ISO 14001 and innovation: Environmental management system and signal

Abstract

The positive association between ISO 14001 and innovation is generally well established. However, the specific mechanisms across the different stages of the innovation process remain unclear. This study argues that ISO 14001 certification acts as a market signal and investigates its impact on various innovation stages, including innovation propensity, investment intensity, and market success. It also explores the relationship between ISO 14001 and different innovation outcomes, such as product, process, organizational, and marketing innovations. Using innovation survey data and certification registers, the study distinguishes the signalling effect of ISO 14001 certification from the implementation of environmental management systems. A structural model evaluates the certification's impact across innovation stages. The analysis shows no significant association between ISO 14001 certification and innovation propensity or investment intensity. However, certification is negatively associated to certain product innovations, particularly radical innovations. Despite this, ISO 14001 certification enhances innovative sales, especially in firms with lower innovation investment. The study highlights that while the standard may have no impact or even a negative impact on pursuing innovation, it can still foster the commercialization of innovative products by serving as a credible market signal. Extensive robustness checks reduce concerns of misclassification, endogeneity and reverse causality.