Much literature on corporate social responsibility suggests that formal management tools to manage environmental impacts, such as environmental reporting or ISO14001 certification, are not suitable for small and medium‐sized enterprises (SMEs). Other studies, however, argue that using some form of formalization helps SMEs to improve environmental management. This paper empirically studies the hypothesis that relatively simple formal management tools in the form of using targets improve the environmental impacts of SMEs. Based on a unique dataset with environmental performance data of 5205 SMEs in 12 European countries, we find ample support for this hypothesis. Since only 25% of SMEs use targets, there is room for substantial improvement in environmental impacts if all SMEs were to implement this relatively simple process step. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment