Cause of Effect? ISO 14001 Certification and Financial Benefits

The paper analyses the relationship between ISO 14001 certification and financial performance with the aim of understanding the causal influence of selection and treatment effects. The empirical data was collected from a sample of 268 certified firms and 7,232 non-certified firms in Spain between 2000 and 2005. Using a longitudinal methodology that measures the financial performance of the firms before and after certification, the paper finds the differences in performance between certified companies and non-certified firms prior to certification are greater than the differences that exist in the years following certification. Although the performance of certified companies is superior to that of non-certified firms, there is no evidence of improved performance after registration in the certified firms studied. The authors conclude that the superior performance found in certified firms is due to firms with superior performance having a greater propensity to pursue ISO 14001 registrations. The findings suggest that zealous inference of environmental variables being the cause of improved in financial performance may be unwise, as this better performance may be due to selection-effects rather than treatment-effects.