Environmental Innovation, Environmental Performance and Financial Performance: Evidence from Malaysian Environmental Proactive Firms
Round 1
Reviewer 1 Report
This paper aims to study the relationship between environmental performance, environmental innovation and financial performance using survey data for Malaysian manufacturing firms. It aims to examine the mediating role of environmental innovation in these relationships.
The topic is certainly of interest but I have major concerns regarding the originality of the paper. The idea of the mediating role of environmental innovation between environmental engagement and firm performance is not at all new. It has been explored already in the paper by Grekova et al. (2013). Indeed the hypotheses put forward are very similar to this paper, as is the methodological approach. Portions of the paper will need to be re-written or substantially altered to reflect a more original presentation of ideas and concepts.
The introduction need to reflect better the existing research in the field and recognize that analyzing the mediating role of environmental innovation is not new. Following this recognition and citation of the relevant paper, the authors need to express clearly and explicitly what they then contribute to the literature.
Furthermore, I have a conceptual concern regarding the distinction between environmental performance and environmental innovation. In my opinion, both are in many aspects two sides of the same coin. The problem being that both environmental process as well as product innovation refer to the implementation of environmental practices that directly influence environmental performance (thus if we take Figure 1 the arrow would also go into the opposite direction). For example, environmental performance measure no. 4 “Decrease consumption of hazardous/harmful/toxic material” is basically equivalent to environmental product innovation measure no 1. “Use non-polluting or non-toxic materials”. A problem not uncommon to other studies in the field is that environmental innovation at the firm level often refers to the introduction of existing practices that reduce the environmental impact and not to “true” innovation in the sense, for example, of new patents that reduce environmental impact either through new products or new processes to the market. Thus, talking about a mediating effect of environmental innovation in this regard is conceptually wrong in my opinion.
The conceptual framework is plagued by further endogeneities. For example, firms that are doing better may have the necessary resources for the implementation of environmental practices that then influence environmental performance (another arrow that would run in the opposite direction). Such endogeneities have been completely ignored. This means that the conceptual approach has to be revised.
Other comments:
- Figure 1: H2 and H3 should be the other way round.
- Sample size is relatively small and this raises questions regarding the representativeness of the sample for Malaysian manufacturing.
References:
Grekova, K., Bremmers, H. J., Trienekens, J. H., Kemp, R. G. M., & Omta, S. W. F. (2013). The mediating role of environmental innovation in the relationship between environmental management and firm performance in a multi-stakeholder environment. Journal of Chain and Network Science, 13, 119-137.
Author Response
This paper aims to study the relationship between environmental performance, environmental innovation and financial performance using survey data for Malaysian manufacturing firms. It aims to examine the mediating role of environmental innovation in these relationships.
The topic is certainly of interest but I have major concerns regarding the originality of the paper. The idea of the mediating role of environmental innovation between environmental engagement and firm performance is not at all new. It has been explored already in the paper by Grekova et al. (2013). Indeed the hypotheses put forward are very similar to this paper, as is the methodological approach. Portions of the paper will need to be re-written or substantially altered to reflect a more original presentation of ideas and concepts.
The introduction need to reflect better the existing research in the field and recognize that analyzing the mediating role of environmental innovation is not new. Following this recognition and citation of the relevant paper, the authors need to express clearly and explicitly what they then contribute to the literature.
Reply:
Introduction is improved by highlighting the main differences between current study and past studies. Grekova et al., (2013) is also cited in the introduction.
This current study investigates the relationship between environmental performance, environmental innovation and financial performance, in an environmental proactive context. Environmental performance and innovation represent the environmental competitive capabilities resulted from environmental capabilities. In Grekova et al., (2013) paper, environmental innovation is used between environmental management (environmental capabilities) and financial performance. In our paper, sample was taken from ISO 14001 (EMS) certified companies and these companies have fulfil the certification requirement and represent environmental proactive firms. Furthermore, EMS certification enables to signal to the firms’ stakeholders about the quality of its environmental management as well as commitment in environmental protection. As such there is a need to look at to what extent the outcome (environmental innovation and performance) of environmental capabilities affects financial performance. Secondly, environmental innovation as a mediator between environmental performance and financial performance to confirm its mediating roles.
In this study, we take thing slightly different in the scene that in an environmental proactive context, where environmental strategies (environmental capabilities) are mostly in place, how would environmental competitive capabilities (i.e. environmental innovation and environmental performance) influence the financial performance of these firms? As a result, this study aims to investigate the relationship between firms’ environmental performance, environmental innovation and financial performance.
Furthermore, I have a conceptual concern regarding the distinction between environmental performance and environmental innovation. In my opinion, both are in many aspects two sides of the same coin. The problem being that both environmental process as well as product innovation refer to the implementation of environmental practices that directly influence environmental performance (thus if we take Figure 1 the arrow would also go into the opposite direction). For example, environmental performance measure no. 4 “Decrease consumption of hazardous/harmful/toxic material” is basically equivalent to environmental product innovation measure no 1. “Use non-polluting or non-toxic materials”. A problem not uncommon to other studies in the field is that environmental innovation at the firm level often refers to the introduction of existing practices that reduce the environmental impact and not to “true” innovation in the sense, for example, of new patents that reduce environmental impact either through new products or new processes to the market. Thus, talking about a mediating effect of environmental innovation in this regard is conceptually wrong in my opinion.
Replay:
Environmental performance and environmental innovation are representing the environmental competitive capabilities of environmental proactive firms. Environmental performance measured the extent to which environmental practices have led to environmental benefits in their firms. Environmental innovation reflects environmental process and product innovation. The environmental product innovation dimension measures the extent of environmental actions incorporated in products developments. The environmental process innovation dimension includes the extent of environmental actions implemented at manufacturing processes in their firms. It must be noted that, in a developing country like Malaysia, these environmental innovations represent gradual innovation instead of drastic innovation such as new patent and new technology creations. Financial performance measures the extent to which environmental practices have led to financial performance in their firms. Finally, firm size as the control variable indicates that larger firms are more advantageous. This serves as sources of firm performance (Edeltrau et al., 2014; Eltayeb et al., 2011).
The conceptual framework is plagued by further endogeneities. For example, firms that are doing better may have the necessary resources for the implementation of environmental practices that then influence environmental performance (another arrow that would run in the opposite direction). Such endogeneities have been completely ignored. This means that the conceptual approach has to be revised.
Reply:
Our argument is based on the natural resource-based view theories (Hart, 1995: Hart & Dowell, 2011) and “pays to be green” literature (Ambec & Lanbie, 2008) that competitive capabilities in terms of environmental innovation and environmental performance allow firms to have lower cost through resource efficiencies, productivities improvements, and higher revenues potential through differentiated green market position, which then led to superior financial performance.
Other comments:
- Figure 1: H2 and H3 should be the other way round.
Reply: Changed accordingly
- Sample size is relatively small and this raises questions regarding the representativeness of the sample for Malaysian manufacturing.
Replay: Although the targeted population was relatively small (483 firms), and we managed to obtain 27% response rate (124 firms). However, it does fulfil the 1 to 10 rule for PLS-SEM modelling (Hair et al., 2010). In addition, issue of generalisation is added and discussed in the limitation.
References:
Grekova, K., Bremmers, H. J., Trienekens, J. H., Kemp, R. G. M., & Omta, S. W. F. (2013). The mediating role of environmental innovation in the relationship between environmental management and firm performance in a multi-stakeholder environment. Journal of Chain and Network Science, 13, 119-137.
As Suggested added the reference
Reviewer 2 Report
The authors should consider a fundamental methodological question. The sample is taken from a population of firms which have an ISO 14001 Environmental Management System certification. As such it is biased. What happens for firms without an ISO14001 certification, what a comparative analysis or a mixed sample would show? As it stands results hold for certified firms and are not generalizable.
In the results and discussion they argue that environmental innovation "fully mediates" the Env. Perf.- Fin. Perf. relationship. However there is a partial mediation as the direct relationship remains statistically significant (i.e. 0.054).
Sector dummies could be introduced as controls.
The discussion about mediating hypothesis and results should be clarified, selecting only relevant references and being more straight to the mediating relationship.
Figure 2 could be omitted.
Some mistakes need correction, e.g. in description statistics "smaller in size, with total employees below 200", "Table 5 shows...Higher loadings".
Author Response
Comments and Suggestions for Authors
Comment 1: The authors should consider a fundamental methodological question. The sample is taken from a population of firms which have an ISO 14001 Environmental Management System certification. As such it is biased. What happens for firms without an ISO14001 certification, what a comparative analysis or a mixed sample would show? As it stands results hold for certified firms and are not generalizable.
Response: ISO 14001 certification largely focus on control of water and air emissions and waste disposal. For the purpose of uniformity, ISO 14001 certified firms have been selected in order to assure that firms are well established in term of environmental performance. Moreover, ISO certified firm are also involved in the green management practices and they are relatively very conscious regarding the environment.
Comment 2: In the results and discussion they argue that environmental innovation "fully mediates" the Env. Perf.- Fin. Perf. relationship. However there is a partial mediation as the direct relationship remains statistically significant (i.e. 0.054).
Response: Thanks for the correction, we have changed it accordingly, please see line 358, 401-402.
Comment 3: Sector dummies could be introduced as controls.
Response: The categorization of firms based on number of employees is most common. The firm size plays a vital role on environmental innovation and environmental performance. Hence, categorization of the firms based on employee size might yield insights on the variations in the effects of environmental innovation and environmental performance on firm performance.
Comment 4: The discussion about mediating hypothesis and results should be clarified, selecting only relevant references and being more straight to the mediating relationship.
Response: Changed as suggested please refer to line number of 405-406.
Comment 5: Figure 2 could be omitted.
Response: Omitted
Comment 6: Some mistakes need correction, e.g. in description statistics "smaller in size, with total employees below 200", "Table 5 shows...Higher loadings".
Response: Corrected as suggested
Reviewer 3 Report
Page: 1
Lines 29-34
Largeley unsubstantiated claim about the research gap. Need to be developed from extant research.
Page: 2
Revision required in the introduction:
Introduce the topic, outline what is done, identify the gaps and tell us how you will address the gaps. Need to have a writing plan at the end of the introduction- missing now.
What is this? In its first introduction, you need to spell the terminology.
Page: 3
· Evidence not evidences.
· Discuss in depth in sections how this theory is relevant in formulating your hypotheses.
· The second para of this hypothesis requires the elaboration of the natural resource based view.
Page: 4
Methodology: Very good justifications for the variables used in this study
Page: 6
Section 3.2
"Harman’s single-factor test was performed on the date in order to examine the possibility of 182 common method bias. Results point out that the first factor explains 36.99% of the total variance." You need to justify this statement with at least two references.
Page: 12
Lines 341-347 “Mediation analysis presented in Table 9, shows that environmental innovation exerts a full mediation effect ...which serves as a predictor of financial performance." Very confusing generalization. Please make it clearer that the results are from your study (the context, industry etc).
Lines: 374-379 "In conclusion, result of this study...among environmentally proactive manufacturers in Malaysia." Introduced too late and in too much abstract form. These assertions and claims
Page 14
5. Conclusion and Implication
· Is your work consistent with the earlier literature? If yes, how and why are you claiming this? You need to have some important references in the conclusions in support of your claims.
· There is no limitation and directions for future research in the conclusion section. Please add these two sections briefly.
Overall, the paper is an interesting read. However, the claims made need to be clearer and relevant to the sample used and the generalisations made from the findings in the paper.
Author Response
Page: 1
Lines 29-34
Largeley unsubstantiated claim about the research gap. Need to be developed from extant research.
Page: 2
Revision required in the introduction:
Introduce the topic, outline what is done, identify the gaps and tell us how you will address the gaps. Need to have a writing plan at the end of the introduction- missing now.
Response:Added in line 50-53
What is this? In its first introduction, you need to spell the terminology.
Response: In full (line 86), natural resource based theory (NRBT)
Page: 3
· Evidence not evidences.
· Discuss in depth in sections how this theory is relevant in formulating your hypotheses.
· The second para of this hypothesis requires the elaboration of the natural resource based view.
Response: Added explanation of BRBT in developing hypothesis. Line 89-92
Page: 4
Methodology: Very good justifications for the variables used in this study
Response: Thank you
Page: 6
Section 3.2
"Harman’s single-factor test was performed on the date in order to examine the possibility of 182 common method bias. Results point out that the first factor explains 36.99% of the total variance." You need to justify this statement with at least two references.
Response: Added and refer to line 187-188
Page: 12
Lines 341-347 “Mediation analysis presented in Table 9, shows that environmental innovation exerts a full mediation effect ...which serves as a predictor of financial performance." Very confusing generalization. Please make it clearer that the results are from your study (the context, industry etc).
Lines: 374-379 "In conclusion, result of this study...among environmentally proactive manufacturers in Malaysia." Introduced too late and in too much abstract form. These assertions and claims
Response: Added the research context, environmentally proactive manufacturing companies.
Page 14
5. Conclusion and Implication
· Is your work consistent with the earlier literature? If yes, how and why are you claiming this? You need to have some important references in the conclusions in support of your claims.
Response:Added relevant references, line 429
· There is no limitation and directions for future research in the conclusion section. Please add these two sections briefly.
Response: Added Section 6, line 469-482
Overall, the paper is an interesting read. However, the claims made need to be clearer and relevant to the sample used and the generalisations made from the findings in the paper.
Response: Improve accordingly.
Round 2
Reviewer 1 Report
This paper would have needed a very profound revision, but instead the authors have submitted a revised version with only minor and rather “cosmetic” changes.
My two major concerns have not been adequately addressed.
1) Grekova et al. (2013) is mentioned now, but still the paper in my opinion is too close to make a sufficient original contribution. The authors would need at least to explicitly mention that they are following closely the work of Grekova et al. (2013) and apply it to a sample of ISO 14001 EMS certified manufacturers in Malaysia. Then, the authors would need to mention also explicitly the commonalities and differences in their methodological framework and the commonalities and differences in findings. This would require explicit statements and not just general referencing.
2) My second concern was with the conceptual framework. First, the authors have not changed it at all. There is still now clear distinction provided between environmental performance and environmental innovation. Indeed, I think that the authors should rather refer to environmental practices or management instead of performance. Second, - and most importantly - endogeneities are still completely ignored. The analysis is at best about correlations, but the authors still suggest causality in the way they interpret their results. However, causality is at no moment neither tested nor proven.
3) English editing is also still required – particularly the new additions to the paper.
Author Response
Dear Reviewer,
Kindly refer to the attached reply sheet and revised manuscript.
Author Response File: 
Author Response.docx
Reviewer 2 Report
The problem of biased sampling still remains. At least the authors should explicitly recognize in the limitations that the results concern the population of firms with ISO 14001. If they draw on statistics about the percentage of these firms they would qualify appropriately.
Author Response
The problem of biased sampling is addressed in the text in Limitation Section.
Author Response File: 
Author Response.pdf
Round 3
Reviewer 1 Report
Unfortunately, I don’t see reasons to change my opinion about this paper. The authors have again submitted a revised version with only minor and rather “cosmetic” changes.
The study of Grekova et al. is now a little bit more explicitly mentioned, but it is still not recognized for example, that the hypotheses developed in this paper closely follow the study of Grekova et al. or that the methodology adopted is also very similar.
I further re-iterate: The difference between environmental performance and environmental management – thus one of the supposed difference between this study and Grekova et al. is not clearly outlined, nor is there a clear distinction provided between environmental performance and environmental innovation. This point has not been addressed satisfactorily.
Despite the claims of the authors, English editing has also not been addressed properly:
For example:
“In current literature, few writers have been able to draw on any systematic research into what environmental performance, environmental innovation and firm performance.”
The sentence is clearly incomplete.
“Environmental capabilities refer to dynamic capabilities emerge follow-on firms’ environmental strategies implementation”
This sentence is not clear and there are many more examples
Moreover, reference numbering is now incorrect.
Author Response
Comments and Suggestions for Authors
Unfortunately, I don’t see reasons to change my opinion about this paper. The authors have again submitted a revised version with only minor and rather “cosmetic” changes.
Response: Improved accordingly
The study of Grekova et al. is now a little bit more explicitly mentioned, but it is still not recognized for example, that the hypotheses developed in this paper closely follow the study of Grekova et al. or that the methodology adopted is also very similar.
Response: The recognition is added
I further re-iterate: The difference between environmental performance and environmental management – thus one of the supposed difference between this study and Grekova et al. is not clearly outlined, nor is there a clear distinction provided between environmental performance and environmental innovation. This point has not been addressed satisfactorily.
Response:
The purpose of an environmental management is to develop strategies, implement, manage, coordinate and monitor corporate environmental activities. Environmental innovation and environmental performance arise as the outcome of environmental management.
Proactive environmental strategies are associated with emergence of environmental innovation (such as innovative products, improved manufacturing and operational processes), as well as the emergence of environmental performance (such as reduced cost from lower pollutions and waste), that enables firms to realize its competitive benefits. Based on the NRBV theory, environmental innovation and environmental performance constitute environmental competitive capabilities of firms, which are firm specific, rare, valuable and difficult to imitate by others
Environmental performance represents firms’ success in implementing environmental strategies, which forms the basis for innovation practices. Superior environmental performance reflects firms’ ability to identify new environmental knowledge and successfully apply it to improve products and processes (environmental innovation).
Despite the claims of the authors, English editing has also not been addressed properly:
For example:
“In current literature, few writers have been able to draw on any systematic research into what environmental performance, environmental innovation, and firm performance.”
The sentence is clearly incomplete.
“Environmental capabilities refer to dynamic capabilities emerge follow-on firms’ environmental strategies implementation”
This sentence is not clear and there are many more examples
Response: Manuscript was sent for English proofreading.
Moreover, reference numbering is now incorrect.
Response: Numbering is in the correct order now.
