The selection and treatment effects of ISO 14001: Investigating financial performance in the agri-food sector

The adoption of Environmental Management Systems (EMS), such as the ISO 14001 standard, is a key strategy for advancing towards sustainable production. This study addresses the causal ambiguity between ISO 14001 certification and financial performance (FP), a critical and unresolved gap in the literature, particularly in the agri-food SME sector. The central dilemma lies in discerning whether the improvement in FP is due to the effect of certification (treatment effect) or to prior financial strength (selection effect). A longitudinal analysis of 255 Spanish olive oil-producing SMEs (2021–2023) was employed, focusing on key objective accounting indicators such as ROE, ROA, ATR (Asset Turnover Ratio), EBIT, and EBITDA, using methodologies designed to isolate and contrast the causal effects. Our findings confirm the existence of a positive and significant association with FP. Specifically, a marked contrast in causality was identified: financial health (ROE) significantly influences the propensity for adoption (selection effect), acting as an entry barrier for companies with lower FP. On the other hand, certification leads to a significant improvement in profitability, manifesting in higher ROE, EBIT, and EBITDA (treatment effect), albeit without a significant impact on overall operational efficiency (ROA). These results demonstrate the existence of a circular causality operating under a "virtuous circle," where the selection and treatment effects mutually reinforce each other. The findings validate ISO 14001 as a market differentiator that translates into higher benefits, positioning sustainable practices as a key driver of financial success in the agri-food industry.