Factors Influencing a Manufacturing Firm to Adopt ISO 14001 Standard

Abstract

ISO 14001, established by the International Organization for Standardization (ISO), serves as the preeminent global standard for environmental management systems (EMS), symbolizing an organization’s commitment to sustainability and blending environmental stewardship with strategic business advancement. This study aims to examine the factors influencing a firm’s decision to adopt ISO 14001, leveraging a panel dataset spanning a decade and encompassing 245 firms listed on the Pakistan Stock Exchange (PSX). Our findings, derived from panel logit regressions, show several pivotal insights. Older firms and those with prior experience in implementing the ISO 9001 standard are more likely to adopt ISO 14001. A manufacturing firm’s decision to adopt ISO 14001 is significantly influenced by pressure from foreign customers, highlighting the role of global market dynamics in shaping environmental compliance strategies. We also find that firms exhibiting higher levels of competitiveness are more predisposed to ISO 14001 adoption. Similarly, those emphasizing raw material efficiency tend to adopt the standard, while energy-inefficient firms are also inclined towards its adoption. Furthermore, firms with greater financial performance and capital-intensive firms are more likely to adopt the standard. These findings not only contribute to our understanding of ISO 14001 adoption dynamics but also hold practical implications for policymakers and managerial decision-makers within manufacturing firms, particularly in developing economies.