Global environmental concerns have garnered significant attention in recent times. Concerns about encouraging more ecologically friendly production to lessen the effects of pollution have been raised by industrial operations that cause environmental pollution. The adoption of an environmental management system in Malaysian firms, however, has received little attention. This paper explores the mediating effect of Environmental, Social and Governance (ESG) framework on the relationship between ISO 14001 Environmental Management System (EMS) and ESG performance of Malaysian companies. Partial Least Squares Structural Equation Modeling (PLS-SEM) using SmartPLS 4 was employed to assess the relationship through a conceptual model developed for this purpose. A total of 86 completed responses were collected from the targeted respondents in Malaysia of different industries. With ESG framework as a mediator, ISO 14001 EMS has an insignificant relationship with ESG performance, and the R2 value of ESG performance is 0.243. When the ESG framework is removed, ISO 14001 EMS has a significant relationship with ESG performance, and the f-square value is 0.176. This effect size is considered medium. The results provide an empirical proof for Malaysian companies to adopt the ISO 14001 EMS as a business tool, with ESG framework as a mediator in order to enhance their ESG performance. The study’s conclusions highlight the implications of using ISO 14001 EMS as a tool for businesses in Malaysia to improve ESG performance.

Keywords: Business Tool; ESG Criteria; ESG Performance; ISO 14001; PLS-SEM; mediator

References

Altermaker. (2023, April 21). The definition of eco-design and examples. https://altermaker.com/eco-design-definition/

Amel-Zadeh, A., & Serafeim, G. (2017). Why and how investors use ESG information: Evidence from a global survey. SSRN Electronic Journal, 74(3), 87-99. http://dx.doi.org/10.2139/ssrn.2925310

Amran, A., & Ooi, S. K. (2014). Sustainability reporting: Meeting stakeholder demands. Strategic Direction, 30(7), 38–41. https://doi.org/10.1108/SD-03-2014-0035

Arpit. (2023, August 17). The link between ESG and community engagement. https://vakilsearch.com/blog/the-link-between-esg-and-community-engagement/

Babakri, K. A., Bennett, R. A., Rao, S., & Franchetti, M. (2004). Recycling performance of firms before and after adoption of the ISO 14001 standard. Journal of Cleaner Production, 12(6), 633–637. https://doi.org/10.1016/S0959-6526(03)00118-5

Bansal, P., & Bogner, W. C. (2002). Deciding on ISO 14001: Economics, institutions, and context. Long Range Planning, 35(3), 269–290. https://doi.org/10.1016/S0024-6301(02)00046-8

Bettinazzi, E. L. M., & Zollo, M. (2015). Stakeholder engagement and organizational experiential learning: Evidence from M&A. Academy of Management Proceedings, 2015(1), 13363. https://doi.org/10.5465/ambpp.2015.77

Boiral, O., Guillaumie, L., Heras-Saizarbitoria, I., & Tayo Tene, C. V. (2017). Adoption and outcomes of ISO 14001: A systematic review. International Journal of Management Reviews, 20(2), 411–432. https://doi.org/10.1111/ijmr.12139

Campos, L. M. S., de Melo Heizen, D. A., Verdinelli, M. A., & Cauchick Miguel, P. A. (2015). Environmental performance indicators: A study on ISO 14001 certified companies. Journal of Cleaner Production, 99, 286–296. https://doi.org/10.1016/j.jclepro.2015.03.019

Christini, G., Fetsko, M., & Hendrickson, C. (2004). Environmental management systems and ISO 14001 certification for construction firms. Journal of Construction Engineering and Management, 130(3), 330–336. https://doi.org/10.1061/(ASCE)0733-9364(2004)130:3(330)

Cornell, B. (2020, June 7). ESG investing: Conceptual issues. SSRN Electronic Journal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3621163.

Elleuch, B., Bouhamed, F., Elloussaief, M., & Jaghbir, M. (2018). Environmental sustainability and pollution prevention. Environmental Science and Pollution Research, 25(19), 18223–18225. https://doi.org/10.1007/s11356-017-0619-5

Elytus. (2019). 5 tips to reduce corporate carbon emissions. https://elytus.com/blog/five-tips-to-reduce-corporate-carbon-emissions.html

George, D., & Mallery, P. (2019). IBM SPSS statistics 26 step by step: A simple guide and reference. Routledge.

Greenwald, C. (2010, October 14). ESG and earnings performance - ESG data: A new quality factor. https://www.thomsonreuters.com/content/dam/openweb/documents/pdf/tr-com-financial/case-study/esg-and-earnings-performance.pdf

Gupta, R., & Kalia, C. (2022, February 10). Transparency: A business imperative in a world of ESG-led investing. https://www.ey.com/en_in/tax/india-tax-insights/transparency-a-business-imperative-in-a-world-of-environmental-social-and-governance-led-investing

Janicak, C. A. (2015). Safety metrics: tools and techniques for measuring safety performance. Indiana, Bernan Press.

Khan, P. A., & Johl, S. K. (2019). Nexus of comprehensive green innovation, environmental management system-14001-2015 and firm performance. Cogent Business & Management, 6(1), 1691833. https://doi.org/10.1080/23311975.2019.1691833

Kwon, D. (2002). A study of compliance with environmental regulations of ISO 14001 certified companies in Korea. Journal of Environmental Management, 65(4), 347–353. https://doi.org/10.1016/S0301-4797(02)90570-0

Lau, L.-S., Choong, Y.-O., Ching, S.-L., Wei, C.-Y., Senadjki, A., Choong, C.-K., & Seow, A.-N. (2022). Expert insights on Malaysia’s residential solar-energy policies: Shortcomings and recommendations. Clean Energy, 6(4), 619–631. https://doi.org/10.1093/ce/zkac043

Lettieri, G. (2020, December 8). What is sustainable waste management? https://www.rts.com/blog/what-is-sustainable-waste-management/

Maletic, M., Podpečan, M., & Maletic, D. (2015). ISO 14001 in a corporate sustainability context: A multiple case study approach. Management of Environmental Quality An International Journal, 26(6), 872–890. https://doi.org/10.1108/MEQ-08-2014-0129

Malik, K. (2023, April 14). Community engagement and development in ESG. from https://enterslice.com/learning/the-community- engagement-and-development-in-esg/

Malik, T. (2023, April 15). The importance of board diversity and independence in ESG. https://enterslice.com/learning/the-importance-of- board-diversity-and-independence-in-esg/

McGuire, W. (2014). The effect of ISO 14001 on environmental regulatory compliance in China. Ecological Economics, 105, 254–264. https://doi.org/10.1016/j.ecolecon.2014.06.007

Mustafa, S. A., Othman, A. R., & Perumal, S. (2012). Corporate social responsibility and company performance in the Malaysian context. Procedia - Social and Behavioral Sciences, 65, 897–905. https://doi.org/10.1016/j.sbspro.2012.11.217

NetRegs. (2023). How businesses rely on natural resources and services. https://www.netregs.org.uk/environmental-topics/land/nature-conservation/how-businesses-rely-on-natural-resources-and-services/

Nguyen, Q. A., & Hens, L. (2015). Environmental performance of the cement industry in Vietnam: The influence of ISO 14001 certification. Journal of Cleaner Production, 9(6), 362–378. https://doi.org/10.1016/j.jclepro.2013.09.032

Nick. (2023). How natural resources are important for business: 10 major reasons. https://biotrux.com/how-natural-resources-are- important-for-business/

Nobanee, H., Al Hamadi, F. Y., Abdulaziz, F. A., Abukarsh, L. S., Alqahtani, A. F., AlSubaey, S. K., Alqahtani, S. M., & Almansoori, H. A. (2021). A bibliometric analysis of sustainability and risk management. Sustainability, 13(6), 3277. https://doi.org/10.3390/su13063277

Okafor, A., Adeleye, B. N., & Adusei, M. (2021). Corporate social responsibility and financial performance: Evidence from U.S tech firms. Journal of Cleaner Production, 292, 126078. https://doi.org/10.1016/j.jclepro.2021.126078

Ong, T. S., Lee, A. S., Teh, B. H., & Magsi, H. B. (2019). Environmental innovation, environmental performance and financial performance: Evidence from Malaysian environmental proactive firms. Sustainability, 11(12), 3494. https://doi.org/10.3390/su11123494

Papagiannakis, G., Voudouris, I., Lioukas, S., & Kassinis, G. (2019). Environmental management systems and environmental product innovation: The role of stakeholder engagement. Business Strategy and the Environment, 28(6), 939– 950. https://doi.org/10.1002/bse.2293

Ronalter, L. M., Bernardo, M., & Romaní, J. M. (2022). Quality and environmental management systems as business tools to enhance ESG performance: A cross-regional empirical study. Environment, Development and Sustainability, 25(9), 9067-9109. https://doi.org/10.1007/s10668-022-02425-0

Ronalter, L. M., Poltronieri, C. F., & Gerolamo, M. C. (2023). ISO management system standards in the light of corporate sustainability: A bibliometric analysis. The TQM Journal, 35(9), 256-298. https://doi.org/10.1108/TQM-09-2022-0279

Rondinelli, D., & Vastag, G. (2000). Panacea, common sense, or just a label?: The value of ISO 14001 environmental management system. European Management Journal, 18(5), 499–510. https://doi.org/10.1016/S0263-2373(00)00039-6

Said, R., Hj Zainuddin, Y., & Haron, H. (2009). The relationship between corporate social responsibility disclosure and corporate governance characteristics in Malaysian public listed companies. Social Responsibility Journal, 5(2), 212–226. https://doi.org/10.1108/17471110910964496

Sekaran, U. (2003). Research methods for business: a skill building approach (4th ed). John Wiley and Sons.

Syed, A. M. (2017). Environment, social, and governance (ESG) criteria and preference of managers. Cogent Business & Management, 4(1), 1-13. https://doi.org/10.1080/23311975.2017.1340820

Tarí, J. J., Molina-Azorín, J. F., & Heras, I. (2012). Benefits of the ISO 9001 and ISO 14001 standards: A literature review. Journal of Industrial Engineering and Management, 5(2), 297-310. https://doi.org/10.3926/jiem.488

Telekom Malaysia Berhad. (2021). Telekom Malaysia integrated report 2021. Telekom Malaysia Berhad.

USEPA. (2018). Managing and reducing wastes: A guide for commercial buildings https://www.epa.gov/smm/managing-and- reducing-wastes-guide-commercial-buildings

Veleva, V. (2001). Using sustainable production indicators to measure progress in ISO 14001, EHS system and EPA achievement track. Corporate Environmental Strategy, 8(4), 326–338. https://doi.org/10.1016/S1066-7938(01)00138-5

Vergas, S. (2018, May 27). Sustainability: what the concept means for today’s safety professional-and their employers. https://www.safetyandhealthmagazine.com/articles/17020-sustainability-safety

Zhang, Q., Loh, L., & Wu, W. (2020). How do environmental, social and governance initiatives affect innovative performance for corporate sustainability? Sustainability, 12(8), 3380. https://doi.org/10.3390/su12083380