Public Policy and Corp Env Behavior

Citation preview

Corporate Social Responsibility and Environmental Management Corp. Soc. Responsib. Environ. Mgmt. (2007) Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/csr.167

Public Policy and Corporate Environmental Behaviour: a Broader View Runa Sarkar* Department of Industrial and Management Engineering, Indian Institute of Technology Kanpur, Kanpur, India ABSTRACT Corporate strategies to manage the business–ecological environment interface have evolved against the backdrop of regulatory pressures and stakeholder activism. Despite its relevance with respect to sustainable development, a well developed theory encompassing all aspects of corporate environmental behaviour, especially incorporating incentive compatible public policy measures, is yet to be developed. This paper is a step in this direction, aiming to assimilate contributions related to different aspects of corporate environmental behaviour, capturing the transition from environmental management to environmental strategy. In the process we identify areas where there is a need for further research. We find that there is plenty of scope in developing more complex models to explain a manager’s rationale for adopting sustainable strategies in the backdrop of the policy regime, and in conducting more empirical (both descriptive and quantitative) work to obtain clearer insights into managerial decisions. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment. Received 15 July 2006; revised 20 June 2007; accepted 12 July 2007 Keywords: corporate environmental behaviour; public policy; environmental strategy; regulatory response; corporate sustainability; environmental performance

Introduction

C

ORPORATE STRATEGIES TO MANAGE THE BUSINESS–ECOLOGICAL ENVIRONMENT INTERFACE HAVE

evolved against the backdrop of regulatory pressures and stakeholder activism. The literature on corporate environmental behaviour (referred to as CEB in the rest of this paper) provides rich insights into this process of evolution and attempts to identify and study the links between firm response and external environmental pressures. Early contributions in this area focussed on devising economic instruments to correct market failures because of environmental externalities caused by industry operations. While providing a rigorous assessment of the economics of pollution control instruments, these papers assumed away complexity by considering the firm as a rational entity operating in a market environment with the sole objective of profit maximization. Subsequent papers looked at the legal, political and social context in which firms are embedded, taking into account some strategic * Correspondence to: Runa Sarkar, Assistant Professor, Department of Industrial and Management Engineering, Indian Institute of Technology Kanpur, Kanpur, India 208016. E-mail: [email protected] Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

R. Sarkar interactions. More recent papers emphasize managerial aspects in firm decision making on environmental issues. However, a well developed theory that encompasses all aspects of CEB does not exist. The aim of this paper is to survey the growing literature that explores different facets of CEB as a first step towards developing a holistic understanding of how firms internalize environmental externalities. CEB is defined as the set of strategies deployed by a firm to manage its business–environment interface, whether as a response to external pressures or as a proactive measure to mitigate its environmental impact. For clarity and focus we restrict our attention to environmental issues rather than studying the literature in the broader area of corporate sustainability management (Salzmann et al. (2005) provide an excellent review). We look at CEB from two broad perspectives: the public policy view, where we assess firm response to external stimulus, and the managerial view, where the problem is turned inside out, with the firm’s objectives and constraints determining its behaviour. We feel that this is in line with the manner in which the literature in this area has evolved and we attempt to bridge these disparate approaches through this review. The following section discusses the policy perspective, studying the role of the government, regulators or the general public in influencing firm response. While the first part of this section focuses on the efficiency and/or effectiveness of different traditional policy measures, delving into the feasibility of implementation and impact of regulatory instruments on firm performance, the second part summarizes literature on alternative regulatory approaches. Most of this literature is based on ‘overly rational conceptions aiming to formulate coercive mechanisms for firms while neglecting their systemic organisational contexts’ (Hoffman, 2001). The third part of the second section attempts to bring social coercion in the ambit of public policy by looking at informal regulation. The third section focuses on firm responses to the environmental impact of its direct and indirect activities: the managerial perspective. Besides summarizing the literature on drivers of firm behaviour (first part) and environmental management tools and techniques (second part), we also cover economic rationale for firm strategy in the third part of the third section, recognizing that the relation between environmental and economic interests is a balance of purely competitive and purely cooperative factors. The fourth section offers a flavour of select descriptive studies on firm responses to environmental stimuli to demonstrate the interplay of policy framework with CEB. These are harbingers of a new holistic trend of analysing CEB, internalizing external variables into firm behaviour. The fifth section concludes with insights from this study, identifying future research directions.

The Public Policy Perspective Oates and Baumol (1975) provide perhaps the earliest exposition on the spectrum of policy tools available to the regulator to manage environmental externalities caused by firms, discussing each with respect to administrative issues, information issues and implementation issues. This has been followed by a plethora of papers examining every aspect of environmental regulation, which has been comprehensively reviewed by Heyes (2000). A similar, relatively non-technical overview of policy solutions for pollution control is provided by Anand (2003). Thus, this section only attempts to highlight key insights and evolution of literature in public policy, which will assist in elucidating how external factors such as environmental policy, in its broadest sense, are internalized as core objectives of firms. Traditional Regulatory Approaches Impact on Firm Table 1 summarizes findings from some papers that identify the impact of regulatory instruments on a firm’s decision to adopt pollution abatement technology or innovation. Theoretical models suggest that Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour

Authors

Features

Adopting pollution abatement technology Downing and White (1986) Single firm in a perfectly competitive setting with no non market factors Discrete technology choice Milliman and Prince (1989) Many identical firms with no entry or exit options Discrete technology choice

Jung et al. (1996)

Innovation Fischer et al. (2003)

Industry level, firm heterogeneity allowed, free entry and exit Discrete technology choice Perfectly competitive market Endogenous technological change

Anex (2000)

Qualitative assessment

Hontou et al. (2007)

Empirical study, multicriterion classification of firms with respect to European policy

Findings

Marketable permits marginally more effective followed by effluent fees and subsidies. Emission standards least effective Auctioned permits most effective, emission taxes and subsidies second. Free marketable permits and emission standards (direct controls) least effective Auctioned permits, followed by emission taxes and subsidies and emission standards in descending order of effectiveness Ranking of auctioned permits and emission taxes depend on firms’ innovation imitation ability, innovation costs, environmental benefit functions and market structure Credible threat of stringent regulation and flexible implementation favour innovation. Differentiation capacity and increase in production cost dependent on several other factors in addition to policy

Table 1. Impact of regulation on a firm’s decision making

auctioned permits are most effective and emission standards least effective. With respect to innovation, a firm’s innovative ability, industry structure and benefit from innovation are critical in determining which policy tool is most effective. Anex (2000) proposes three different hypotheses on the effect of industrial structure on innovation: the technology push theory, the demand pull hypothesis and a third view that innovation follows a predictable life cycle pattern. Downing and White (1986) find that cost– benefit motivated regulations lead to private agents doing too little research into clean technologies when compared to the social optimum. Researching why the explicit costs of firm compliance as a fraction of production cost are fairly low, Roediger-Schluga (2002) uncovers that the stringency of environmental regulation is determined by the interplay of a number of self-interested stakeholders in a political market. Since environmental hazards tend to be uncertain, the regulations are such that they do not overburden industry, leading to incremental improvements in process parameters and diffusion of existing best available technology. Optimality Optimum policy instrument choice is not simple in the presence of information asymmetry. This was first highlighted by Weitzman (1974), who demonstrated that, depending on the relative steepness of the marginal cost and damage curves, quantity restrictions could prove superior to incentive compatible Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar tax regulations. The debate on uncertainty and optimal regulation, summarized by Baumol and Oates (1988), identifies two limitations: static analysis and the inherent assumption of independence of the marginal cost and damage functions. The dynamics of pollution control and incentive compatibility problems are brought together by Benford (1998) in a model of many firms emitting a persistent pollutant. A mixed effluent charge and license scheme is proposed, where it is in the best interest of firms to reveal their true costs. Anderson and Cavendish (2001) develop a dynamic simulation framework for the costs and effects of environmental policies over time. When uncertainty about marginal cost and benefit are correlated Shrestha (2001) suggests that an emission standard instrument could be better or worse than a nonlinear tax instrument depending on the nature of correlation. In the presence of external learning effects, Rosendahl (2004) challenges the optimality of uniform Pigouvian tax across all emission sources. Since most papers represent command and control regulations as absolute limits, Bauman (2004) cautions that the dynamic superiority of market based instruments over other types of command and control regulation may not be as clear cut. A situation where the accumulation effect due to pollution is stochastic is modelled by Plourde and Yeung (1989). They find that the option of emission standards unworkable, and suggest a user charge on inputs. Toman and Withagen (2000) use a simple general equilibrium approach to compare three options – outright banning, a (static) pollution tax and an inter-temporal trading policy in a situation where there is a potential for the assimilative capacity of the Earth to get exhausted. They find that an outright ban would impose a welfare loss and a bankable stock of single-use emission permits would provide greater dynamic efficiency than a rigid tax. On a more specific note, several authors such as Kverndokk et al. (2001) examine the welfare implications of technology subsidies and carbon taxes in a general equilibrium situation to conclude that subsidization of alternative energy could be welfare worsening if newer technologies are crowded out. Enforcement and monitoring is another dimension of policy instruments, which is discussed below. Implementing Regulations More than the nature of regulation, the way it is implemented has a greater impact on a firm’s reaction and its competitive ability (Anex, 2000). The impact of a credible, renegotiation proof threat of imposing stiff regulatory standards on the firm is demonstrated by Cadot and Sinclair-Desgagne (1995) in an oligopolistic setting. Heyes and Liston-Heyes (1999) develop a model that explores raising the hurdle for lobbying costs as a means to induce firms to exceed regulatory limits. This view is also endorsed through case studies on widespread land clearing in Australia (Whelan and Lyons, 2005). Earnhart (2004) examines deterrence generated by inspections and enforcement actions to conclude that the threat of federal (central) interventions is stronger than the threat of state interventions to induce better performance. Stafford (2002) concludes that a tenfold increase in penalty increases compliance only by 10–20 per cent. Harford (2000) examines the trade-off between firm abatement costs and regulatory monitoring costs, to conclude that there is an argument against the use of incentive based instruments on the grounds of excessive monitoring costs. The nature of the polity in which a firm operates affects policy effectiveness. Rock (2002) concludes that political economy of a country has a major role to play in determining policy success from studying the environmental policy regimes in Malaysia and Thailand. This is echoed by Hahn (2000) in a paper that discusses the impact of economics on environmental policy. Mylonadis (2002) discusses the limitations of regulators in the context of asymmetric information and uncertainty, classifying information into two categories: environmental objectives and how to Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour achieve them. Command and control type legislation works when both types of information are available, market based instruments are effective when the objective is clear but the means are not and process based instruments such as environment management systems work when the means are clear but objectives are not. When both the objective and the means to achieve it are not known, open sourcing the regulation is the best option. This leads us to a discussion on voluntary and flexible initiatives, collectively referred to as alternative regulations. Alternative Regulatory Approaches Information based voluntary approaches provide the firm with the flexibility to manage the environment in line with its competitive advantages. Khanna (2001) provides a rich literature survey of this field and Delmas and Terlaak (2001) summarize the range of American and European voluntary programmes (also Lyon and Maxwell, 2001). Krehbiel and Erekson (2001) examine four different self regulating approaches demonstrating how they improve firm competitiveness. Fullerton and Wu (1998) propose (a) that households pay for the social cost of disposal pressurizing producers for ‘green’ products and (b) a subsidy to recyclable designs or a tax on use of packaging. Cerin and Karlson (2002) advocate a concept of trading product life cycle (PLC) emission rights as a means of bridging the divide between instruments providing pollution abatement incentives and implementable policy initiatives. Whether alternative approaches should replace or supplement the existing regulatory instruments is studied, empirically, by Foulon et al. (2002) (also see Arts, 2002, for a theoretical approach), to conclude that the positive impact of appearing on the polluter list is greater than that of penalties. They recommend that stringent regulations with credible penalty systems should complement public disclosure programmes, the former sending appropriate signals to firms involved and the latter providing additional incentives for pollution control, also endorsed by the International Institute for Environment and Development (IIED, 2001). Walls and Palmer (2001) compare traditional approaches with advance disposal fees by modelling a production and consumption process for a firm incorporating life cycle externalities, to conclude that multiple policy instruments are needed. However, Kennedy et al. (1994) are wary of the role of public disclosure programmes as they cannot correct for underlying consumption externalities, which is taken care of by levying emission taxes. IIED (2001) and King and Lenox (2000) have warned against those voluntary practices that may distribute benefits and burdens inequitably, or act as strategic measures akin to anti-competitive practices. Segerson and Miceli (1998) identify the bargaining power of the firm as the determining factor for the efficacy of alternative approaches to regulation. Blackman and Boyd (2002) find that, while voluntary programmes are unambiguously welfare enhancing in monopolistic settings, in a Cournot duopoly there is a possibility for a reduction in producer surplus, although the regulators policy on technology diffusion determine consumer surplus and environmental impact. As a solution, Gunningham et al. (1999) explore the role of third parties as regulatory surrogates in place of the government to overcome the dangers of deregulation. On similar lines, Lyon and Maxwell (2003) suggest the use of voluntary agreements as a weak regulatory tool only when it is infeasible to apply other tools such as taxation. Amid concerns about the efficacy of voluntary initiatives, there are situations where the regulatory mechanism of a country is completely ineffective and the community around a firm takes over as custodians; these situations are explored next. Role of Informal Regulation In a weak regulatory regime, communities use methods such as making demands for compensation, social ostracism, monitoring and publicizing firm emissions etc. to counter irresponsible CEB. This ‘informal regulation’, as defined by Pargal et al. (1997), is more effective for communities with higher Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar income, for economies with both well developed and nascent regulatory mechanisms. Synnestvedt (2001) endorses this finding, commenting that the focus of providing environmental information to stakeholders as a policy instrument should be on quality rather than quality. Becker (2004) demonstrates empirically that larger per capita income and higher degree of home ownership in a community results in increased plant level air pollution abatement activity, while the presence of a higher fraction of employees in the community deters such activity. The positive impact of informal regulation imposed through public scrutiny and/or trade links is demonstrated empirically by Dasgupta et al. (2000). Thus, a small but growing body of empirical work suggests that stakeholder involvement, industry characteristics and ownership of the firm are as important as formal regulation (Pargal et al., 1997). Altham and Guerin (1999) further opine that a ‘seamless web’ framework of regulation is emerging, which recognizes the role of the firm in formulating policy.

The Managerial Perspective The previous section demonstrates that recent literature has started to accept the firm as a social entity rather than a purely economic entity. This evolution is described by Buchholz (1991), who concludes that, while we continue the search for reasonable theories to supplement the dominant economic paradigm, firms have to acknowledge the need to protect the environment for their long term existence. In this backdrop, we first review some literature on typologies of CEB followed by a discussion on environment management tools. Finally, we consider literature that has incorporated firm strategy into its economic analysis. The approach is different from that of Salzmann et al. (2005), who categorize the literature into theoretical frameworks, instrumental studies, descriptive studies and environment management tools. Another thread along which CEB literature has evolved is towards developing tools and indices to measure environmental performance and sustainability (Lawrence et al., 2002; Toffel and Marshall, 2004; Singh et al., 2006; etc.); this is beyond our scope. Typologies and Classification Kolk and Mauser (2002) provide a comprehensive overview of previous work in the area of CEB encompassing linear, nonlinear and continuum stage models, asserting that over time managerial aspects are given equal importance to regulatory aspects. While Petulla (1987) is perhaps the pioneer in developing a continuum of environmental management approaches based on an industry wide survey, noteworthy contributions in this area include those of Roome (1992), Dodge (1997) and Azzone et al. (1997). Bhargava and Welford (1996) provide a conceptual nonlinear typology of environmental strategies while Ghobadian et al. (1998) use past literature and an empirical survey to position CEB of firms in a nonlinear continuum in relation to the environmental strategy they adopt. Another approach is to group firms into categories, value destroyers, limiters, conservers and creators, based on their environmental responses (Kemp, 2001). After a comprehensive review, Rugman and Verbeke (1998) classify corporate environmental decisions in a two by two framework comparing impact on performance due to environmental measures with time horizon of managerial response. They bring in elements of the resource based view of the firm through another cross-tabulation comparing flexibility of resources committed (weak, strong) with firm leveraging potential for environmental performance. Child and Tsai (2005) cross-tabulate firm strategies (environmentally responsible, environmentally exploitative) against high and low institutional constraints, pertaining to the degree of independence of firms from regulatory requirements for multinational corporations and local firms. Jose (1996) contends that the differences in market power of firms Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour and the differences in regulatory framework explain where the firm would be. Small firms lack market power and would not over-comply with lax regulations or impossible environmental norms pushing them into major violations. Leadership and over-compliance is possible only for larger firms with market power. Leung and Tse (2001) also assert that while larger (resource rich) firms adopt a technology with large fixed costs immediately, smaller firms optimally choose to wait before switching, saving at a higher than normal rate for later investment. In an empirical study, Banerjee (2001) reviews the CEB of American firms, to highlight that a significantly higher proportion of firms in industries such as chemicals, pharmaceuticals and utilities performed significantly more environmental actions focused on their employees than other firms. Managerial perceptions of environmental issues varied significantly across industries depending on the extent of external pressures. Siniscalco et al. (2000) develop a relationship between information-based environmental strategies and firm economic and environmental performance by studying responses by the European oil and gas, petrochemical and power generation industry. Table 2 summarizes other contributions in the area, listing key features of the studies and the findings. A wide variety of issues emerge as motivators/de-motivators of CEB, ranging from intuitive factors such as potential cost saving and stakeholder pressure to less obvious ones such as uncertainty and organizational slack. Environment Management Tools and Techniques An evaluation of environmental management approaches logically follows from the recognition that environmental response could be a strategic initiative. To this end, Vastag et al. (1996) characterize these approaches depending on the extent of risk arising from firm internal operation and exogenous risk through empirical tests on 141 Hungarian firms. They conclude that strategic environmental management may not be the most profitable approach, with proactive or crisis preventive strategies being better suited to prevailing risk conditions. McWilliams and Siegel (2001) develop a supply and demand model of corporate social responsibility (CSR), to conclude that cost–benefit analysis leads to an ideal level of CSR. Rondinelli and Berry (2000) list proactive corporate environment management techniques in use today, linking them with policy. They conclude that further expansion of command and control regulation would yield diminishing returns, emphasizing the need for alternative policies. Newman and Breeden (1992) review the experiences of leaders in CEB to observe that they are more proactive, more often driven by opportunity than threat and more likely to integrate environmental management into mainstream business compared with average firms. Using survey research, Florida and Davison (2001) report that larger plants and plants more committed to quality and/or innovation tend to adopt EMS (also see Rivera-Camino, 2001). The paper by Leal et al. (2003) concluding that environment management systems increase firm competitiveness is encouraging after Stanwick’s (1998) past conclusion that end of pipe technologies are more profitable than process based technologies. The limitations of traditional EMS highlighted by Greeno and Robinson (1992) include a lack of resources, attitudinal and cultural hurdles and too few motivators to implement environmental excellence. Bryant and Wilson (1998) point out the underlying deficiencies of the concept of EMS as a technocentric problem solving incentive and urge an immediate reassessment. On the other hand, the changing views on the role of technology have been documented by Chertow (2001), who tracks the IPAT equation over the last 30 years to reveal how there is tremendous optimism now on technology as the single factor to reverse adverse environmental effects. Given these limitations, Welford et al. (1998) propose a model for sustainable development in the service sector. Another approach is that of industrial ecology: mimicking the natural ecosystem Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar

Authors Segerson and Miceli (1998) Lyon and Maxwell (2001)

Azzone et al. (1997)

Fernandez et al. (2003) Thornton et al. (2003) Henriques and Sadorsky (1996)

Features Theoretical model of interaction between regulator and polluter Survey of theoretical and empirical literature

Firm modelled as a green engine, where the drivers identified lead to the adoption of different types of environmental strategy Survey of literature Empirical study of 14 pulp and paper industries Framework developed to empirically test importance of pressure group incentives for firm responsiveness to environmental pressures

Bansal and Roth (2000)

Qualitative assessment of ecological responses of firms in the UK

Aragon-Correa and Sharma (2003)

Development of environmental strategy as a dynamic capability studied by extending the resource based view of the firm to include a contingency perspective Behavioural model of firm decision making developed to obtain econometrically testable hypotheses Case study conducted of one of Sweden’s largest manufacturing firms Bivariate probit model with data from three EPA voluntary programmes developed Empirical study of 33/50 program of the EPA Empirical study of 33/50 program of the EPA, current ROI adversely affected by participation Impact of declaration of the Toxics Release Inventory Report on company stocks studied

Khanna and Anton (2002)

Stannengard (2000)

Videras and Alberini (2000)

Khanna and Damon (1999) Arora and Cason (1995)

Konar and Cohen (2001)

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Determinants of CEB Potential cost savings Improved productivity ‘Green’ demand Pre-empt/weaken forthcoming tougher regulations As an entry barrier Environmental culture Strategic attitude Infrastructural resources Competencies Human resources Organization culture Social pressure Environmental management style Customer pressure Shareholder pressure Regulator pressure Community pressure Sales to asset ratio ‘Other’ lobby group pressures Motivating factors: competitiveness, compliance, social responsibility Contextual issues: individual concern of employees, convincing scientific evidence, availability of appropriate technology, breadth and depth of networks with stakeholders Uncertainty Complexity Munificence

Market based incentives

External pressures becoming internalized Pressures matching with available tools Publicity Access to new information Reputation

Improved long run profitability

Decline in market value if environmental improvements not made

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour

Authors Stanwick and Stanwick (2000)

Kong et al. (2002) Ramus (2001) Andersson and Bateman (2000) Sharma (2000)

Bowen (2002)

Eggers et al. (2000)

Boyd (2001)

Features

Determinants of CEB

Empirical study finding relationship of firm environmental disclosure to financial performance Qualitative discussion

Medium financial performers had highest incidence of environmental disclosure

Empirical survey of several mid-and lower level employees at 6 MNCs Empirical study Empirical study of 99 Canadian firms exploring links between managerial interpretations of environmental issues and corporate choice of environmental strategy Conclusions from series of interviews with top managers in private companies in the UK Empirical survey of manufacturing facilities and environmental consultancy firms

Theoretical review and comprehensive empirical case studies

Pressure from NGOs Customer pressure Lack of middle management support for green design Packaging and selling environmental issues to employees Environmental issue perceived as a threat or an opportunity. Available discretionary slack Corporate culture Resource availability Organizational slack (how a resource is used to address an environmental problem) Environmental regulatory barriers to technological adoption (consultancy firms) Financial constraints (manufacturing facilities) Organizational barriers: inadequate accounting practices, poor management incentive schemes Financial barriers

Table 2. Drivers and determinants of corporate environmental behaviour

to attain efficient production without generating externalities (Suh and Kagawa, 2005). Ehrenfeld (2000) reviews the field of industrial ecology, demonstrating that it is objective, measurable and compatible with standard efficiency concepts. Welford’s (2000) trilogy of books on corporate environmental management, ranging from systems and strategies to organizational culture and tools followed by a paradigmatic shift to sustainable development, aptly summarizes the state of the art knowledge on CEB. Strategic Behaviour of Firms Economic theory looking at the firm as existing in a market setting embedded in a social and political milieu (Baron, 1995) diverges from the economics of regulation in its assumption of perfect competition and identical firms, introducing the possibility of strategic interactions. The simplest introduction to strategic considerations in standard economic theory is provided by Barrett (1992). Lantos (2001) distinguishes between altruistic, ethical and strategic CSR, to conclude that, while altruistic CSR is not a legitimate role of business, ethical CSR is mandatory and strategic CSR has benefits both for society and the firm. Porter and Kramer (2002) clarify the concept of strategic philanthropy, opining that firms could practice CSR to enhance their competitive advantage. Economic rationales for beyond compliance behaviour are presented by Reinhardt (1999b), who identifies three sets of circumstances in which it could be profitable. These include (a) where there is a possibility for strategic interactions with competitors, (b) where this could be used as a means to differentiate the product and (c) where unexploited cost saving potential exists because of principle-agent problems within the firm. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar In a repeated game setting of a duopoly Damania (1996) illustrates how pollution tax could act as a profit enhancing collusive device, making non-compliance strategic. This is ratified in a sequential game as well (Damania, 2000). Expressing support for or being instrumental in the introduction of more stringent environmental regulation is explained as strategies to increase market power or create entry barriers. In a three stage game between two firms in a risk neutral oligopolistic setting, Hackett (1995) illustrates that cleaner technology, developed by one of the firms, is used only if regulatory standards are set accordingly. Such strategic R&D rivalry is critical for development of pollution prevention technology. The role of more stringent regulation as an entry barrier is demonstrated empirically by Dean et al. (2000). Maxwell et al. (2000) design a three stage game between Cournot oligopolists and regulators, demonstrating that firms will self-regulate if the barrier for environmental groups to group and apply pressure is high, backing the finding up with empirical evidence. King et al. (2002) study the ‘reputations commons’ problem, where stakeholders can sanction firms for misdemeanours but cannot differentiate among them. They suggest reducing the threat of sanctions and privatizing the problem by differentiating firms as possible solutions. Assuming that voluntary over-compliance is a response to ‘green’ consumers, who pay a premium for ‘green’ products, Arora and Gangopadhyay (1995) rationalize beyond-compliance behaviour in a vertical product differentiation model for a duopoly involved in a two stage game. However, empirical support for the notion that green consumerism drives CEB is mixed at best (Lyon and Maxwell, 2003). This view is also echoed by Newman and Breeden (1992), who note the disconnect between customer intent and action at the point of sale. Heinkel et al. (2001) explore the effect of exclusionary ethical investment on CEB in a risk averse setting to conclude that polluting firms face a higher cost of capital. If incremental capital cost exceeds cost of pollution abatement, then these firms will reduce their pollution, but this needs more than 20 per cent of investors to be green. Evidence indicates that this figure is below 10 per cent at present. Prakash (2001) criticizes the above approaches to explain responsible CEB, as the explanations use only external factors. Hermalin (2001) looks at corporate culture from a game theoretic perspective, highlighting the paucity of work in this area, perhaps because of its mismatch with the rational agent methodology. Cerin (2002) assesses motives behind corporate environment reporting: the driving force behind reporting is corporate self-interest, leading to a divergence between reporting and actual activity ‘creating incomparable as well as implausible reporting’. Wheeler et al. (2002) highlight the paradoxical situations where global intent can clash with local reality by analysing the experiences of Shell and the Ogoni in Nigeria. The critical issue is whether the intent to be socially responsible can be transferred to operational reality within acceptable timescales or whether there are barriers, organizational or otherwise, that negate such a transfer. Rugman and Verbeke (2000) extend Porter’s five forces model for industry analysis to include government regulation as a sixth force to explain the shift in firm level strategy in response to environmental legislation, and analyse six well known (all Harvard Business School Cases) cases of corporate strategy using this framework. Porter’s major contribution to the field of strategic CEB is the Porter hypothesis (Porter, 1991), which compulsively asserts that tough environmental regulation results in a more competitive firm in the long run as regulations signal companies about likely resource inefficiencies and technological improvements (Porter and Van der Linde, 1995b). Further support of the hypothesis is evident in papers by Porter and Van der Linde (1995a), Hjeresen et al. (2002), Hart (1997), Lovins et al. (1999) and Biddle (1993). The need for corporate managers and government policy makers to work as partners rather than adversaries is underscored by Biddle (1993) as well as Marcil (1992). On the other hand, Walley and Whitehead (1994) argue that in reality few win–win opportunities exist, and in general there is a trade-off in internalizing environmental externalities. The analysis by Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour Wagner et al. (2002) of the European paper industry as well as the analysis by King and Lenox (2002) of waste prevention programmes support this traditionalist reasoning. King and Lenox (2001) assert that the association between lower pollution and higher financial valuation may be spurious and Xepapadeas and De Zeeuw (1999) question the validity of the Porter hypothesis with a theoretical model that considers synergistic effects of environmental regulation. From an institutional economics angle dealing with nondeterministic environmental externalities, Sinclair-Desgagne (1999) concludes that the Porter hypothesis cannot be rejected outright. Perspectives (1994) sum up the debate with carrying the views of leading experts. Thus, Reinhardt (1999a) rephrases the Porter debate of ‘does it pay to be green’ to ‘under what circumstances it pays to be green’, emphasizing through anecdotal evidence that companies should treat environmental issues just like other business issues. Allenby (2000) echoes a similar view, where he laments that ‘green’ technology ‘embeds within it the mental model of environmental issues as peripheral to general economic and political activity’. A succinct summary of strategic environmental behaviour is provided by Rosen (2001). Thus, a gradual transition from environmental management to environmental strategy is evident from the literature. Regulatory compliance (environmental issues acting as a constraint) and social responsibility to address environmental damage are components of corporate environmental management, which is driven by legal and/or social sanctions. However, the underlying thread in the literature on environmental strategy is that through a complex web of constituents, whether customers, shareholders, investors or employees, environmentalism becomes transformed from something external to the market environment to a core objective of the firm. Therefore, the challenge before us is to merge the social and economic aspects of environmentalism (the policy perspective) with business decisions and practice (the managerial perspective) to provide a broader understanding of CEB.

Bridging Public Policy with Environmental Management Empirical Corporate Environment Behaviour Research In order to successfully bridge environmental policy with CEB, there is a need to empirically analyse the inner workings of the firm in the context of economic assessments of environmental policy. In his edited book on Environmental Policy and Corporate Behaviour, Johnstone (2007) presents an in-depth empirical analysis of 4000 industrial facilities, elucidating the public policy implications of firm level environmental practices. The limitations of the book with respect to studying a single cross section at a single point of time are overcome by Kawamura (2000). The analysis of environmental performance of Spanish firms by Junquera and Ordiz (2002) is useful; however, it lacks the policy perspective. Levy and Rothenberg (2002) apply institutional theory to study American and European auto manufacturers; they conclude that strategic choices are premised on assumptions and forecasts about climate science, regulatory responses, technological and market prospects etc., which are endogenous to the firm and its interaction with the institutional environment. Perry and Singh (2001) explore the CEB of multinational companies in Singapore to conclude that the absence of citizen, government and NGO pressure is reducing the extent of voluntary environmental action of these firms. That formal policy has a significantly greater influence when compared with the broader social and informal regulatory milieu on CEB is deduced by Kusku (2007) from a study of Turkish industry. At a more micro level, Preston (2001) studies the transition of environmental management practices at Hewlett Packard. Through an interview with the CEO of chemical giant Monsanto, Magretta and Shapiro (1997) report that sustainability is an important component in Monsanto’s strategic thinking. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar Conoco’s response to regulations is documented by Sharfman et al. (1999), where their innovation to form a closed loop vapour recovery project was a win–win proposition. The role of stakeholder consultation in influencing CEB and consultation methodology is documented for the nuclear industry by Collins and Usher (2004). The evolution of laundry detergent and its impact on the environment has been studied by Saouter and White (2002), in the perspective of European policy. Robbins (2001) summarizes recent literature and studies the greening efforts of The Body Shop and Arco Chemicals. Utting (2002) describes the environmental record of the private sector in several developing countries, following it up with discussions on regulatory issues to promote responsible CEB. Sarkar (unpublished thesis) develops a time line for environmental responses linked with the policy life cycle for some steel and paper manufacturers in India. Bridging the Divide Drawing from their observations of various firms, Lyon and Maxwell (2004) provide an articulate linkage of stage models of CEB with the policy life cycle: a pioneering effort to contextualize CEB in public policy. However, their treatise is limited to voluntary corporate environmental initiatives only. The importance of understanding the firm’s commercial motivation decision-making procedures and organizational structure while designing environmental policy has been highlighted by DeCanio (1998), while Larsson et al. (1996) have demonstrated how initial orientation of a firm influences its response to legislative push or market pull. Vatn (2005) demonstrates the role of institutional factors in the formation of environmental preferences and the potency of environmental stimuli. Towards this end, Hontou et al. (2007) provide an environment–competitiveness matrix in the EU policy context, which can be used to establish sustainable strategies and design effective policies. The need for integrating policy research and firm behaviour is underscored by Clark (2005), who opines that this would ‘suggest new approaches to environmental protection, including integrated strategies that make synergistic use of multiple tools’. For environmental policy to be more effective, it is important to expand the domain of enquiry further to the political economy of environmental regulations: the feasibility of implementation, process of decision making, reaction of industry to regulation etc. (Hahn, 2000). There is a need to understand the policy framework in its broadest sense, including self-regulation, and this has numerous threads – regulators and regulatory mechanisms, NGOs, industry peers, investors and consumers (Altham and Guerin, 1999).

Conclusion As discussed above, a substantive amount of work has been done to broadly understand the need for and nature of public policy interventions to influence CEB. Similarly, specific issues such as drivers of environmental strategy and efficacy of environmental management tools have been adequately discussed. However, literature on the effects of environmental policy on the inner workings of the firm is scarce. Through reviewing and organizing relevant contributions in the area of public policy and CEB, this paper paves the way towards a building a general theory to develop suitable policy tools to ensure that firms evolve as custodians of their ecological environment. Such a theory could start by reviewing the process of interaction and negotiation between policy makers and firms (or their representative interest groups) to arrive at suitable policy initiatives, which would yield mutually agreed environmentally beneficial outcomes. This could be followed by an analysis of the process of policy implementation itself, where due to political or procedural compulsions there are some deviations from the agreed policy initiative. The focus could then shift to CEB of the firm with respect to the stated policy intervention. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour

Policy maker

Expected goal of policy initiative

Firm or its interest group

Bureaucracy

Policy intervention Market (risk, finance etc.)

Competitor response

Supply chain Internal characteristics

Firm strategy Political & legal env.

Social/employee pressure

Customer

Firm characteristics

Environmental outcome

Figure 1. A conceptual model for theory building on corporate environmental behaviour

Factors that need to be taken into account at this stage are the relative importance of firm capability (irrespective of willingness), market related factors, competitor responses, supply chain opportunities or restrictions, political and legal environment, pressure from NGOs, employees and the social environment, customer preferences and the long term goals of the firm. The dynamic nature of all these factors must be taken into account as well. The environmental outcome of the firm response to the policy intervention would then be taken as feedback for further interaction between the regulators and regulatees (the firm). Figure 1 summarizes the conceptual model described. Within this framework, there is scope to develop nonlinear multidirectional models where the implications of each factor on CEB could be studied relative to the other interrelated factors. With respect to the nature of the firm, the impact of the policy framework on CEB of small and medium enterprises, which employ far more people than large firms, has not been adequately examined in the literature, providing a promising avenue for research. Moreover, more empirical research is needed to develop deeper insights into which conditions are conducive for specific regulatory measures, which would then contribute towards generalizing the results for a holistic theory. Another interesting trend highlighted through this review is the changing nature of CEB from reacting to governmental pressures to raising the bar for the rest of the industry. Even similar firms react very differently to environmental stimuli depending on their social, regulatory and market milieu. This Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar is because increased economic integration coupled with rapid strides in technology development have led to greater uncertainty, due to which environment management has become a part of core business strategy for the firm. Environmental issues have become an important trigger for market or industrial transition through a diverse set of sensitive business stakeholders ranging from environmental NGOs to competitors. They are warnings of the need to diversify, innovate and change to ensure business sustainability and now constitute core strategic decisions. We can assertively state than the environment has now evolved from being a necessary evil to taking a strategic dimension for the firm.

References Allenby BR. 2000. The fallacy of ‘green technology’. American Behavioral Scientist 44(2): 213–228. DOI: 10.1177/000276400 21956170 Altham WJ, Guerin TF. 1999. Environmental self regulation and sustainable economic growth: the seamless web framework. Eco-Management and Auditing 6(2): 61–75. Anand P. 2003. Economic analysis and environmental responses. In Environmental Responses, Blowers A, Hinchliffe S (eds). Chichester: Wiley in association with the Open University. 103–142. Anderson D, Cavendish W. 2001. Dynamic simulation and environmental policy analysis: beyond comparative statics and the environmental Kuznets curve. Oxford Economic Papers 53(4): 721–746. Andersson LM, Bateman TS. 2000. Individual environmental initiative: championing natural environmental issues in U.S. business organizations. Academy of Management Journal 43(4): 548–570. Anex RP. 2000. Stimulating innovation in green technology. American Behavioral Scientist 44(2): 188–212. DOI: 10.1177/ 00027640021956161 Aragon-Correa JA, Sharma S. 2003. A contingent resource based view of proactive corporate environmental strategy. Academy of Management Review 28(1): 71–88. Arora S, Cason TN. 1995. An experiment in voluntary environmental regulation: participation in EPA’s 33/50 program. Journal of Environmental Economics and Management 28(3): 271–286. DOI: 10.1006/jeem.1995.1018 Arora S, Gangopadhyay S. 1995. Towards a theoretical model of voluntary overcompliance. Journal of Economic Behaviour and Organisation 28(3): 289–309. DOI: 10.1016/0167-2681(95)00037-2 Arts B. 2002. ‘Green alliances’ of business and NGOs. New styles of self regulation or ‘dead-end roads’. Corporate Social Responsibility and Environmental Management 9(1): 26–36. DOI: 10.1002/csr.3 Azzone G, Bertele U, Noci G. 1997. At last we are creating environmental strategies which work. Long Range Planning 30(4): 562–571. DOI: 10.1016/S0024-6301(97)00035-6 Banerjee SB. 2001. Corporate environmental strategies and actions. Management Decision 39(1): 36–44. DOI: 10.1108/ EUM0000000005405 Bansal P, Roth K. 2000. Why companies go green: a model of ecological responsiveness. Academy of Management Journal 43(4): 717–736. Baron DP. 1995. Business and its Environment. Prentice-Hall: Englewood Cliffs, NJ. Barrett S. 1992. Strategy and the environment. The Columbia Journal of World Business 27: 210–221. Bauman Y. 2004. Free-Market Incentives for Innovation: a Closer Look at the Case of Pollution Control. http://www.smallparty. org/yoram/research/maxincent.pdf [28 May 2007]. Baumol WJ, Oates WE. 1988. The Theory of Environmental Policy. Cambridge University Press: Cambridge. Becker RA. 2004. Pollution abatement manufacture by U.S. manufacturing plants: do community characteristics matter? Contributions to Economic Analysis and Policy 3(2): 1–23. Benford FA. 1998. On the dynamics of the regulation of pollution: incentive compatible regulation of a persistent pollutant. Journal of Environmental Economics and Management 36(1): 1–25. DOI: 10.1006/jeem.1998.1036 Bhargava S, Welford R. 1996. Corporate strategy and the environment: the theory. In Corporate Environmental Management 2, Welford R (ed.). Earthscan: London; 13–32. Biddle D. 1993. Recycling for profit: the new green business frontier. Harvard Business Review November: 145–156. DOI: 10.1225/93601 Blackman A, Boyd J. 2002. The economics of tailored regulation: will voluntary site-specific performance standards necessarily improve welfare? Southern Economic Journal 169(2): 309–326. Bowen FE. 2002. Organisational slack and corporate greening: broadening the debate. British Journal of Management 13: 305–316. DOI: 10.1111/1467-8551.00248 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour Boyd J. 2001. The barriers to corporate pollution prevention: an analysis of three cases. In Improving Regulation: Cases in Environment, Health and Safety, Farrow S, Fischbeck P (eds). RFF Press: Washington, DC; 95–114. Bryant RL, Wilson GA. 1998. Rethinking environmental management. Progress in Human Geography 22(3): 321–343. DOI: 10.1191/030913298672031592 Buchholz RA. 1991. Corporate responsibility and the good society: from economics to ecology. Business Horizons 34(4): 19–31. DOI: 10.1016/0007-6813(91)90003-E Cadot O, Sinclair-Desgagne B. 1995. Environmental standards and industrial policy. Journal of Environmental Economics and Management 29(2): 228–237. DOI: 10.1006/jeem.1995.1043 Cerin P. 2002. Characteristics of environmental reporters on the OM Stockholm exchange. Business Strategy and the Environment 11(5): 298–311. DOI: 10.1002/bse.336 Cerin P, Karlson L. 2002. Business incentives for sustainability: a property rights approach. Ecological Economics 40(1): 13–22. DOI: 10.1016/S0921-8009(01)00275-0 Chertow MR. 2001. The IPAT equation and its variants. Journal of Industrial Ecology 4(4): 13–29. DOI: 10.1162/ 10881980052541927 Child J, Tsai T. 2005. The dynamic between firms’ environmental strategies and institutional constraints in emerging economies: evidence from China and Taiwan. Journal of Management Studies 42(1): 95–125. DOI: 10.1111/ j.1467-6486.2005.00490.x Clark M. 2005. Corporate environmental behaviour research: informing environmental policy. Structural Change and Economic Dynamics 16: 422–431. DOI: 10.1016/j.strueco.2004.04.006 Collins L, Usher S. 2004. Project PASCALEA – public and stakeholder consultation in developing high profile corporate environmental strategy. Corporate Social Responsibility and Environmental Management 11: 95–102. DOI: 10.1002/csr.057 Damania D. 1996. Pollution taxes and pollution abatement in an oligopoly supergame. Journal of Environmental Economics and Management 30(3): 323–336. DOI: 10.1006/jeem.1996.0022 Damania R. 2000. Financial structure and the effectiveness of pollution control in an oligopolistic industry. Resource and Energy Economics 22(1): 21–36. DOI: 10.1016/S0928-7655(99)00012-3 Dasgupta S, Hettige H, Wheeler D. 2000. What improves environmental compliance? Evidence from Mexican industry. Journal of Environmental Economics and Management 39(1): 39–66. DOI: 10.1006/jeem.1999.1090 Dean TJ, Brown RL, Stango V. 2000. Environmental regulation as a barrier to the formation of small manufacturing establishments: a longitudinal examination. Journal of Environmental Economics and Management 40(1): 56–75. DOI: 10.1006/ jeem.1999.1105 DeCanio SJ. 1998. The efficiency paradox: bureaucratic and organisational barriers to profitable energy saving instruments. Energy Policy 26(5): 441–454. DOI: 10.1016/S0301-4215(97)00152-3 Delmas MA, Terlaak AK. 2001. A framework for analysing environmental voluntary agreements. California Management Review 43(3): 44–63. Dodge J. 1997. Reassessing culture and strategy: environmental improvement structure leadership and control. In Corporate Environmental Management 2, Welford R (ed.). Earthscan: London; 104–126. Downing PB, White LJ. 1986. Innovation in pollution control. Journal of Environmental Economics and Management 13(1): 18–29. DOI: 10.1016/0095-0696(86)90014-8 Earnhart D. 2004. Panel data analysis of regulatory factors shaping environmental performance. The Review of Economics and Statistics 86(1): 391–401. DOI: 10.1162/003465304323023895 Eggers DM, Villiani J, Andrews R. 2000. Third party information providers and innovative environmental technology adoption. American Behavioral Scientist 44(2): 265–276. DOI: 10.1177/00027640021956206 Ehrenfeld JR. 2000. Industrial ecology paradigm shift or normal science. American Behavioral Scientist 44(2): 229–244. DOI: 10.1177/0002764200044002006 Fernandez E, Junquera B, Ordiz M. 2003. Organizational culture and human resources in the environmental issue: a review of the literature. International Journal of Human Resource Management 14(4): 634–656. DOI: 10.1080/ 0958519032000057628 Fischer C, Parry IWH, Pizer WA. 2003. Instrument choice for environmental protection when technological innovation is endogenous. Journal of Environmental Economics and Management 45(3): 523–545. DOI: 10.1016/S0095-0696(03)00002-0 Florida R, Davison D. 2001. Gaining from green management: environmental management systems inside and outside the factory. California Management Review 43(3): 64–84. Foulon J, Paul L, Laplante B. 2002. Incentives for pollution control: regulation or information? Journal of Environmental Economics and Management 44(1): 169–187. DOI: 10.1006/jeem.2001.1196 Fullerton D, Wu W. 1998. Policies for green design. Journal of Environmental Economics and Management 36(2): 131–148. DOI: 10.1006/jeem.1998.1044 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar Ghobadian A, Viney H, Liu J, James P. 1998. Extending linear approaches to mapping corporate environmental behaviour. Business Strategy and the Environment 7: 13–23. DOI: 10.1002/(SICI)1099-0836(199802)7:13.0.CO;2-D Greeno JL, Robinson SN. 1992. Rethinking corporate environmental management. The Columbia Journal of World Business 27: 222–232. Gunningham N, Phillipson M, Grabosby P. 1999. Harnesing third parties as surrogate regulators: achieving environmental outcomes by alternative means. Business Strategy and the Environment 8: 211–224. DOI: 10.1002/(SICI) 1099-0836(199907/08)8:43.0.CO;2-K Hackett S. 1995. Pollution controlling innovation in oligopolistic industries: some comparisons between patent races and research joint ventures. Journal of Environmental Economics and Management 29(3): 339–356. DOI: 10.1006/ jeem.1995.1051 Hahn RW. 2000. The impact of economics on environmental policy. Journal of Environmental Economics and Management 39(3): 375–399. DOI: 10.1006/jeem.1999.1119 Harford J. 2000. Initial and continuing compliance and the trade-off between monitoring and control cost. Journal of Environmental Economics and Management 40(2): 151–163. DOI: 10.1006/jeem.1999.1116 Hart S. 1997. Beyond green strategies for a sustainable world. Harvard Business Review January: 67–76. DOI: 10.1225/ 97105 Heinkel R, Kraus A, Zechner J. 2001. The effect of green investment on corporate behaviour. Journal of Finance and Quantitative Analysis 36(4): 431–449. Henriques I, Sadorsky P. 1996. The determinants of an environmentally responsive firm: an empirical approach. Journal of Environmental Economics and Management 30(3): 381–395. DOI: 10.1006/jeem.1996.0026 Hermalin BE. 2001. Economics and corporate culture. In The International Handbook of Organizational Culture and Climate, Cooper CL, Cartwright S, Earley PC (eds). Wiley: New York; 217–262. Heyes A. 2000. Implementing environmental regulation: enforcement and compliance. Journal of Regulatory Economics 17(2): 107–129. DOI: 10.1023/A:1008157410380 Heyes AG, Liston-Heyes C. 1999. Corporate lobbying, regulatory conduct and the Porter hypothesis. Environmental and Resource Economics 13(2): 209–218. DOI: 10.1023/A:1008323700888 Hjeresen DL, Korchhoff MM, Lankey RL. 2002. Green chemistry: environment, economics and competitiveness. Corporate Environmental Strategy 9(3): 259–266. Hoffman AJ. 2001. Linking organizational and field-level analyses: the diffusion of corporate environmental practice. Organization and Environment 14(2): 133–156. DOI: 10.1177/1086026601142001 Hontou V, Diakoulaki D, Papagiannakis L. 2007. A multicriterion classification approach for assessing the impact of environmental policies on the competitiveness of firms. Corporate Social Responsibility and Environmental Management 14(1): 28–41. DOI: 10.1002/csr.112 International Institute for Environment and Development (IIED). 2001. Promoting a European Framework for Corporate Social Responsibility: IIED Response to the EC Green Paper. London. http://ec.europa.eu/employment_social/soc-dial/csr/pdf/ 033-ORGNAT_IIED_UK_011221_en.pdf [2 June 2007]. Johnstone N. 2007. Environmental Policy and Corporate Behaviour. Elgar: Cheltenham. Jose PD. 1996. Corporate strategy and the environment: a portfolio approach. Long Range Planning 29(4): 462–472. DOI: 10.1016/0024-6301(96)00038-6 Jung C, Krutilla K, Boyd R. 1996. Incentives for advanced pollution abatement technology at the industry level: an evaluation of policy alternatives. Journal of Environmental Economics and Management 30(1): 95–111. DOI: 10.1006/ jeem.1996.0007 Junquera B, Ordiz M. 2002. Influence of managerial characteristics on the environmental performance of Spanish companies. Environmental Quality Management 12(1): 35–51. DOI: 10.1002/tqem.10051 Kawamura M. 2000. A New Era of Corporate Competition Based on Environmental Factors – the Need for Environmental Assessments of Companies, No. 145, NLI Research Institute Japan. http://www.nli-research.co.jp/english/socioeconomics/2000/ li0010a.pdf [2 June 2007]. Kemp V. 2001. To Whose Profit? Building a Business Case for Sustainability. WWF-UK: Godalming, Surrey. http://www.wwf.org.uk/ filelibrary/pdf/towhoseprofit.pdf [2 June 2007]. Kennedy PW, Laplante, B, Maxwell J. 1994. Pollution policy: the role for publicly provided information. Journal of Environmental Economics and Management 26(1): 31–43. DOI: 10.1006/jeem.1994.1003 Khanna M. 2001. Non mandatory approaches to environmental protection. Journal of Economic Surveys 15(3): 291–324. DOI: 10.1111/1467-6419.00141 Khanna M, Anton WRQ. 2002. Corporate environmental management: regulatory and market-based incentives. Land Economics 78(4): 539–558. DOI: 10.2307/3176852 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour Khanna M, Damon LA. 1999. EPA’s voluntary 33/50 program: impact on toxic releases and economic performance of firms. Journal of Environmental Economics and Management 37(1): 1–25. DOI: 10.1006/jeem.1998.1057 King A, Lenox M. 2000. Industry self-regulation without sanctions: the chemical industry’s responsible care program. Academy of Management Journal 43(4): 698–716. King A, Lenox M. 2001. Does it really pay to be Green? Journal of Industrial Ecology 5(1): 105–116. DOI: 10.1162/ 108819801753358526 King A, Lenox M. 2002. Exploring the locus of profitable pollution reduction. Management Science 48(2): 289–299. DOI: 10.1287/mnsc.48.2.289.258 King A, Lenox M, Barnett M. 2002. Strategic responses to the reputation commons problem. In Organizations, Policy and the Natural Environment: Institutional and Strategic Perspectives, Hoffman A, Ventresca M (eds). Stanford University Press: Stanford; 393–406. Kolk A, Mauser A. 2002. The evolution of environmental management: from stage models to performance evaluation. Business Strategy and the Environment 11: 14–31. DOI: 10.1002/bse.316 Konar S, Cohen MA. 2001. Does the market value environmental performance? The Review of Economics and Statistics 83(2): 281–289. DOI: 10.1162/00346530151143815 Kong N, Salzmann O, Steger U, Ionescu-Somers A. 2002. Moving business/industry towards sustainable consumption: the role of NGOs. European Management Journal 20(2): 109–127. DOI: 10.1016/S0263-2373(02)00022-1 Krehbiel TC, Erekson OH. 2001. Characteristics of self-regulating environmental management systems: a survey of academic experts. International Journal of Environmental Technology and Management 1(1/2): 104–126. DOI: 10.1504/ IJETM.2001.000743 Kusku F. 2007. From necessity to responsibility: evidence for corporate environmental citizenship activities from a developing countries perspective. Corporate Social Responsibility and Environmental Management 14(2): 74–87. DOI: 10.1002/csr.119 Kverndokk S, Rosendahl KE, Rutherford T. 2001. Climate policies and induced technological change: which to choose the carrot or the stick? Environmental and Resource Economics 27(1): 21–41. DOI: 10.1023/B:EARE.0000016787.53575.39 Lantos GP. 2001. The boundaries of strategic corporate social responsibility. Journal of Consumer Marketing 18(7): 595–630. Larsson R, Olsson-Tjärnemo H, Plogner A, Östlund S. 1996. Market pull or legislative push: a framework for strategic ecological orientation. Scandinavian Journal of Management 12(3): 305–315. DOI: 10.1016/0956-5221(96)00008-5 Lawrence E, Andrews D, Ralph B, France C. 2002. Applying organizational environmental tools and techniques. Corporate Social Responsibility and Environmental Management 9(2): 116–125. DOI: 10.1002/csr.18 Leal GG, Fa MC, Pasola JV. 2003. Using environmental management systems to increase firms’ competitiveness. Corporate Social Responsibility and Environmental Management 10(2): 101–110. DOI: 10.1002/csr.32 Leung C, Tse C. 2001. Technology choice and saving in the presence of a fixed adoption cost. Review of Development Economics 5(1): 40–48. Levy DL, Rothenberg S. 2002. Heterogeneity and change in environmental strategy: technological and political responses to climate change in the automobile industry. In Organizations, Policy and the Natural Environment: Institutional and Strategic Perspectives, Hoffman A, Ventresca M (eds). Stanford University Press: Stanford; 173–193. Lovins AB, Lovins HL, Hawken P. 1999. A road map for natural capitalism. Harvard Business Review May: 145–158. DOI: 10.1225/99309 Lyon T, Maxwell J. 2001. Voluntary approaches to environmental regulation: a survey. In Economic Institutions and Environmental Policy, Franzini M, Nicita A (eds). Ashgate: Aldershot; 142–174. Lyon T, Maxwell J. 2003. Self-regulation, taxation and public voluntary environmental agreements. Journal of Public Economics 87: 1453–1486. DOI: 10.1016/S0047-2727(01)00221-3 Lyon T, Maxwell J. 2004. Corporate Environmentalism and Public Policy. Cambridge University Press: Cambridge. Magretta J, Shapiro RB. 1997. Growth through global sustainability: an interview with Monsanto’s CEO, Robert B. Shapiro. Harvard Business Review January: 79–88. DOI: 10.1225/97110 Marcil AG. 1992. Environmentally friendly development: can the private sector succeed where others have failed? The Columbia Journal of World Business 27: 194–200. Maxwell JW, Lyon TP, Hackett SC. 2000. Self-regulation and social welfare: the political economy of corporate environmentalism. Journal of Law and Economics 43(2): 583–618. DOI: 10.1086/467466 McWilliams A, Siegel D. 2001. Corporate social responsibility: a theory of the firm perspective. Academy of Management Review 26(1): 117–127. Milliman SR, Prince R. 1989. Firm incentives to promote technological change in pollution control. Journal of Environmental Economics and Management 17(3): 247–265. DOI: 10.1016/0095-0696(89)90019-3 Mylonadis Y. 2002. Open sourcing environmental regulation: how to make firms compete for the natural environment. In Organizations, Policy and the Natural Environment: Institutional and Strategic Perspectives, Hoffman A, Ventresca M (eds). Stanford University Press: Stanford; 369–392. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

R. Sarkar Newman JC, Breeden KM. 1992. Managing in the environmental era: lessons from environmental leaders. The Columbia Journal of World Business 27: 210–221. Oates WE, Baumol WJ. 1975. The instruments of economic policy. In Economic Analysis of Environmental Problems, E Mills (ed.). Columbia University Press: New York; 95–128. Pargal S, Hettige H, Singh M, Wheeler D. 1997. Formal and informal regulation of industrial pollution: comparative evidence from Indonesia and the US. The World Bank Economic Review 11(3): 433–450. DOI: 10.1093/wber/11.3.433 Perry M, Singh S. 2001. Corporate greening of foreign transnationals in Singapore. Singapore Journal of Tropical Geography 22(1): 52–73. DOI: 10.1111/1467-9493.00093 Perspectives. 1994. The challenge of going green. Harvard Business Review July: 37–50. DOI: 10.1225/94410 Petulla JM. 1987. Environmental Protection in the United States. San Francisco Study Centre: San Francisco. Plourde C, Yeung D. 1989. A model of industrial pollution in a stochastic environment. Journal of Environmental Economics and Management 16(2): 97–105. DOI: 10.1016/0095-0696(89)90001-6 Porter ME. 1991. America’s green strategy. Scientific American 264(4): 168–179. Porter ME, Kramer MR. 2002. The competitive advantage of corporate philanthropy. Harvard Business Review December: 5–16. DOI: 10.1225/R0212D Porter ME, Van der Linde C. 1995a. Green and competitive: ending the stalemate. Harvard Business Review September–October: 120–134. DOI: 10.1225/95507 Porter ME, Van der Linde C. 1995b. Toward a new conception of the environment–competitiveness relationship. Journal of Economic Perspectives 9(4): 97–118. Prakash A. 2001. Why do firms adopt ‘beyond compliance’ environmental policies? Business Strategy and the Environment 10: 286–299. DOI: 10.1002/bse.305 Preston L. 2001. Sustainability at Hewlett-Packard: from theory to practice. California Management Review 43(3): 26–37. Ramus CA. 2001. Organisational support for employees: encouraging creative ideas for environmental sustainability. California Management Review 43(3): 85–105. Reinhardt FL. 1999a. Bringing the environment down to earth. Harvard Business Review July: 149–157. DOI: 10.1225/99408 Reinhardt FL, 1999b. Market failure and the environmental policies of firms. Journal of Industrial Ecology 3(1): 9–21. DOI: 10.1162/108819899569368 Rivera-Camino J. 2001. What motivates European firms to adopt environmental management systems? Eco-Management and Auditing 8(3): 134–143. Robbins PT. 2001. Greening the Corporation. Management Strategy and the Environmental Challenge. Earthscan: London. Rock MT. 2002. Pollution Control in East Asia: Lessons from Newly Industrializing Economies. Resources for the Future and the Institute of Southeast Asian Studies: Washington, DC. Roediger-Schluga T. 2002. The stringency of environmental regulation and the ‘Porter hypothesis’. In The International Dimension of Environmental Policy, Marsilianu L, Rauscher M, Withagen C (eds). Kluwer: Boston, MA; 123–148. Rondinelli DA, Berry MA. 2000. Corporate environmental management and public policy bridging the gap. American Behavioral Scientist 44(2): 168–187. DOI: 10.1177/00027640021956152 Roome N. 1992. Developing environment management strategies. Business Strategy and the Environment 1: 11–24. Rosen CM. 2001. Environmental strategy and competitive advantage: an introduction. California Management Review 43(3): 8–15. Rosendahl KE. 2004. Cost effective environmental policy: implications of induced technological change. Journal of Environmental Economics and Management 48(3): 1099–1121. DOI: 10.1016/j.jeem.2003.12.007 Rugman AM, Verbeke A. 1998. Corporate strategies and environmental regulations: an organizing framework. Strategic Management Journal 19(4): 363–375. DOI: 10.1002/(SICI)1097-0266(199804)19:43.0.CO;2-H Rugman AM, Verbeke A. 2000. Six cases of corporate strategic responses to environmental regulation. European Management Journal 18(4): 377–385. DOI: 10.1016/S0263-2373(00)00027-X Salzmann O, Ionescu-Somers A, Steger U. 2005. The business case for corporate sustainability: literature review and research options. European Management Journal 23(1): 27–36. DOI: 10.1016/j.emj.2004.12.007 Saouter E, White P. 2002. Laundry detergents: cleaner clothes and a cleaner environment. Corporate Environmental Strategy 9(1): 40–51. DOI: 10.1016/S1066-7938(01)00149-X Segerson K, Miceli TJ. 1998. Voluntary environmental agreements: good or bad news for environmental protection? Journal of Environmental Economics and Management 36(2): 109–130. DOI: 10.1006/jeem.1998.1040 Sharfman M, Ellington RT, Meo M. 1999. Conoco and the vapour recovery project. Journal of Industrial Ecology 3(1): 93–110. DOI: 10.1162/108819899569412 Sharma S. 2000. Managerial interpretations and organizational context as predictors of corporate choice of environmental strategy. Academy of Management Journal 43(4): 681–697. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr

Public Policy and Corporate Environmental Behaviour Shrestha RK. 2001. The choice of environmental policy instruments under correlated uncertainty. Resource and Energy Economics 23(2): 175–185. DOI: 10.1016/S0928-7655(00)00043-9 Sinclair-Desgagne B. 1999. Remarks on environmental regulation, firm behaviour and innovation. http://www.cirano.qc.ca/ pdf/publication/99s-20.pdf [2 June 2007]. Singh RK, Murty HR, Gupta SK, Dikshit AK. 2007. Development of corporate sustainability performance index for steel industry. Ecological Indicators 7(3): 565–588, DOI: 10.1016/j.ecolind2006.06.004 Siniscalco D, Borghini S, Fantini M, Ranghieri F. 2000. The Response of Companies to Information Based Environmental Policies, FEEM Working Papers. http://www.feem.itfclemensfclemens/Feem/Pub/Publications/WPapers/WP2000-006.htm [2 June 2007]. Stafford S. 2002. The effect of punishment on firm compliance with hazardous waste regulations. Journal of Environmental Economics and Management 44(2): 290–308. DOI: 10.1006/jeem.2001.1204 Stannengard L. 2000. Flexible couplings: combining business goals and environmental concern. Business Strategy and the Environment 9: 163–174. DOI: 10.1002/(SICI)1099-0836(200005/06)9:33.0.CO;2-D Stanwick PA. 1998. Corporate strategies in the environment management industry: an examination of organizational performance. Eco-Management and Auditing 5(2): 57–61. DOI: 10.1002/(SICI)1099-0925(199807)5:23.0.CO;2-H Stanwick SD, Stanwick PA. 2000. The relationship between environmental disclosures and environmental performance: an empirical study of US firms. Eco-Management and Auditing 7(4): 155–164. DOI: 10.1002/1099-0925(200012)7:43.0.CO;2-6 Suh S, Kagawa S. 2005. Industrial ecology and input–output economics: an introduction. Economic Systems Research 17(4): 349–364. DOI: 10.1080/09535310500283476 Synnestvedt T. 2001. Debates over environmental information to stakeholders as a policy instrument. Eco-Management and Auditing 8(3): 165–178. Thornton et al. 2003. Sources of corporate environmental performance. California Management Review 46(1): 127–141. Toffel MW, Marshall JD. 2004. Improving environmental performance assessment: a comparative analysis of weighting methods used to evaluate chemical release inventories. Journal of Industrial Ecology 8(1/2): 143–172. DOI: 10.1162/1088198041269445 Toman MA, Withagen C. 2000. Accumulative pollution, clean technology and policy design. Resource and Energy Economics 22(4): 367–384. DOI: 10.1016/S0928-7655(00)00022-1 Utting P. 2002. The Greening of Business in Developing Countries: Rhetoric, Reality and Prospects. Zed–UNRISD: London. Vastag G, Kerekes S, Rondinelli DA. 1996. Evaluation of corporate environmental approaches: a framework and application. International Journal of Production Economics 43(2/3): 193–211. DOI: 10.1016/0925-5273(96)00040-0 Vatn A. 2005. Rationality, institutions and environmental policy. Ecological Economics 5(2): 203–217. DOI: 10.1016/ j.ecolecon.2004.12.001 Videras JN, Alberini A. 2000. The appeal of voluntary environmental programs: which firms participate and why? Contemporary Economic Policy 18(4): 449–460. DOI: 10.1093/cep/18.4.449 Wagner et al. 2002. The relationship between the environmental and economic performance of firms: an empirical analysis of the European paper industry. Corporate Social Responsibility and Environmental Management 9(3): 133–146. DOI: 10.1002/ csr.22 Walley N, Whitehead B. 1994. It’s not easy being green, Harvard Business Review May: 46–52. DOI: 10.1225/94310. Walls M, Palmer K. 2001. Upstream pollution, downstream waste disposal, and the design of comprehensive environmental policies. Journal of Environmental Economics and Management 41(1): 94–108. DOI: 10.1006/jeem.2000.1135 Weitzman ML. 1974. Prices vs. quantities. Review of Economic Studies 41: 477–491. Welford R. 2000. Corporate Environmental Management Vols 1–3. Earthscan: London. Welford R, Young W, Ytterhus B. 1998. Towards sustainable production and consumption: a literature review and conceptual framework for the service sector. Eco-Management and Auditing 5(1): 38–56. DOI: 10.1002/(SICI)1099-0925(199803)5:13.0.CO;2-K Wheeler D, Fabig H, Boele R. 2002. Paradoxes and dilemmas for stakeholder responsive firms in the extractive sector: lessons from the case of Shell and the Ogoni. Journal of Business Ethics 39(3): 297–318. DOI: 10.1023/A:1016542207069 Whelan J, Lyons K. 2005. Community engagement or community action: choosing not to play the game. Environmental Politics 14(5): 596–610. DOI: 10.1080/09644010500257888 Xepapadeas A, De Zeeuw A. 1999. Environmental policy and competitiveness: the Porter hypothesis and the composition of capital. Journal of Environmental Economics and Management 37(2): 165–182. DOI: 10.1006/jeem.1998.1061

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. (2007) DOI: 10.1002/csr