Environment is a source of all natural resources. Some natural resources are renewable (water, biological resources etc.) while others are non-renewable (e.g. geological deposits). Manufacturing activities involve transformation of resources from their original locations and natural forms to locations where they are used as final products. These transformation processes generate wastes at different stages and often the environment is used as a repository for waste products. When wastes deposited in the environment exceed the assimilative capacity of the environment, degradation of the environment takes place.

Production processes adopted for most of the manufacturing operations, and usage of certain raw materials result in formation of solid wastes, discharges of effluents through land and water medium, and emissions through air. Pollutants disperse into air, water and soil or ground water or any combination of these. These pollutants invariably cause environmental pollution and contribute to environmental degradation.

Raw materials and other input materials are taken from the environment. These materials undergo conversion process in the factory using utilities like fuel, water and electricity. When the conversion process is over, useful outputs like products and by- products are distributed in the market to reach the consumers. During the conversion process in factory, waste is generated in the form of solid waste, effluent (liquid discharge) and emission (gaseous discharge). This is fed back to the environment. The products and by-products after consumption by consumers leave some waste, which also goes back to the environment.

A model of manufacturing process cycle is shown below. (This is a model framed by the authors referring secondary data available in literature).

Environmental management is the management of those activities of a firm that have or can have an impact on the environment. (Starkey, 1998)

Manufacturing activity has a substantial impact on the environment due to the following reasons:

For efficient management of environmental issues, it is necessary that an executive is held explicitly responsible for all environmental matters. This employee should be well versed with environmental regulations and all environmental issues pertaining to the firm.

While majority of large firms have an employee exclusively to look after environmental matters but in the case of small scale and medium scale firms, only few can afford to do so.

Effective environmental management facilitates good business sense. Improving environmental performance can improve business performance. Improved environmental performance due to efficient environmental management brings to the company long term financial benefits besides other benefits like adherence to legal and regulatory compliance, enhanced public image, employee enthusiasm etc.

An industry can achieve high environmental performance level by conserving raw materials, water, and energy and by minimizing the quantity of discharge of pollutants to the environment.

A model of Environmental Practice and Performance (Source: Levy, 1995)

Environmental practices refer to policies and procedures (e.g. monitoring discharges or provide environmental audits). Stronger environmental practices, i.e. more stringent policies and procedures, lead to better environmental practices. Environmental performance is also directly affected by regulatory, financial and organisational variables.

As far as environmental performance (Labonne, 2006) is concerned, small and medium industries (SMEs) lag behind large firms in terms of environmental management. Large firms are more likely to have an Environmental Management System (EMS) in place, to have dedicated employee with explicit responsibility for environmental concerns, and to haye established a variety of environmental practices (environmental accounting, training, reporting etc.).

SMEs and large firms appear to differ in their capacity to introduce environmental issues in their management systems and to reduce their environmental impacts. SMEs tend to have a more restricted information base upon which to assess the benefits of environmental management, and on ways to reduce their environmental impacts. They are also more financially constrained. Moreover, SMEs and large firms appear to differ in their motivations and seek to reduce the environmental impacts associated with their practices. While SMEs’ actions to reduce their environmental impacts are mostly driven by regulations, larger firms appear to undertake such actions for other reasons, such as improving their image.

According to the European Commission, “An Environmental Management System (EMS) is a problem identification and problem solving tool that provides organizations with a method to systematically manage their environmental activities, products and services and helps to achieve their environmental obligations and performance goals”.

Environmental Management System provides a systematic approach for environmental management in the industry. It enables the industry to combine systems improvement with simultaneous legislative and regulatory compliance. (MoEF Annual Report 2007-08).

An EMS sets out the company’s goals for environmental performance and a plan for achieving those goals. Ideally, company managers will set goals in areas such as compliance with environmental laws, minimization of risks to human health and the environment, use of natural resources, and prevention and reduction of pollution. (CEC, 2005)

The most widely recognised model for an EMS is the International Organisation for Standardization (ISO) 14001 standard. It specifies a set of environmental management requirements for Environmental Management Systems. The purpose of this standard is to help organisations to protect the environment, to prevent pollution, and to improve their environmental performance. This standard, which is applicable to organisations of all types and sizes, is based on five components:

According to the Commission for Environmental Co-operation, the 10 Elements of Effective Environmental Management Systems are:

There are many advantages of having an Environmental Management System. An EMS can help the firms effectively manage environmental issues and also to ensure compliance of regulatory norms, thereby resulting in enhanced reputation and image. From literature it is understood that large firms are more committed to adopt an environmental management system than that of SMEs.

Having an Environmental Management System in place signifies the firm as “being green”. Regardless of the reasons why EMSs are implemented they are usually associated with better environmental performance. However, the association of EMS with better environmental performance does not necessarily mean that the EMS is the cause of better performance. It could well be that some unobserved firm- characteristics (e.g. good management) lead to better environmental performance and the implementation of an EMS (Labonne, 2006).

There are many benefits for superior environmental performance. Many studies have shown that there is a direct relationship between a firm’s environmental performance and its financial performance. Some of the potential benefits of high environmental performance levels are: savings in raw materials and other materials, reduction in use of water, energy and fuel, reduction in generation of solid wastes and other pollutants, better market acceptance, high morale and motivation among employees, and good image and reputation for the company.

Due to more efficient use of raw materials and other inputs, the cost of production will be low. By adopting more efficient production processes output will be improved. Better house keeping eliminates spillage of materials and reduction of wastes, thereby efficiency of the system improves resulting in higher productivity. Thus the firm while improving environmental performance also achieves high overall performance.

When the environmental performance of the firm improves, the environmental risk profile (Feldman et. al. 1996) improves and the firm becomes less risky overall. Therefore, the investment community (stock market) finds it less risky and conducive for investment, thereby the stock price will rise and share holders wealth will increase.

There are many barriers that prevent firms from adopting measures to improve environmental performance. These barriers are mostly applicable in the case of small and medium industries (SMEs) than large industries. Barriers SMEs face in adoption of high environmental performance measures are classified as internal barriers and external barriers.

Though the environmental management policies formulated in India and the environmental management systems made available for adoption are matching with international standards, the environmental performance of our industries needs to be improved. If we analyze the level of environmental performance of large industries and SMEs, it is clear that the latter lag behind the former in achieving higher environmental performance standards. The major reasons for relatively poor performance of SMEs compared to large industries are: financial constraints to invest in new equipments and processes, lack of awareness of environmental benefits, lack of commitment of top management, lack of incentives for high environmental performance and weaker regulatory enforcement. The role of stake holders like customers, suppliers, non-governmental organizations, local community etc. are also vital for achieving higher environmental performance by industries.

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