Business-led Environmental Management: Economic Incentives and Environmental Implications

EPA Grant Number: R827919
Title: Business-led Environmental Management: Economic Incentives and Environmental Implications
Investigators: Khanna, Madhu , Thurston, Deborah
Institution: University of Illinois at Urbana-Champaign
EPA Project Officer: Chung, Serena
Project Period: December 15, 1999 through December 15, 2001 (Extended to December 15, 2002)
Project Amount: $241,516
RFA: Decision-Making and Valuation for Environmental Policy (1999) RFA Text |  Recipients Lists
Research Category: Environmental Justice


"Pollution prevention pays" is an appealing concept to both manufacturing engineers and policy makers. Engineers realize that manufacturing processes which generate large amounts of waste are by definition an inefficient use of resources. In addition, consumers and investors who "buy green" can create incentives for firms to improve environmental performance. Many firms claim to be pursuing corporate environmental stewardship strategies by engaging in self-regulated environmental management. In turn, policy makers hope to craft regulations that present a "win-win" situation, simultaneously benefitting the environment and industry. A new generation of policy initiatives are encouraging business-led environmental management through participation by firms in voluntary programs for pollution control.

The objective of this research is to determine what drives some and not other firms to undertake self-regulated environmental management, and the extent to which it can be relied upon to achieve environmental protection. At what point do mandatory regulations become necessary? What is the best mix of mandatory and voluntary approaches for achieving the dual goals of environmental protection and global competitiveness? Does pollution prevention always pay?


This research will develop a theoretical framework to generate econometrically testable hypothesis about the determinants of business-led environmental management and the implications of self-regulation by firms in achieving a reduction in pollution. It will examine whether this reduction has occurred at source or at the end-of-the-pipe and conditions under which claims of "clean and profitable" made by several case studies are valid, as well as whether self-regulation of pollution using flexible methods is actually presenting firms with "win-win" options. These hypotheses will be tested using environmental and financial data from the Toxic Release Inventory and Standard and Poor and data on firm-specific environmental management practices from the Investors Research Responsibility Center.

Expected Results:

It will offer conclusions about the effectiveness of the recent EPA-industry partnerships that encourage firms to adopt proactive environmental practices and undertake pollution prevention. It will also analyze the conditions under which a complementarity can be realized between the social goals of reducing health risks and environmental contamination due to toxic pollutants and a firm's goals of increased profits. These findings will be used to offer recommendations for the appropriate mix of mandatory and voluntary approaches, and of public and private initiatives that should comprise environmental policy.

Publications and Presentations:

Publications have been submitted on this project: View all 8 publications for this project

Journal Articles:

Journal Articles have been submitted on this project: View all 3 journal articles for this project

Supplemental Keywords:

public policy, pollution prevention, toxic pollution, S&P 500 firms., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics and Business, decision-making, Ecology and Ecosystems, Social Science, Economics & Decision Making, alternative compensation, ecosystem valuation, policy analysis, economic research, toxic release inventory, decision analysis, business-led environmental management, economic incentives, environmental values, standards of value, cost benefit, cost/benefit analysis, environmental policy, psychological attitudes, public values, pollution prevention, public policy, source reduction, benefits assessment

Progress and Final Reports:

  • 2000 Progress Report
  • 2001 Progress Report
  • Final Report