suppliers, competitors, and regulators that it is serious about environmental stewardship ( Goh et. al.
2006). There is however, still a long debate whether the certification brings the claimed numerous
advantages to the company, and whether the benefits of the procedure exceed the costs.
There have been reported several benefits regarding the ISO 14001 certification. Goh et al.
(2006) summarize it as the enhanced public image, increased market share (when customers seek only
ISO 14001 certified suppliers), improved profitability through waste reduction, and an improved
competitiveness which is however largely non-quantifiable (Corbett and Kirsch, 2000). Moreover,
Petroni (2001) added the improved customer satisfaction, improved efficiency of operations and
processes, improved community relations, cost reduction, and improved risk management practices
are as part of the benefits. Finally, the benefits list is also addressed by Steger (2000), who argues that
the certification offers increased compliance with complicated regulation, motivated employees,
transparency and effectiveness with lower risks of liabilities, and the better allocation of information
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In the literature we can find a number of studies arguing that adopters of ISO 14001-based
EMSs already are superior performers, and that through the certificate they can signal to the
customers, public authorities and other stakeholders that they are environmentally proactive firms
(King et al., 2005).
However, despite the fact that there are many articles that study the relationship between ISO
14001 EMS standard and the environmental performance improvement of the organization (Florida et
al., 2001; King and Lenox, 2002; King et al., 2005; Potoski and Prakash, 2005), there are but a few
articles that examine the association of the ISO 14001 certification and the financial performance,
which means that there is up to date insufficient evidence to support the hypotheses that the adoption
of ISO 14000 series leads to improved financial performance. Due to that, the EMS that is going to be
used for the analysis in this study is the ISO 14001 as it is the oldest, its efficiency has been
extensively tested and as such it is the most renowned. Furthermore, the other measures are relatively
new, and are still under development; however, since their use is going to be mandatory since the 1st
of January of 2013, it is important to describe how they are designed and what their targets are.
3.2.2 Energy Efficiency Design Index (EEDI)
Among the EMS that have been “developed for the maritime industry is the Energy efficiency
design index (henceforth referred as EEDI) is basically a technical measure developed for the largest
and most energy intensive part of the world’s merchant fleet and it will target a 70% of the emissions
from new ships of the following type: oil and gas tankers, bulk carriers, general cargo and container
ships (for the ships not covered it is expected that suitable formulas would be created in the future)”
(IMO, 2011). EEDI “aims at promoting the use of more energy efficient and less polluting,
equipment and engines”. Depending on the ship size and segments “the EEDI requires a minimum
energy efficiency level per capacity mile (e.g tones mile)” (IMO,2011). “The EEDI provides a
specific figure for an individual ship design, expressed in grams of CO2 per ship’s capacity-mile (the
smaller the EEDI the more energy efficient ship design) and is calculated by a complex formula based
on the technical design parameters for a given ship” (IMO, 2011). It is non-prescriptive,
25
The ship designers are free to use the most cost effective technology as long as it complies with the
regulations (IMO, 2011).
IMO has set reduction levels until 2030 when a 30% reduction rate would be mandatory for
most of the ship types build between 2000 and 2010 and represent the average efficiency for that time
(IMO, 2011). At the present moment the CO2 reduction level (grams of CO2 per tonne mile) is set to
10%. This level will be tightened every five years in order to keep up with the technological
developments of new reduction and efficiency measures, it is also expected that it would stimulate the
innovation and technical developments for the components that influence the fuel efficiency of the
ship from its design phase (IMO, 2011).
3.2.3 Ship Energy Efficiency Management Plan (SEEMP)
Another of the maritime industry’s EMS that are considered for application is the Ship Energy
Efficiency Management Plan (henceforth referred as SEEMP) “is an operational measure that
establishes a mechanism to assist a shipping company and/or a ship to improve the energy efficiency
of its ship operations in a cost-effective manner” (IMO, 2011). “The SEEMP provides an approach for
monitoring ship and fleet efficiency performance over time using the EEOI (see below) as a
monitoring tool and serves as a benchmark tool”(IMO, 2011). “The guidance on the development of
the SEEMP for new and existing ships incorporates best practices for fuel-efficient ship operation, as
well as guidelines for voluntary use of the EEOI for new and existing ships. The indicator enables
operators to measure the fuel efficiency of a ship in operation and to gauge the effect of any changes
in operation, it contains guidance on best practices related to voyage performance, optimized ship
handling, hull and propulsion system maintenance, the use of waste heat recovery systems, improved
fleet management, improved cargo handling and energy management” (IMO, 2011). “It also covers
areas such as fuel types, compatibility of measures, age and operational service life of a ship as well
as trade and sailing area. Thus, the SEEMP urges the ship owner and operator at each stage of the plan
to consider new technologies and practices when seeking to optimise the performance of a ship”
26
Therefore, it can be said that the Ship Energy Efficiency Management plan (SEEMP) aims
towards establishing a mechanism that based on the ships operation improves the energy efficiency of
the company and/or of the ship. It is usually a part of a broader corporate energy management policy
and it gives the company a way to monitor the ship and fleet efficiency performance over time but
also provides the opportunity for the interested parties to consider new technologies and practices in
order to optimize the ships performance (IMO, 2011).
The SEEMP should be developed as a ship specific plan by the ship owner or any other
interested party; this is very important considering the wide variety of different ships that comprise
the global merchant fleet. Its energy efficiency benefits can be attained through four steps: Planning,
implementation, monitoring and self-improvement (IMO, 2011).
3.2.4 Energy Efficiency Operational Indicator
Finally, the third EMS that has been developed specifically for the shipping industry is the
Energy Efficiency Operational Indicator (henceforth referred as EEOI) “provides a consistent
approach for measuring the ships energy efficiency for each voyage or over a certain period of time”
(IMO, 2011). By measuring the energy efficiency it helps the ship-owners and the ship operators to
evaluate the operational performance of their fleet. With the amount of CO2 emitted by ships being
caused by the bunker fuel oil consumption, it can also shed light to the fuel efficiency of the ship
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4. Methodology
This section describes how the research is conducted in order to fulfill its objectives. The
previous studies that have been conducted in the field so far have used an entire prism of
differentiated research methods. Interviews, questionnaires, case studies, and to some extent
quantitative technics are only but a few examples of the methods that have been used up to date. In
this occasion we will make an effort to create and apply a quantitative model for the limited disclosing
industry of Maritime transports.
4.1 Data collection and Operationalization
To evaluate our hypotheses we rely on data that have been drawn from 2 major datasets
sources. Thus, the financial and the environmental variables were drawn from different sources.
In order to acquire the financial variables as well as the control variables the use of AMADEUS
data library was deemed sufficient. The following research pattern was followed in order to acquire
the list of companies: The companies needed to be very large, active, with overview information, and
to operate in the field of the sea and coastal freight water transport. Furthermore, the companies
needed to have available data on employee number, EBITDA, ROA, ROE, total assets, turnover, and
P/L before tax.
The most challenging part was getting information regarding the environmental impact of the
shipping companies, and that is mostly due to the fact that the environmental reporting/disclosure in
the maritime sector is not as transparent as in other sectors. Hence, in order to compensate for the lack
of information the creation of a dummy variable was deemed necessary. This variable will allow us to
form an image regarding the level of environmental commitment of the company. More specifically,
this dummy variable would be the possession of an EMS certification by the shipping company, and
more specifically the possession of an ISO 14001 certification, since it is the most popular and it is the
most commonly used internationally. Furthermore, such a scheme identifies, regardless of the firm’s
size or type, the requirements for certification registration and self-evaluation of an EMS (Wahba,
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In order to create this dummy, a hypothesis that every firm that has all or the majority of its
facilities certified, but also that there is a positive relationship between the certification and the
company’s environmental performance is required.
In order to obtain this variable we underwent a secondary data acquisition procedure in the
websites of companies in the Amadeus financial dataset list that had been already created, and search
for an ISO 14001 certification. We have excluded companies, whose primary activities included the
management of ports and shipyards, thus leaving only the companies that actually operate a fleet.
All in all, the companies to be examined amount to 128, of which 64 of them are ISO certified
companies and the other 64 are Non-ISO certified companies, in addition, the time framework of the
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4.2 Method of Analysis:
The method of analysis that we are going to use can be found in some researches that have a
similar context such as those of Moolna Kawthar & Sannassee Raja Vinesh (2011), Wagner (2005)
and Wahba (2008).The analysis part consists of performing the various tests and then interpreting the
results obtained as to determine the relationship between ROA, ROE, EBITDA, to Size, capital
structure, capital intensity, external factors and more specifically ISO status. Hence, techniques are
employed to analyze the impact of ISO 14001 certification on the financial performance.
More specifically, the analysis of the relationship of environmental and financial performance
of the companies will involve an estimation procedure based on a panel data model, where the
environmental performance indicator along with the control indicators is considered to influence the
economic performance variables which are treated as the dependent variables.
In order to proceed with the analysis, it has been deemed that the most appropriate method of
analysis would be the use the Random and Fixed effects (henceforth, RE and FE) data model along
with a Generalized Least Squares regression, by avoiding running a simple Ordinary Least Squares
regression.
There are two reasons for avoiding the use of a simple OLS in this research. Firstly, according
to Wagner (2005), in order to use the OLS regression in this case we would have to ignore the panel
data structure, and while this might lead to consistent estimates of the regressions coefficients it
would also lead to an overstating of the significance levels and understated standard errors. Secondly,
Wagner (2005) suggests that the method of Generalized Least squares which (GLS) in contrast to the
OLS, would result into efficient estimates of the regressions coefficients.
Those two problems can be resolved with the use of FE and RE models. The difference
between RE and FE models is based on whether the time-invariant effects are correlated with the
regressors (FE) or not (RE). The econometric specification for the RE would be:
yit = α + Xitβ + Ziγ + Uit
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The Uit is composed of the disturbance μi reflecting the left-out variables that are considered
time-persistent (remain same over time) and the idiosyncratic error εit. For the FE model, other than
the random effects model, the assumption is that the individual effects μi is correlated with the
time-variant independent variables Xit. This means that although the basic specification remains, the
interpretation differs, in that the disturbance μi is a constant (and thus represented as a dummy
variable) for each unit of analysis (Wagner, 2005). The fact that the disturbance is a constant in the FE
model implies that all time-invariant variables will be dropped during the estimation. In order to
decide which of the two models is more appropriate, the Wu-Hausman test is performed, where the
null hypothesis is that the preferred model is random effects while the alternative is the fixed effects
(Wagner, 2005). This basically tests whether the unique errors (Ui) are correlated with the regressors,
with the null hypothesis being that they are not.
In addition we are going to use the Breusch-Pagan tests in order to specify whether the use of
the FE or RE regression was more appropriate than a simple OLS regression. The Breusch-Pagan test
has as a null hypothesis that the variances across entities are zero. This is, that there is no significant
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4.3 Variables
4.3.1 Financial performance (dependent variable):
Economic performance can be approximated in the short term through accounting-based
measures such as profitability. Therefore, in this paper, economic performance is measured in terms of
operating profit financial ratios (especially profitability/efficiency ratios). The profitability ratios
being considered in the following research are the Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA), which is essentially the net income with interest, taxes, depreciation, and
amortization added back to it, and can be used to analyze and compare profitability between
companies and industries because it eliminates the effects of financing and accounting decisions. The
second measure is that of the return on assets (ROA) and which gives an idea as to how efficient
management is at using its assets to generate earnings. Calculated by dividing a company's annual
earnings by its total assets (ROA is displayed as a percentage). Finally the third measure used is the
return on equity (ROE) which measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.
Most of these ratios have been used in studies in the US and Europe (Cohen et al., 1995; Hart
and Ahuja, 1996) to assess the relationship between environmental and economic performance and are
therefore considered particularly valuable, partly because they allow (at least to some degree) a
comparison between the results of studies for Europe and the United States. Since multi-colinearity
between these measures is high, they can only be used separately.
4.3.2 Environmental performance (Independent variables):
One of the major problems regarding the environmental responsibility is that there has not been
created an agreed measurement, so researchers have used a wide variety of proxies to express this
term. Wagner et al. (2002) uses the levels of pollution emissions, others examine whether the firm has
been certified by international environmental standards such as ISO 14000 (Wahba, 2008).
