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RESEARCH BRIEF: Adoption of environmental management systems has a positive impact on financial performance of fashion and textiles firms

Takeaway: Adoption of environmental management systems among textile, apparel, and footwear manufacturers, particularly ISO 14000, not only reduces natural resource consumption and emission of pollutants, but results in enhanced financial performance due to cost-savings. New process designs and new environmental technologies resulting from implementation of environmental management systems lead to superior financial results.   

This study looked at 56 ISO 14000 certified fashion and textiles related firms, and measured change in financial performance after ISO 14000 certification over a 3-year period. Firms adopting ISO 14000 environmental management systems are required to redesign their products or processes with the goal of optimizing the materials used, enhancing the utilization of fabrics, water, and energy.

To estimate the changes in financial performance researchers compared the actual performance with the expected performance of the sample firms.

Key findings:

  1. The adoption of ISO 14000 improves manufacturers’ profitability in the fashion and textiles industry over a three-year period as measured by return-on-assets (ROA).
  2. Profitability improvement started during the implementation stage and continued at least one year after the firm obtained ISO 14000 certification.
  3. Profitability improvement is due primarily to improvement in cost efficiency, measured by return-on-sales (ROS). Certified firms improved up to 2.9 percent in return-on-assets and 3.3 percent in return-on-sales over the three-year period after implementation of ISO 14000.

Key words: environment, environmental management systems, financial performance, fashion, textiles

If citing, please refer to original article: “The impact of environmental management systems on financial performance in fashion and textiles industries”, International Journal of Production Economics, February 2012, Chris K.Y. Lo, Andy C.L. Yeung and T.C.E. Cheng, The Hong Kong Polytechnic University



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