Environmental indicators allow a firm to make measurements related to its environmental performance. In practical terms, they can be used to form a measuring, benchmarking and monitoring tool to track environmental performance for small and medium enterprises (SMEs). Within an Environmental Management System (EMS), environmental indicators can be used to check if a firm has met the targets it is required to set for itself. It can also be used in firms that have not yet implemented an EMS. The use of an Environmental Indicators System (EIS) is thus recommended for SMEs, many of which do not have an EMS, in order to enhance their environmental performance. As noted in A Guide to Corporate Environmental Indicators published by the Federal Environment Ministry (Bonn) and the Federal Environmental Agency (Berlin), three categories of environmental indicators can be developed, depending on whether they describe: (1) a company's environmental impact (environmental performance); (2) the management's environmental activities; or (3) the external condition of the company's environment. The objective of this paper is to present how environmental indicators were established and implemented for Philippine SMEs and to show that the indicators significantly correlate with the environmental performance of the SMEs. In order to test this hypothesis, a survey-questionnaire was designed and administered among SMEs covering six industrial sectors in the Philippines. Based on the survey responses, a Gap analysis between the environmental performances of SMEs and state-of-the-art companies was performed. The Gap analysis showed that environmental indicators were indeed able to capture the features of actual environmental performance. Further, a structural equation model was proposed and validated. It yielded a significant linkage between the environmental indicators and environmental performance. (c) 2005 Elsevier Ltd. All rights reserved.
