The benefits of a monitoring strategy for firms subject to the Emissions Trading System

•ETS firms should focus on Internal Environmental Management practices.•Supplier collaboration has little to no impact on firms’ performance.•Supply Chain Management does not encompass Environmental Management in Italy.•Formal monitoring systems increase the effectiveness of Environmental Management. This study tests the impact of Internal and External Environmental Management on performance in firms subject to the European Union’s Emissions Trading System (ETS). A conceptual model is drawn up based on the existing literature, and tested on a large sample of Italian firms. The unit of analysis is single firms subject to the ETS that are involved in Green Supply Chain Management (GSCM). The ETS mechanism has been shown to be marginally beneficial for some firms while supply chain relationships are also influenced by such system. Firms need to identify suitable practices to boost the effectiveness of their environmental strategies. We propose the implementation of a monitoring strategy as a useful practice for firms to be environmentally and economically better off. Our results show that firms subject to the ETS should rely on their own (internal) Environmental Management alone for improving environmental performance, as collaboration with suppliers only has a positive impact on economic performance. However, implementation of a monitoring strategy allows a firm subject to the ETS to partially offset the inefficiency created by the system. We show that environmental collaboration does not become more effective when a monitoring practice is put in place.