Using structural equation modeling to test environmental performance in small and medium-sized manufacturers: can SEM help SMEs?

Small and medium-sized enterprises (SMEs), defined as manufacturers employing 500 or fewer people, represent an estimated 70–98% of the manufacturing population globally and together have the potential to significantly impact the environment. Many of these small manufacturers throughout the world are not in compliance with environmental regulations, and even fewer see the need to focus on pollution prevention, implement environmental management systems, or to use life-cycle management or other proactive environmental management practices. A validated environmental performance model for SMEs holds the promise of providing a roadmap to more productive environmental results. This paper discusses structural equation modeling as a useful methodology to validate environmental performance models. The paper shares some insights from the use of structural equation modeling, which was used to evaluate the development of an environmental performance model for SMEs. The model was based on the Malcolm Baldrige Criteria. We review SEM methodology and share results from a population of SMEs in the plastics manufacturing sector. Fit statistics confirmed the overall model fit, but not all of the paths in the model were statistically significant. An assessment of the non-significant paths (from leadership and from the system components of the model to environmental results) led the authors to conclude that an improved definition of environmental results is critical. Education of SMEs on the benefits of improved environmental performance is also warranted.