Public interest in the fair trade concept was on the rise in 2004. A Tim Hortons survey suggested customers were concerned about the welfare of coffee growers. Even restaurant franchisees requested that corporate headquarters attend to the issue.

Fair trade certified coffee was an option—but no certification provided the hands-on training, education and technical support that Tim Hortons believed were necessary to improve farming practices and lift farming families out of poverty. Moreover, many certified labels only require 30% of coffee to be ethically sourced, creating a smokescreen on core issues.

To respond effectively, Tim Hortons needed to sift through multiple intermediaries, including roasters, distributers and exporters, and go back to the origin of the supply chain.

Q&A with Jon Johnson, Academic Director, Richard Stockton College
NBS: If the link between corporate environmental performance (CEP) and corporate financial performance (CFP) is so small, as identified in your paper, why is it significant?

Author: Although modest, the relationship between corporate environmental performance and financial performance is positive. In the large majority of circumstances, environmental performance is positively linked with financial performance. Simply put, companies that do right by the environment also do better financially than companies that do not. There is no penalty or bottom line cost to environmental performance.

NBS: What should managers watch out for?

Author: Corporate environmental performance is a modest predictor of financial performance, but the reality is just about everything is a modest predictor of financial performance; many variables go into it. The key is that companies generally benefit both from response to demands—legislative or otherwise—and from proactive environmental initiatives. Research shows that regardless of reactive or proactive initiatives, the relationship is positive.

NBS: What can managers take from this research?

Author: Managers should adopt any initiatives that grow financial returns. It’s wise to develop environmentally efficient operations for corporate environmental performance, which may also lead to non-financial advantages such as improved reputation.

An environmental management system (EMS), such as ISO 14001, helps a company focus on and improve processes. For example, a formal, certified EMS helps to focus on waste reduction and efficiency of processes to generate real, long-term gains.

In a survey of 1222 managers in US manufacturing firms, Melnyk, Sroufe, & Calantone found that certified systems were related to greater change in performance than non-certified systems—all other factors influencing performance remained the same. Hence, certified systems create greater impact than informal or even formal non-certified systems.

Takeaway
A certified EMS triggers a long and hard look at operational processes. It helps to identify critical areas for improvement.

Environmental risk management includes waste treatment, reducing toxicity of emissions, pollution prevention and other operational initiatives.

Investors perceive environmental risk management as insurance, and they reward firms with lower borrowing costs. At 267 publicly traded US firms, environmental management (like waste treatment and reduction of the toxicity of emissions) was linked with a 2.6% lower cost of borrowing.

Takeaway
Buffer your operations with solid environmental risk management. Not only will this increase resource efficiency, it will also decrease your financing costs