Environmental protection is an important and timely organizational issue that affects long-term development of businesses (Madsen, 2009). While firms are actively engaging in practices, ranging from cleaner production (Rothenberg, Pil & Maxwell, 2001; Yang, Hong & Modi, 2011) to eco-product design (Toffel, 2004), there is growing attention to the significance of supply chain collaboration in environmental protection, such as closed-loop supply chains and reverse logistics (Parmigiani, Klassen & Russo, 2011). As a result, many industry leaders, such as Nike, Hewlett-Packard and S.C. Johnson, share information with their supply chain partners in support of their efforts to eliminate the use of toxic materials, reduce energy consumption and avoid waste production throughout their supply chain processes. However, the Carbon Disclosure Project Supply Chain Report (2011) and Green Chemistry & Commerce Council (2009) suggest that coordination of environmental management practices in a supply chain is fraught with challenges. Such challenges are induced by the complexity of supply chain communication and coordination, suggesting the importance of developing an information sharing mechanism to support environmental management beyond an individual firm. For example, PepsiCo shares information and integrates with its suppliers to successfully reduce their greenhouse gas emissions in the supply chain as a whole (ATKearney, 2011). Drawing in part on extant findings from both the information systems and supply chain management disciplines (Flynn, Huo & Zhao, 2010; Lee, 2000; Wong, Boon-itt & Wong, 2011c; Wong, Lai & Cheng, 2011a), this study explores the effects of environmental information integration established internally across business units and externally with suppliers and customers on the environmental management capabilities of firms.
Environmental information integration (EII) is defined as the information sharing infrastructure that supports environmental information exchange and coordination across business functions and partner firms (Almotairi & Lumsden, 2009; Bajwa et al., 2008; Grover & Saeed, 2007; Lai, Wong, Cheng & Yeung, 2006). While it differs from the traditional supply chain information integration that is confined to supporting such activities as shipment coordination, order fulfilment and so forth (Lai, Wong & Cheng, 2010; Lai et al., 2006; Lau, Hui, Chan & Wong, 2002; Wong, Lai & Cheng, 2009a; Wong, Lai & Ngai, 2009b), it also differs from vertical integration that is concerned with corporate ownership. EII reflects organizational electronic connectivity with supply chain partners that enables firms to acquire and disseminate information to coordinate environmental management practices, ranging from eco-product design, asset recovery, components disassembly and recycling, to reuse, with the aim of mitigating the environmental impact of products throughout their life cycle (Elliot, 2011). For example, by sharing information on product design and material composite with downstream customers (e.g., distributors and retailers), firms enable their customers' participation in such asset recovery tasks as returned product inspection and separation. On the other hand, information related to the condition and amount of retrieved components and materials enable upstream partners (e.g., component suppliers and manufacturers) to identify opportunities for product and process improvement, and plan for inventory.
However, there is limited empirical evidence on how EII may contribute to the environmental management capabilities of firms. This omission in the literature is undesirable because there are few managerial insights into how firms may develop their environmental management capabilities through leveraging their supply chain efforts in environmental protection. The concept of environmental management capabilities is concerned with conserving natural capital, whereby firms reduce their environmental impact by such means as reducing waste in operations, using renewable inputs, and continuously improving their operations to sustain yield with minimum adverse impact to the environment (Goodland, 1995; Klassen & Whybark, 1999). It refers to the ability of firms to integrate environmental issues into business operations (Lee & Klassen, 2008) and is related to the organizational characteristics and management system that facilitates and supports a firm's environmental protection efforts and initiatives. Although there is little empirical evidence of its performance impact and knowledge on how it is developed, a few prior studies have provided anecdotal evidence and discussion on the potential performance impact of environmental management capabilities in terms of corporate environmental innovativeness and adaptability in mitigating environmental damage, preempting future environmental requirements and satisfying customer needs (Handfield, Sroufe & Walton, 2005). The objective of this study is to answer two critical research questions related to the development of environmental management capabilities and its performance impact: (1) How does EII influence environmental management capabilities in terms of corporate environmental innovativeness and adaptability? and (2) What are the implications of developing environmental management capabilities for financial and environmental performance? To answer these research questions, we draw on dynamic capabilities (DC) theory to examine the environmental management capabilities of firms in innovating new environmental practices and adapting to new market environmental demands and expectations, while EII facilitates environmental management capabilities by providing the relevant information.