Journal of Cleaner Production 182 (2018) 166e176

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Is sustainability a competitive advantage for small businesses? An

empirical analysis of possible mediators in the sustainabilityefinancial
performance relationship
Silvia Cantele*, Alessandro Zardini
Department of Business Administration, University of Verona, Verona, Italy

a r t i c l e i n f o a b s t r a c t

Article history: The contribution of a single firm to sustainable development is largely dependent on the firm's per-
Available online 7 February 2018 ceptions of the advantages of sustainability strategies and consequent practices. The relationship be-
tween corporate social performance and corporate financial performance has been heavily debated, with
Keywords: mixed results.
Corporate social responsibility Our research is aimed at defining a model in which sustainability practices affect firm financial per-
Sustainability
formance via strategic drivers or antecedents of firm success. We used structural equation modeling on
Firm performance
data collected via survey of 348 Italian manufacturing small and medium-sized enterprises. We included
Competitive advantage
Small and medium enterprises
four constructs dedicated to sustainability, a construct dedicated to financial performance and four
constructs measuring the possible mediators in the sustainability-financial performance relationship.
We found that the social, economic and formal practices dimensions of sustainability positively affect
competitive advantage, mediated by corporate reputation, customer satisfaction and organisational
commitment. We also found competitive advantage to be a second-stage mediator that positively con-
tributes to financial performance.
The contribution of our study lies in having tested a new model of the sustainability-financial per-
formance relationship, considering each dimension of sustainability and a path through different me-
diators in an under-explored contextdthat of manufacturing small businesses in a European country.
© 2018 Elsevier Ltd. All rights reserved.

1. Introduction social performance (CSP) and corporate financial performance

Stakeholder constituencies and global institutions are more and
more requesting companies to be responsive and accountable, and
this put increasing pressure to businesses to implement sustain-
ability practices (SP), in order to contribute to sustainable devel-
opment goals (United Nations, 2015). As a result, numerous
opportunities have emerged to renovate business models towards
sustainability (Bocken et al., 2013; Boons and Lüdeke-Freund, 2013;
Rauter et al., 2015). These recent trends have been accompanied by
long-lasting and lively debates in the literature about the meaning
of corporate social responsibility and the motivations, pressures
and effects of these practices on firms’ performance.
Many studies have sought to demonstrate the ‘business case for
sustainability’ (e.g. Dyllick and Hockerts, 2002; Schaltegger and
Wagner, 2017) by testing the relationship between corporate
* Corresponding author.
E-mail address: silvia.cantele@univr.it (S. Cantele).
(CFP), with mixed results, yet a prevailing frequency of positive
relationships is shown in meta-analysis (Margolis et al., 2007) or
literature reviews (Lu et al., 2014). However, only a small number of
previous studies were devoted to small and medium-sized enter-
prises (SMEs) (Hammann et al., 2009; Maduen ~ o et al., 2016). Sus-
taining the positive relationship hypothesis means arguing that the
social responsibility of (small) business is not only an ethical
vocation of enlightened entrepreneurs, but also a strategic decision
leading to business success. This implies a need to rethink the
sustainable development agenda, which could become a more
widespread and desirable taskdeven for more sceptical, solely-
profit-seeking organisations.
In light of relevant global, business and managerial implications,
the challenge of this stream of research lies in answering questions
such as: What kind of SP can really benefit firms and in which way?
What operational and strategic intermediate goals enable a higher
financial performance (FP) in sustainable business? This article
presents a new model where the perceptions of sustainability and
financial performance are put into relationship mediated by a two-

https://doi.org/10.1016/j.jclepro.2018.02.016
0959-6526/© 2018 Elsevier Ltd. All rights reserved.
 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176
level system of intermediate firm goals: customer satisfaction,
reputation and organisational commitment (as measures of oper-
ational success), and competitive advantage that strategically leads
firms to capitalise on FP. As previous studies have seldom intro-
duced mediating factors between sustainability and financial per-
formance, we decided to go deeper in the path of influence of SP on
FP, considering that SP could first of all lead to enhanced operating
conditions (customer satisfaction, reputation and organisational
commitment e which are here called first-level intermediate
goals), and then conduct to increased FP by the means of a second-
level intermediate goal - which is competitive advantage - as an
increase in profit could stem from higher revenues and/or lower
costs resulting from cost or differentiation competitive strategies.
We contribute to the extant literature by testing and validating this
model in the context of small businesses, which are seldom
considered in quantitative models of the effects of SP on FP. Our
results indicate a positive influence of social, economic and formal
practices of sustainability on competitive advantage and FP,
through customer satisfaction, reputation and organisational
commitment. This confirms the strategic relevance of sustainability
in terms of competitiveness for small businesses.
The remainder of this paper is structured as follows. Section 2 is
dedicated to the literature background, which is based on corporate
social responsibility/sustainability streams, empirical studies on
CSP-CFP relationships and sustainability in small businesses, and
the consequent hypotheses definition. Section 3 is dedicated to the
research design, with a description of the methods of data collec-
tion and analysis. Section 4 presents the analysis of the results and
the discussion, while Section 5 is dedicated to conclusions and
further research development.
2. Background
2.1. Corporate social responsibility and SP and their effects on firm
performance
The term ‘corporate social responsibility’ (CSR) has been
debated for many years, and there remains no real convergence on
its meaning. From a literature review of CSR topics, Dahlsrud (2008)
analysed 37 definitions of CSR and proposed a coding and relative
frequency counting based on five dimensions relating to CSR:
environmental, social, economic, stakeholder and voluntariness
dimensions. These five dimensions are consistent with most of the
theoretical frameworks in which CSR was developed, such as the
corporate social performance (CSP) framework (Carroll, 1979),
stakeholder theory (Freeman, 1984) and sustainable development
concept (Brundtland Commission, 1987).
Carroll's model considers CSR a synthesis of different kinds of
responsibilitiesdeconomic, legal, ethical and discretionarydwhile
more general CSP studies have highlighted the need to consider the
principles, processes and results of CSR (Wood, 1991). This mana-
gerial approach is consistent with the idea of CSR as a voluntary
practice, rather than a moral obligation. The stakeholder theory
contributes to the definition by clarifying to whom the firm is in
fact responsible (Clarkson, 1995) and to highlight the instrumental
and normative implications of the CSR approach (Donaldson and
Preston, 1995). Finally, attention to the environmental, social and
economic dimensions together recalls the sustainable development
concept, which is traditionally defined as ‘Development that meets
the needs of the present without compromising the ability of future
generations to meet their own needs’ (Brundtland Commission,
1987). However, similar to CSR, the sustainable development
term is a controversial concept that fosters debates and different
interpretations. Hopwood et al. (2005) analysed three different
approaches to sustainable development:
167

‘status quo’dwhose promoters stress economic development as
a solution to both social and environmental problems

‘reform’dwhich seeks changes to policy and regulation

‘transformation’dthe most proactive approach, which pro-
motes an active role of people who are outside of power centres
(indigenous groups, people with low incomes, the working class
and women).
All these approaches are coexisting, and perhaps the real chal-
lenge is not to convert all people to transformation, but to deter-
mine effective motivations for each approach in order to
implement the sustainable development concept in practice. This
raises a need to rethink sustainability in order to move beyond the
traditional notions to include all emerging issues (Ramos, 2009).
In regard to businesses, sustainable development at the macro
level should be transformed into sustainability management at the
organisational level, beginning with the idea that firms should
devote attention to all linked dimensions of sustainability (Lozano,
2008) and consequently measure their goals and performance with
a triple bottom line (TBL) approach (Elkington, 1997), such as that
proposed within the Global Reporting Initiative (Hussey et al.,
2001). However, it is necessary to determine what could really
push firms to embed sustainability in their practices at all relevant
management levels, such as normative, strategic and operational
management (Baumgartner, 2014). If the ethical driver proposed by
traditional CSR and business ethics is not generally agreed
upondgiven its suspected contrast with traditional profit max-
imisationdthe real challenge is to further demonstrate the busi-
ness case for sustainability (Dyllick and Hockerts, 2002; Porter and
Kramer, 2006) in order to persuade even the most sceptical sup-
porters of the status quo.
Attempts to demonstrate the opportunities stemming from
integrating sustainability into business have nurtured a long-
standing stream of research devoted to studying the relationships
between CSP and CFP. These studies began in the early 1970s
(Bragdon and Marlin, 1972; Moskowitz, 1972) and have contributed
to feeding a still lively debate that is synthesised in reviews (Griffin
and Mahon, 1997; Margolis and Walsh, 2003; Wood, 2010; Wood
and Jones, 1995) and meta-analyses (Margolis et al., 2007;
Orlitzky et al., 2003). Recently, Lu et al. (2014) analysed 84 arti-
cles published between 2002 and 2011, and found that different
results relating to CSP-CFP relationships might stem from different
ideas and measurements of CSR. This highlights the need to use
different ‘decomposition’ of CSP and CFP constructs, and that the
enquiry should be linked to different institutional and business
environments.
Previous reviews also highlight that the context of SMEs is
under-investigated, as studies usually refer to large United States
companies, and heavily used ready-made ratings (such as the old
KLD rating) instead of measuring sustainability by the direct
collection of firms’ actual practices. Another relevant limitation is
the lack of adequate investigations on the real path of influence, as
possible mediator or moderator factors may have not been fully
investigated yet (Cantele et al., 2015; Margolis and Walsh, 2003).
2.2. Sustainability in SMEs
SMEs are the prevailing form of business in Europe, where more
than 99% of all companies are considered small (European
Commission, 2016). The literature on CSR has usually depicted
SMEs as organisations with peculiar features that differentiate
them from large and multinational corporations (Jenkins, 2004).
Among the relevant differences between SMEs and large com-
panies, previous studies have cited the relevance of SMEs' entre-
preneur/chief executive officer values (El Baz et al., 2016); SMEs’
168 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176
approach to CSR, which is more ethical or discretionary than eco-
nomic (Jamali et al., 2009); the prevalence of informal and un-
conscious practices of CSR (Lee et al., 2015; Va zquez-Carrasco and
pez-Pe
Lo rez, 2013); the reduced propensity to communicate CSR
practices externally (Fassin, 2008; Jenkins, 2006), also due to their
low visibility or the idea that their social and environmental effects
are negligible (Battisti and Perry, 2011; Roberts et al., 2006).
Research on CSR has also concentrated on the barriers faced by
SMEs (in terms of resources, time and knowledge) when imple-
menting social responsibility (El Baz et al., 2016; Jenkins, 2006;
Roberts et al., 2006) and on SMEs' difficulties in establishing a
business case for sustainability (Battisti and Perry, 2011; Lee et al.,
2015). Only a few quantitative studies have analysed the effect of
CSR or environmental practices on SMEs' performance (e.g. Agan
et al., 2013; Bagur-Femenias et al., 2013; Hammann et al., 2009).
Most studies are devoted to the environmental dimension of sus-
tainability, and analyse in detail the impacts of different processes
on firm performance: in a study of Turkish SMEs (Agan et al., 2013)
the results highlight a positive impact of treatment, design and
environmental management systems on performance, while other
processes like reduction and recycling of waste products did not
appear as positively linked with firm performance. Further, cost
savings and competitiveness could be reached by the adoption of
environmental practices such as energy saving, water saving, se-
lective collection of solid residues and using ecological products
(Bagur-Femenias et al., 2013); in this case competitiveness acts also
as a mediator in the relationship with firm performance. When
competitiveness is used as a measure of firm's outcome, the impact
of environmental performance on it could be mediated by image/
reputation and relational marketing, as suggested by Jorge et al.
(2015) with their study on a sample of Spanish SMEs.
When CSR practices are concerned, the focus is on stakeholder
relationships, whose quality is proved to lead to value creation
(Hammann et al., 2009): CSR practices towards employees can
reduce absenteeism and increase satisfaction and motivation, and
subsequently affect value creation by means of cost reduction.
Similarly, CSR practices towards customers increase customer
satisfaction, and subsequently contribute to increased profit and
cost reduction. More, engagement with society can have a positive
influence on image/reputation, and consequently lead to increased
profits. Further, relational improvements with stakeholders can act
as mediator between CSR practices and competitive performance of
SMEs (Maduen ~ o et al., 2016).
Considering that the large majority of studies on CSP-CFP re-
lationships have been based on large companies and had mixed
results, there is a real need for studies to demonstrate that the
business opportunities stemming from sustainable management
are not an exclusive benefit for large corporations. This could lead
small entrepreneurs to rethink their approach to sustainability in a
more strategic manner (Baumgartner and Rauter, 2017; Engert
et al., 2016). Among the drivers of sustainability, factors such as
the business case, reputation and customer expectations are those
most recognised (Lozano, 2015). The challenge to a more effective
influence on sustainable development could be demonstrating that
not only ‘ethically enlightened’ small entrepreneurs adopt sus-
tainability management, but that all businesses can benefit from
these practices, regardless of their approach towards sustainable
development issues.
2.3. Research hypotheses and model development
The aim of this research was to test a model of the firm SP-FP
relationship, mediated by some strategic/operational drivers of
firm success (reputation, customer satisfaction, organisational
commitment and competitive advantage), in order to define the
relative scales and validate this model in the context of small
businesses. Starting from previous studies, which seldom intro-
duced mediating hypothesis in the relationship between SP and FP,
we decided to test a complete model introducing different medi-
ators organized in a two-level system; this stemmed from the idea
that SP impact first of all on operating performance, by enhancing
customer satisfaction, reputation and organisational commitment;
but this operating improvements need to be included in competi-
tive strategies in order to create economic value, through cost
reduction and/or revenues increase: this is why competitive
advantage is considered a second-level mediator in the model.
For the constructs of Sustainability Practices (SP), we based our
model on previous studies on CSR (Table 1), which have usually
chosen between the ‘Carroll’ structure of CSR (economic, legal,
ethical and discretionary) (e.g., Maignan and Ferrell, 2001; Saeidi
et al., 2015) and the ‘stakeholder’ structure of CSR (Maduen ~o
et al., 2016). In contrast, Reverte et al. (2016) and Alvarado-
Herrera et al. (2017) chose the TBL approach (Lozano, 2012;
Lozano and Huisingh, 2011) by including indicators that referred
to social, economic and environmental dimensions. In trying to
match the latter two frameworks (TBL and stakeholder) and adapt
them to the SME context, we used the following constructs: the
environmental dimension, the social dimensions comprising
employee items, and the economic dimensions dedicated to busi-
ness partners (customers and suppliers). In addition, we employed
a fourth construct dedicated to formal CSR practices, such as cer-
tifications, performance measurement and reporting (Godos-Díez
et al., 2011; Perrini et al., 2007); we decided to add this construct
because the practices here considered (e.g. certifications, reporting)
are usually referred to different stakeholders or dimensions of
sustainability, and so it was difficult to insert them in the three
preceding constructs; furthermore, we considered the literature of
CSR in SMEs, which has often underlined SMEs' constraints and
reduced awareness of CSR and their low adoption of formal prac-
tices. By considering that the literature, we decided to keep the
constructs separate in order to demonstrate the specific relation-
ships with the hypothesised performance variables.
We also considered performance as a multidimensional and
subjective concept, as we measured the firms' perception of success
by linking FP with ‘operational performance’, which includes
different drivers, antecedents and intermediate measures of firm
success. Previous studies have sought to deepen the effect of CSR in
improving some external dimensions of operational performance,
such as customer satisfaction and reputation (e.g., Galbreath and
Shum, 2012), or the internal dimension (employee commitment:
Rettab et al., 2009). Further, from a strategic management
perspective, CSR is supposed to affect competitive advantage
(Saeidi et al., 2015). At the end, these measures of operational
performance lead (via the described system of mediators) to FP,
measured as the firm's perception of superior performance on
sales, profit margin and return on investment, compared to com-
petitors (Bagur-Femenias et al., 2013; Saeidi et al., 2015).
A firm has a competitive advantage when “it is implementing a
value creating strategy not simultaneously been implemented by
any current or potential competitors” (Barney, 1991, p. 102). So
competitive advantage is traditionally related to value creation
(and thus to financial performance), and can be achieved by cost or
differentiation strategies (Porter, 1985); but more recent studies
highlighted that competitiveness is linked with corporate resources
and capabilities developed through CSR practices (Porter and
Kramer, 2006). Moreover, environmental management practices
can introduce innovation (such as green products and processes)
that leads to competitive advantage (Chang, 2011; Chen et al.,
 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176 169

Table 1
Reference model and scales to measure SP.

Study Scale Dimensions/Items Reference model

Maignan and Ferrell, 2001 Corporate Economic citizensip Carroll (1979)

Citizenship Legal citizenship
Ethical citizenship
Discretionary citizenship
Saeidi et al., 2015 CSR Legal Carroll (1979)
Ethical
Economic
Discretionary
~ o et al., 2016
Maduen CSR practices Environmental practices Stakeholder approach;
Employees practices Turker (2009a, 2009b)
Local community practices
Customers practices
Reverte et al., 2016 CSR Social dimension Triple Bottom Line (TBL)
Economic dimension Lozano and Huisingh (2011), Lozano
Environmental dimension (2012)
Alvarado-Herrera et al., Perceived CSR Social equity Triple Bottom Line (TBL)
2017 Environmental protection Sustainable Development (SD)
Economic development
Perrini et al., 2007 CSR strategies Environmental management Stakeholder approach (Tencati et al.,
Employment 2004)
Supply chain þ CSR practices approach
Local community
Controlling and reporting (Ethical code, social report, SA 8000, environmental
report)
Community volunteering
Godos-Diez et al. (2011) CSR practices Iso 9001 CSR practices approach
Iso 14001 Prado-Lorenzo et al., 2008 þ GRI
Ohsas 18001
Code of Ethics
CSR report

2006), or can have a positive influence on competitive performance mediating effect of customer satisfaction (CS).
via the mediating effects of image and relational marketing (Jorge
H1b. (ENV / CS / CA): Environmental dimension of sustain-
et al., 2015). Further, CSR practices can have a positive impact on
ability (ENV) positively influences competitive advantage (CA),
competitive advantage via the relational capacity of the firm
through the mediating effect of customer satisfaction (CS).
(Maduen ~ o et al., 2016), or via improving customer satisfaction
(Saeidi et al., 2015) . The underlying idea in these studies is that H1c. (EC / CS / CA): Economic dimension of sustainability (EC)
competitive advantage can be attained through improved re- positively influences competitive advantage (CA), through the
lationships and higher satisfaction with different stakeholders. mediating effect of customer satisfaction (CS).
Customer satisfaction can be defined as an overall evaluation of
H1d. (PR / CS / CA): Formal practices dimension of sustain-
the firm's products and services given by its customers on the basis
ability (PR) positively influences competitive advantage (CA),
of a relationship with the firm over time (Galbreath, 2010). The
through the mediating effect of the customer satisfaction (CS).
relationship between CSR and customer satisfaction can be
described in light of equity theory (Oliver, 1997), which posits that H1e. (CS / CA / FP): Customer satisfaction (CS) positively in-
satisfaction will result if, during exchanges, customers feel equi- fluences financial performance (FP), through the mediating effect of
tably treated (that their input to the exchange is balanced with the competitive advantage (CA).
output from the exchange). If we consider CSR in light of stake-
Reputation can be defined as the overall estimation of a firm by
holder theory, respect and inclusion of customer expectations in
its stakeholders, which is expressed by the net affective reactions of
strategy and operations can result in a better perception of the firm
customers, investors, employees and the general public (Fombrun,
by the customer. Higher attention paid to the quality of products
1996). It is a multifaceted concept that can include evaluation of
and services offered can be considered part of CSR, according to
different firm aspects, including the quality of employees, quality of
Carroll (1979) and Maignan et al. (1999)dparticularly with respect
management, FP, quality of products and services, market leader-
to firms' economic responsibility. Further, the ethical approach
ship, customer orientation, attractiveness, social responsibility,
being declared and implemented by a socially responsible firm can
ethical behaviour and reliability (Schwaiger, 2004). CSR can be
be perceived by customers as the demonstration of a higher level of
considered a prerequisite of reputation (Rettab et al., 2009)dwhile
equity. In the balanced scorecard model (Kaplan and Norton, 2007),
a good relationship with business partners (particularly customers)
customer satisfaction is a measure of customer perspective, which
can improve the business reputation component, good relation-
can be triggered by improvement of internal processes. Galbreath
ships with all other stakeholders contribute to the ‘social’ aspect of
and Shum (2012) and Saeidi et al. (2015) demonstrated that
reputation (De Castro et al., 2006). Consequently, we sought to test
customer satisfaction mediates the relationship between CSR and
these further hypotheses:
firm performance. Thus, considering the deconstructed and
multidimensional concept of sustainability used here, we can ex- H2a. (SOC / REP / CA): Social dimension of sustainability (SOC)
press our first five hypotheses as follows: positively influences competitive advantage (CA), through the
mediating effect of reputation (REP).
H1a. (SOC / CS / CA): Social dimension of sustainability (SOC)
positively influences competitive advantage (CA), through the H2b. (ENV / REP / CA): Environmental dimension of
170 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176

sustainability (ENV) positively influences competitive advantage
(CA), through the mediating effect of reputation (REP).
H2c. (EC / REP / CA): Economic dimension of sustainability
(EC) positively influences competitive advantage (CA), through the
mediating effect of reputation (REP).
H2d. (PR / REP / CA): Formal practices dimension of sustain-
ability (PR) positively influences competitive advantage (CA),
through the mediating effect of reputation (REP).
H2e. (REP / CA / FP): Reputation (REP) positively influences
financial performance (FP), through the mediating effect of
competitive advantage (CA).
Employee organisational commitment designates ‘the extent to
which a business unit's employees are fond of the organization, see
their future tied to that of the organization, and are willing to make
personal sacrifices for the business unit’ (Jaworski and Kohli, 1993,
p. 60). Similarly, with customer satisfaction, it is reasonable to
believe that fair treatment of employees will result in better re-
lationships with employees, and could contribute to better align-
ment of the employees' tasks with the firm's strategy. Some studies
showed the presence of a positive relationship between CSR and
organisational commitment: Peterson (2004), found that this
relationship was stronger among employees who believed highly in
the importance of the business's social responsibility and with
reference to the ethical measure of corporate citizenship (following
the Carroll model). Turker (2009a) analysed how CSR affects the
organisational commitment of employees based on the social
identity theory. He found that CSR towards social and non-social
stakeholders, employees, and customers were significant pre-
dictors of organisational commitment. In a study based on
manufacturing firms in the United States, Stites and Michael (2011)
found that both community- and environmentally-related CSP are
positively related to organisational commitment. Based on these
previous findings, we posit that:
H3a. (SOC / OC / CA): Social dimension of sustainability (SOC)
positively influences competitive advantage (CA), through the
mediating effect of organisational commitment (OC).
H3b. (ENV / OC / CA): Environmental dimension of sustain-
ability (ENV) positively influences competitive advantage (CA),
through the mediating effect of organisational commitment (OC).
H3c. (EC / OC / CA): Economic dimension of sustainability (EC)
positively influences competitive advantage (CA), through the
mediating effect of organisational commitment (OC).
H3d. (PR / OC / CA): Formal practices dimension of sustain-
ability (PR) positively influences competitive advantage (CA),
through the mediating effect of organisational commitment (OC).
H3e. (OC / CA / FP): Organisational commitment (OC) posi-
tively influences financial performance (FP), through the mediating
effect of competitive advantage (CA).
Fig. 1 presents the series of hypotheses described above in order
to graphically describe our model of the SP-FP relationship, in
which SP is a deconstructed vision of four dimensions of sustain-
ability, while customer satisfaction, reputation and organisational
commitment are first-level mediators, and competitive advantage
is the second-level mediator leading to FP.
3. Research method
In order to gather data on CSR practices and performance im-
plications in SMEs, we administered a questionnaire via a web
survey. We contacted 3553 small and medium Italian
manufacturing firms, mainly extracted from the AIDA Bureau van
Dijk financial reporting database: from the database we selected all
the firms based in the provinces of Verona and Vicenza, which have
a manufacturing industry code and comply with the EU definitions
of SMEs (turnover under 50 million euros, employees under 250);
to avoid extremely small firms we excluded those under 1 million

Social
Dimension
(SOC)
Organizational
Commitment
(OC)

Environmental
Dimension
(ENV)

Competitive Financial
Reputation
Advantage Performance
(REP)
(CA) (FP)
Economic
Dimension
(EC)

Customer
Satisfaction
Formal (CS)
Practices
Dimension
(PR)

Fig. 1. The study model.

 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176
euros and without employees; further, SMEs from other Italian
provinces were added as they were known for having a higher
standard of sustainability practices (environmental or social certi-
fications, sustainability reporting, CSR awards): this was made to
assure a differentiation within the sample in terms of sustainability
practices’ level and in terms of geographical location. We shared
the questionnaire with some entrepreneurs and business consul-
tants in order to verify the readability and clarity of questions, and
performed a pilot survey with a sample of firms before the com-
plete sending, undertaken from May to July 2015.
We received 405 questionnaires, with 336 complete and 12
partially complete. For this reason, we employed third-generation
techniques (Dong and Peng, 2013) to manage our missing data
(12 questionnaires). Using Little's test, we found that our missing
data followed the missing completely at random (MCAR) assump-
tion (Chi-square [178] ¼ 195.649, p ¼ .173). Given the MCAR dis-
tribution, we employed expectation maximisation remedy, which
is well suited to preliminary data analyses (Karanja et al., 2013). We
then employed full information maximum likelihood in SEM
analysis, which produces unbiased parameter estimates. Using this
method, our final sample comprised 348 complete and usable
questionnaires. The respondents were mainly partners or board
members (51.12%, followed by CFOs e 24.16%, operations, market-
ing or HR managers e 20.79% and general managers e 3.93%) who
had worked in the firm for at least three years (81.46%), who were
male (54.49%), were aged between 35 and 54 years (66.01%) and
had a high school degree (60.39%). A Mann-Whitney U test on the
respondents' organisational role, tenure, gender and firm industry
confirmed that non-response bias should not be a concern.
The structure of the questionnaire reflected the constructs we
sought to investigate by SEM, as described in the hypotheses
formulation section. The constructs included items measured by
scales based on the literature. We included four constructs dedi-
cated to sustainability (defined after a review of CSR scales used in
similar research) (Agan et al., 2013; Bagur-Femenias et al., 2013;
Gadenne et al., 2009; Lindgreen et al., 2009; Perrini et al., 2007); a
construct dedicated to FP (Bagur-Femenias et al., 2013; Saeidi et al.,
2015); and constructs measuring the possible mediators in the SP-
FP relationship: corporate reputation (Fombrun and Shanley, 1990;
Schwaiger, 2004), customer satisfaction (Galbreath and Shum,
2012), organisational commitment (Jaworski and Kohli, 1993;
Maignan and Ferrell, 2001; Maignan et al., 1999) and competitive
advantage (Chang, 2011; Chen et al., 2006). Table 2 presents the
items contained in each construct and the scale reference. We used
a five-point Likert scale for the answers. Constructs were measured
based on respondents' perceptions, as many studies on manage-
ment do (e.g. Alvarado-Herrera et al., 2017; Lu et al., 2014; Rettab
et al., 2009). On the other hand, for financial performance, we
compared the perceived values measured by the survey with the
indicators (ROA, ROS, and turnover of the last 3 years) extracted
from financial statements in the AIDA database and found no sig-
nificant differences between perceived and actual performance.
4. Data analysis, results and discussion
After the collection of questionnaires, the preliminary analysis
of internal validity was encouraging (normalised Cronbach's alpha:
0.862, higher than 0.70dsee Cortina, 1993). Thus, the questionnaire
was considered suitable.
The results demonstrated that the data were unidimensional.
We also tested the influence of four classical control variables: in-
dustrial sector, respondents' organisational role, firm size (em-
ployees and revenues). None of these factors proved significant. We
used two different methods in order to assess reliability. First, we
assessed internal consistencies. The value of normalised Cronbach's
171
alpha for the items was 0.906dhigher than the minimum value of
0.7 suggested by Cortina (1993). We also examined the value of
Cronbach's alpha for each of the items to check whether the
exclusion of any items could improve the overall alpha. However,
the data revealed only four items whose removal would have
increased the value of alpha to just 0.907. Since the difference was
not deemed relevant, all items were retained.
We then used Bartlett's test of sphericity to examine the cor-
relation of the variable through a chi-square value, which was
found to be 1563.03 (degrees of freedom ¼ 118), with excellent
relevance (r < 0.001). This test also indicated that Explorative Fac-
tor Analysis (EFA) would be appropriate (D'Agostino and Russell,
2005). The Kaiser-Meyer-Olkin (KMO) measure of sampling ade-
quacy (Kaiser, 1970, 1974) further confirmed this result. The KMO
value in this case was 0.845. As Hutcheson and Sofroniou (1999)
stated, a value higher than 0.8 is commendable, which meant
that EFA was an appropriate method to understand the structure of
these variables (Thurstone, 1947) and reduce the dataset to a more
manageable size (Field, 2013). As a result, we conducted EFA
(Bandalos and Finney, 2010; Rietveld and van Hout, 1993).
According to Hair et al. (2010) and Turker (2009b), the item-to-
total correlations should exceed 0.50 and the inter-item correla-
tions should exceed 0.30. In this study, the eight factors captured
68.21% of the variance of the items, which can be considered suf-
ficient in terms of explained total variance. The value of 68.21%
corresponded to the following values: cumulative initial eigen-
values, extraction sum of square (no rotation), and rotation sum of
square. Factor 1 accounted for approximately 43% of the variance
(eigenvalue 7.865), Factor 2 accounted for 29.32%, and so forth.
However, in the unrotated pattern matrix, there were 10 cross-
loading items with a value greater than 0.32 in two or more fac-
tors, which made the matrix less clear. We used SPSS v22.0 soft-
ware to identify the optimal number of factors. This process also
identified the eight solutions (McCrae et al., 1996) automatically
through Everett's (1983) model.
In the second stage, we conducted a rotation of the pattern
matrix (varimax with Kaiser's normalisation). In addition, no values
in the factor correlation matrix exceeded 0.7. A correlation greater
than 0.7 indicates a majority of shared variance (Campbell and
Fiske, 1959). Following Byrne (2013), we used IBM AMOS to check
the validation and reliability of the model. As Barrett (2007) and
Markus (2012) suggested, a sample size above 200 cases is a min-
imum goal for SEM analysis. Therefore, the sample (348 valid
questionnaires) in this study was acceptable. The results were as
follows: chi-square/degrees of freedom ¼ 1.634, r ¼ 0.001, root
mean square error of approximation ¼ 0.046, P-Close ¼ 0.04,
comparative fit index ¼ 0.967, Tucker-Lewis index ¼ 0.912 and
normed fit index ¼ 0.945. These results indicated an adequate
model fit. Thanks to EFA and also Confirmatory Factor Analysis
(CFA), it was possible to validate our model (see Fig. 1). Following
Hayes and Scharkow (2013) and Henseler et al. (2014), we decided
to adopt the bootstrapping method (a non-parametric method)
because this is ‘the best test, as it is most trust worthy in the con-
ditions … when an indirect effect exists and the focus is on
detecting a nonzero effect rather than on interval estimation’
(Hayes and Scharkow, 2013, p. 7). The trustworthiness of this
method was also highlighted by Henseler et al. (2014), who claimed
that ‘the percentile bootstrap confidence interval is a good
compromise’ (p. 198). Moreover, Zhao et al. (2010) noted that the
‘Sobel test is very low in power in comparison with newer boot-
strap tests’. Hayes and Scharkow (2013) have further extended and
improved the bootstrap test method. The concept of mediation (or
indirect effect) implies a causal hypothesis where an independent
variable (X) causes a dependent variable (Y), through its effect on a
mediating variable (M) (Sobel, 1990). In particular, in this paper the
172 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176

Table 2
Constructs, items and scales.

Latent variable Construct Scale reference

Independent constructs and items (Xn)

Social dimension: employees' relationships (SOC) Lindgreen et al. (2009)
SOC1 Provide procedures that help ensure the health and safety of our employees
SOC2 Support our employees who wish to pursue further education
SOC3 Provide our employees with salaries that properly and fairly reward them for
their work
SOC4 Treat all employees fairly and respectfully, regardless of gender or ethnic
background
Environmental dimension (ENV) Agan et al. (2013), Bagur-Femenias et al. (2013),
ENV1 Adopt processes in order to reduce energy consumption Gadenne et al. (2009), Perrini et al. (2007)
ENV2 Adopt processes in order to reduce and recycle waste
ENV3 Adopt processes in order to reduce water consumption
ENV4 Implement systems to reduce harmful emissions
ENV5 Adopt systems to reduce packaging environmental effects
Economic dimension: supplier and customer relationships (EC) Lindgreen et al. (2009)
EC1 Involve all suppliers in new products or services development
EC2 Inform all suppliers of products and services about organisational changes
affecting purchasing decisions
EC3 Provide all customers with the information needed to make sound purchasing
decisions
Sustainability formal practices implementation (PR) Gadenne et al. (2009), Godos-Diez et al. (2011),
PR1 Social responsibility certification (SA8000) Perrini et al. (2007)
PR2 Environmental certifications (ISO 14001, EMAS)
PR3 Health and safety certification (OHSAS, 18001)
PR4 Performance measurement systems, including sustainability key performance
indicators
PR5 Social, environmental or sustainability reporting
Fist-level Mediators - constructs and items (M1n)
Reputation (REP) Schwaiger (2004), Fombrun and Shanley (1990)
REP1 Quality of products and services: The products/services offered by the company
are of high quality
REP2 Innovativeness: In my opinion, the company tends to be an innovator, rather
than an imitator
REP3 Long-term investment: I think that the company has growth potential
Customer satisfaction (CS) Galbreath and Shum (2012)
CS1 Compared to competitors, our customers find that our products/services are
much better
CS2 Our customers are very satisfied with the products/services we offer
CS3 The likelihood that our customers will recommend our products/services to
others is high
CS4 The ability to achieve high levels of customer satisfaction is a major strength of
our firm
CS5 The quality of the products or services that the company offers is better than
competitors' products or services
Organisational commitment (OC) Maignan and Ferrell (2001), Maignan et al. (1999),
OC1 Employees would be happy to make personal sacrifices if such sacrifices were Jaworski and Kohli (1993)
important for the business's wellbeing
OC2 Employees often go above and beyond the call of duty to ensure the company's
wellbeing
OC3 Our people are very committed to this firm
OC4 It is clear that employees are fond of the firm
Second-level Mediator e construct and items (M2)
Competitive advantage (CA) Chen et al. (2006), Chang (2011)
CA1 The company is reputed as very well managed
CA2 The company has better managerial capability than its competitors
CA3 The corporate image of the company is better than that of its competitors
Dependent construct and items (Y)
Financial performance (FP) Saeidi et al. (2015), Bagur-Femenias et al. (2013)
FP1 In terms of sales, compared to competitors, you are performing: (from much
worse to much better)
FP2 In terms of net profit margin, compared to competitors, you are performing:
(from much worse to much better)
FP3 In terms of return on investment, compared to competitors, you are performing:
(from much worse to much better)

method “Structural Equation Modeling (SEM) of Mediation” (Little
et al., 2007) is used, where each construct has more latent variables.
We decided to use SEM because it has several advantages over the
hierarchical regression approach to mediational analyses. As well
summarized by Cheung and Lau (2008) (p. 297), SEM is better than
traditional regression.
For these reasons, in order to analyse the multiple mediation
models, we used the software IBM AMOS. Adopting Shrout and
Bolger's (2002) approach, we used bootstrapping (5000 times) to
test the indirect and total effect of the independent variables
(mediation effect). The remaining effect (or direct effect) was ob-
tained by subtracting the indirect effect from the total effect (total
 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176 173

effect (T) ¼ direct effect (D) þ indirect effect (a) e see Figs. 2 and 3).
Following Hayes and Scharkow (2013, p. 7), we used the bias-
corrected bootstrap confidence interval. Focusing on total media-
tion effects, it was possible to find three “strong” relations: SOC /
REP / CA ¼ 0.421 (hypothesis H2a), PR / CS / CA ¼ 0.068 (H1d)
and PR / OC / CA ¼ 0.102 (H3d). This means that without the
mediator (REP in the first one, CS in the second, and OC in the last
one) a direct relationship between independent and dependent
items does not exist (e.g. SOC / CA is not significant). In Fig. 2 and
Table 3, we summarized the first-level mediation effects.
Moreover, in the second-level mediation (through competitive
advantage, CA), we found only total mediation effects (see Fig. 3,
and Table 4). This indicate the pivotal role of competitive advan-
tage: in fact, there are no significant direct relationships from REP,
CS, and OC to financial performance.
Through SEM, we could confirm the hypothesised positive ef-
fects of social (SOC), economic (EC) and formal practices (PR) di-
mensions of sustainability on competitive advantage (CA), via the
drivers of organisational commitment (OC), customer satisfaction
(CS) and reputation (REP) (see Table 5). The highest effects were
those relating to the social dimension (towards employees), fol-
lowed by the economic dimension (customers and suppliers), while
formal practices proved to be the least relevant. These results
confirm the prevailing literature that usually depicts SMEs as
traditionally more engaged towards employees and business
partners, and less keen on formal practices (Lee et al., 2015;
Vazquez-Carrasco and Lo  pez-Perez, 2013). The strongest first
level mediation effect can be attributed to organisational commit-
ment (OC), followed by reputation (REP) and customer satisfaction
(CS). Thus, the main effect on competitiveness and firm perfor-
mance (FP) stems from the pivotal link between the firm and the
employees, rather than the customers. Further, reputation is rele-
vant, despite the low visibility of small businesses compared to
corporations (Battisti and Perry, 2011).
Our hypotheses relating to environmental (ENV) practices were
not confirmed: the effect of environmental practices on competi-
tive advantage (CA) was negatively mediated by organisational
commitment (OC) and customer satisfaction (CS), while the
mediating effect of reputation (REP) was not significant. These re-
sults could indicate that, in the context of SMEs, environmental
practices could be viewed as an unnecessary burden by employees
and customers, and that the reputation of SMEs is not based on
their green image. These results contradict a part of the literature
that has indicated a positive effect of environmental practices on

First Level mediators

Organizational
Commitment
(OC)

Social Dimension
(SOC) Reputation (a)
(REP)

Environmental Customer
Dimension Satisfaction
(ENV) (CS)

Economic Total effect (T) Competitive

Dimension Advantage
(EC) (CA)

Direct effect (D)

Formal Practices
Dimension
(PR)

Fig. 2. First level mediation solutions.

Second Level mediator

Competitive
Advantage (a)
(CA)
Organizational
Commitment
(OC)

Reputation
(REP) Total effect (T) Financial
Performance
(FP)
Customer
Satisfaction Direct effect (D)
(CS)

Fig. 3. Second level mediation solutions.

174 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176

Table 3
First level mediation effects of constructs on competitive advantage (CA).

Total effects of constructs on competitive advantage (CA) Through OC Through REP Through CS

SOC (H3a) (H2a) (H1a)

Total effect (T) 0.453 (***) 0.421 (***) 0.521 (***)
Direct effect (D) 0.121 0.01 (total mediation) 0.211
Indirect effect (a) 0.332 0.420 0.310
ENV (H3b) (H2b) Not significant (H1b)
Total effect (T) 0.101 (**) 0.049 (**)
Direct effect (D) 0.032 0.012
Indirect effect (a) ¡0.069 ¡0.037
EC (H3c) (H2c) (H1c)
Total effect (T) 0.287 (***) 0.211 (**) 0.299 (***)
Direct effect (D) 0.075 0.084 0.061
Indirect effect (a) 0.212 0.127 0.238
PR (H3d) (H2d) (H1d)
Total effect (T) 0.102 (**) 0.178 (**) 0.068 (**)
Direct effect (D) 0.01 (total mediation) 0.034 0,002 (total mediation)
Indirect effect (a) 0.101 0.144 0.066

Table 4 5. Conclusions, limitations and further research

Second level mediation effects on Financial Performance (FP).

Mediation effects of constructs on Financial Performance Through CA The aim of this study was to deepen understandings of the
(FP) relationship between firm SP and FP in the context of SMEs by
REP (H2e) including possible mediators that could better represent the gen-
Total effect (T) 0.232 (***) eral picture of SP-FP relationships, by adding new insights not fully
Direct effect (D) 0.002 (total captured by previous studies. The previous literature has mainly
mediation)
tested the direct effects of sustainability on FP, or included only one
Indirect effect (a) 0.230
CS (H1e) or a few mediations. Our analysis has contributed to the literature
Total effect (T) 0.091 (**) by validating a new model of the SP-FP relationship that considers
Direct effect (D) 0.001 (total each separate dimension of a ‘deconstructed’ CSR/sustainability,
mediation)
and includes two levels of different mediators. The pivotal role of
Indirect effect (a) 0.009
OC (H3e)
competitive advantage represented here has highlighted the need
Total effect (T) 0.481 (***) to think strategically about sustainability, that means to effectively
Direct effect (D) 0.001 (total include these topics in strategic and operational management in
mediation) order to gain financial benefits.
Indirect effect (a) 0.480
Another relevant contribution lies in the idea of testing the
model on SMEs. Only a few previous studies have analysed the
SPeFP relationship in small businesses. The literature on CSR in
Table 5
SMEs is usually concentrated on qualitative analysis aimed at
Synthesis of results with reference to research hypotheses.
demonstrating that SMEs are different from corporations and
Hypothesis Results consequently implement CSR in different ways, with higher con-
H1a (SOC / CS / CA) supported straints and lower perceptions of the benefits. In our analysis, we
H1b (ENV / CS / CA) not supported partially contradicted these ideas because our sample of SMEs
H1c (EC / CS / CA) supported proved to implement SP and to perceive its operational and
H1d (PR / CS / CA) supported
H1e (CS / CA / FP) supported
financial performance benefits, thus indicating that a strategic view
H2a (SOC / REP / CA) supported of sustainability is not only a prerogative of large and multinational
H2b (ENV / REP / CA) not supported firms, but is an appropriate way to attain improved competitive-
H2c (EC / REP / CA) supported ness and performance.
H2d (PR / REP / CA) supported
Therein lies this study's main managerial implications: the ef-
H2e (REP / CA / FP) supported
H3a (SOC / OC / CA) supported fects of sustainability on firm performance follow a path in which
H3b (ENV / OC / CA) not supported reputation, customer satisfaction and organisational commitment
H3c (EC / OC / CA) supported are involved, and competitive advantage is the key to capitalise on
H3d (PR / OC / CA) supported these measures of FP success. Thus, sustainability has a strategic
H3e (OC / CA / FP) supported
relevance in the survival and development of SMEs. However, the
linkage with different stakeholders' satisfaction has to be consid-
ered to actually realise the benefits of the ethical approach in SMEs;
competitiveness (Bagur-Femenias et al., 2013; Jorge et al., 2015) and in fact, small businesses showed to be responsive in particular to
firm performance (Lee et al., 2016; Tebini et al., 2016), indicating social and economic components of sustainability (relationships
that SMEs consider environmental responsibility to be more a cost with employees, customers and suppliers), which impact mainly on
(Palmer et al., 1995) than a differentiation opportunity (Porter and organisational commitment, and less on reputation and customer
Van der Linde, 1995). This results are also supported by some satisfaction. To the contrary, the only hypothesis that were not
preliminary interviews that we conducted to entrepreneurs during confirmed were those related to the environmental dimension,
the pilot test of our survey. In particular, entrepreneurs felt that the which proved to be negatively related to organisational commit-
market was not highly responsive to their environmental ment and to customer satisfaction, while no significant relationship
sustainability. was found with reputation.
 S. Cantele, A. Zardini / Journal of Cleaner Production 182 (2018) 166e176
This study had some limitations. First, it was based on a sample
of Italian firms; thus, the results need to be tested in different
contexts. Second, the negative or insignificant relationships found
for environmental practices require further examination because
they could be due to the specific items used in the construct, or
could indicate the need to test lagged relationships between
environmental performance, competitiveness and FP. Further
studies could be devoted to longitudinal quantitative studies on the
impacts of environmental practices on competitive advantage and
financial performance; but also qualitative investigation is needed
to deepen the vision of small entrepreneurs about the market's
appreciation of green and sustainable practices. .
Aknowledgements
We would like to express special thanks to Cloros S.r.l. for its
financial support on this study; we are also grateful to Andrea
Francescato for his help in the data collection process.
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