Grantee Research Project Results
2004 Progress Report: Environmental Management Strategies and Corporate Performance: Identification and Analysis of the Motivators of Regulated Entities' Environmental Behavior and Performance
EPA Grant Number: R829687Title: Environmental Management Strategies and Corporate Performance: Identification and Analysis of the Motivators of Regulated Entities' Environmental Behavior and Performance
Investigators: Delmas, Magali A. , Aigner, Dennis J.
Institution: University of California - Santa Barbara
EPA Project Officer: Hahn, Intaek
Project Period: January 1, 2002 through December 31, 2004 (Extended to June 30, 2006)
Project Period Covered by this Report: January 1, 2003 through December 31, 2004
Project Amount: $229,473
RFA: Corporate Environmental Behavior: Examining the Effectiveness of Government Interventions and Voluntary Initiatives (2001) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
The objective of this research project is to assess the economic and institutional drivers of the adoption of environmental management practices beyond regulatory compliance. The project is divided into two complementary parts. The first part consists of collecting original data through a survey of environmental managers in 3,000 manufacturing facilities in 8 industries in the United States. The second part of the research project is a detailed analysis of the electric utility sector through a combination of publicly available databases.
Progress Summary:
1. Survey Questionnaire on Environmental Management Practices
Despite burgeoning research on companies’ environmental strategies and environmental management practices, it remains unclear why some firms adopt environmental management practices beyond regulatory compliance. Stakeholders—including governments, customers, activists, local communities, environmental interest groups, and industry associations—impose pressures on firms. The way in which managers perceive and act upon these pressures at the facility level, however, depends upon facility- and parent company-specific factors, including the organizational structure of the facility. It is therefore possible that two facilities subject to the same level of pressures respond differently to these pressures because of their specific organizational structure (see Delmas and Toffel, 2005).
Method. Data for this study are derived from two main sources:
- a survey questionnaire sent to 3,160 facilities in the fall of 2003 and
- publicly available databases.
The survey provided information about the management practices each facility has adopted, as well as the number of environmental staff, the types of environmental auditing conducted, and perceptions of stakeholder pressures. Information about the survey is available at http://www.bren.ucsb.edu/~delmas/survey Exit . Various objective pressures as well as firm- and facility-level characteristics were obtained from existing databases such as U.S. Environmental Protection Agency (EPA) compliance databases and the Securities and Exchange Commission reports.
Our sample focuses on heavily polluting industrial sectors, which we identified based on their share of toxic chemical emissions reported to EPA’s Toxics Release Inventory program. The following sectors were selected: electric utilities (Standard Industrial Classification code [SIC] 49), electrical/electronics (SIC 36), petroleum refining (SIC 29), chemical and allied products (SIC 28), automotive (SIC 37), machinery manufacturing (SIC 35), primary metals manufacturing (SIC 33), and pulp, paper, and paperboard mills (SIC 26). We received a total of 536 responses, which is a 17 percent response rate and is acceptable considering the size of the population. The sample was representative of the population surveyed in terms of industry distribution, size of the facility, and level of pollution.
Results. The results show that corporations’ organizational structure influences how facility managers perceive institutional pressures. Differences in managers’ perception of institutional pressures emerge because organizations channel these pressures to different organizational functions, such as legal affairs departments and marketing departments, and these units interpret issues according to their distinct cultural frames.
Stakeholders within a firm non-market environment (regulators, non-government organizations [NGOs], local communities, the media) tend to view environmental issues as negative externalities, where the facility “gets away” with imposing costs on society. Within this framework, environmental management is viewed as unproductive and a zero-sum game where field constituents and firms compete to avoid bearing these costs. This debate often is settled by government, either via the courts or by the imposition (or not) of increased regulatory scrutiny or additional laws and regulations. Accordingly, such issues typically are addressed by organizations’ legal affairs departments. In this cultural framework, adopting additional environmental management practices is more likely to be viewed as avoiding sanctions from failing to meet these constituents’ expectations of legitimate organizational behavior (e.g., full legal compliance, conducting expected levels of community outreach).
In contrast, firms tend to view pressures exerted by their customers, suppliers, and competitors—stakeholders within their market environment—as business drivers. Such pressures typically are channeled through an organization’s marketing department whose objectives are to grow market share and profits. Here, adopting beyond compliance environmental practices that are demanded by customers or already are implemented by competitors are more likely to be culturally framed as indicators of superior management and risk-mitigated business partners. When framed this way, adopting such management practices is more likely to be viewed as garnering rewards.
In summary, institutional pressures from different stakeholders are channeled to different organizational functions, which influence how they are perceived by facility managers. These differences in perception are critical because they in turn influence organizations’ responses when adopting management practices. Controlling for the observed level of institutional pressure from market stakeholders, we found that organizations that perceived more pressure from these stakeholders (consumers, suppliers, competitors, socially responsible investors, trade associations), adopted more beyond compliance management practices. On the other hand, after controlling for observed levels of institutional pressure from non-market stakeholders, we found that organizations that perceived more pressure from these stakeholders (regulatory agencies, local community, media, environmental NGOs) were not more likely to adopt more beyond compliance management practices than organizations that perceived less pressure from these stakeholders. Pressures from market stakeholders were therefore more effective than pressures from non-market stakeholders in triggering the adoption of environmental management practices beyond compliance. Figure 1 shows the relationships between the variables on our model.
Figure 1. The Relationships Between the Variables on Our Model
2. Corporate and Environmental Performance in the Electric Utility Sector
We investigated the impact of retail deregulation on the environmental strategies and performance of electric utilities. In particular, we sought to understand the factors that influence environmental differentiation strategies in this sector (see Delmas, Russo, and Montes-Sancho, 2005).
Method. We used a combination of several databases, mainly the Federal Energy Regulatory Commission (FERC) Form Number 1 (U. S. Department of Energy, 1998-2000) and the Emissions & Generation Resource Integrated Database (eGRID)(EPA, 2002) from 1998 to 2000. The FERC Form 1, the a nnual report for major electric utilities, is filed by privately-owned electric utilities. The report for each utility, which averages 140 pages, contains general corporate information, financial statements, supporting schedules, and a wealth of engineering statistics. eGRID contains emissions and resource mix data for all U.S. electricity generating plants that produce electricity and report data to the U. S. government. It contains information from three federal agencies: EPA, the Energy Information Administration and the FERC. eGRID aggregates the data from the plant level to the utility company level, providing a detailed emissions profile, as well as the generation resource mix and capacity, ownership, corporate affiliation, location information, and other pertinent variables.
Results. We found evidence that the deregulation introduced to this historically staid industry has stimulated environmental differentiation strategies for incumbent firms. Consistent with theories that suggest differentiation is most likely to appear where its point of uniqueness is valued by customers, utilities engaged in differentiation if they served states whose populace exhibited a higher level of environmental sensitivity. The tendency for firms to differentiate is lessened if they are more dependent on coal-fired generation or if they are relatively more efficient. In both of these cases, the variables are associated with lower operating costs, in turn demonstrating that firms sort themselves into either differentiation or low-cost strategies as their environments reflect more market-like segmentation in a deregulated world.
Our study has implications for the literature on environmental differentiation in consumer markets. Environmental product differentiation consists of offering products that provide greater environmental benefits, or that impose smaller environmental costs, than similar products. These products may be costlier than traditional products, but they allow the firm to command a price premium in the marketplace or to capture additional market share. The environmental differentiation literature argues that one way of creating willingness to pay for public goods is to bundle them with private goods. Many consumers, for example, are willing to pay a premium for organic food products that directly benefit their health and may taste better than non-organic products. Green electricity does not offer private benefits—other than the warm glow of altruism—because green and brown electricity are identical once they reach the consumer and because the product’s use is within the household of the consumer.
How can such a lack of private benefits be overcome? One way is to use the public policy process to create the benefit. Green consumers still represent the minority of consumers, but change may come from recent public policies calling for requirements of minimums of green energy consumption by state-owned facilities. If these purchases bring the costs of green power to competitive levels, demand for green power will broaden and private benefits will appear. But this process is quite circuitous, compared to the more straightforward provision of private benefits seen in organic produce and other consumer product markets.
We have extended knowledge in the area of environmental differentiation with our analysis. Environmental differentiation plays out in ways that blend together traditional differentiation strategies with an element of conscious contribution to the common good that is not generally seen in the more familiar product differentiation that consumers face.
Future Activities:
- We will undertake a detailed analysis of the differences in the motivations to adopt environmental management practices (market versus compliance) by type of environmental management practice.
- We will analyze how deregulation and efficiency impact environmental performance (CO2 emissions) in the electric utility sector. We also will analyze the relationship between productive efficiency and improvement in environmental performance in the U.S. Climate Challenge program.
Journal Articles on this Report : 1 Displayed | Download in RIS Format
Other project views: | All 20 publications | 3 publications in selected types | All 2 journal articles |
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Type | Citation | ||
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Delmas M, Toffel M. Stakeholders and environmental management practices: an institutional framework. Business Strategy and the Environment 2004;13(4):209-222. |
R829687 (2004) R829687 (Final) |
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Supplemental Keywords:
environmental management practices, survey questionnaire, institutional environment , market pressure, efficiency , environmental performance, environmental differentiation , corporate performance, corporate compliance , environmental compliance determinants , environmental law , government-industry interaction,, RFA, Scientific Discipline, Sustainable Industry/Business, Corporate Performance, Economics and Business, Social Science, Environmental Law, environmental policy case studies, corporate environmental policy, enforcement strategy, policy making, corporate compliance, government intervention, environmental compliance determinants, information dissemination, audit policies, Porter hypothesis, government-industry interaction, enforcement impact, environmental behavior, corporate environmental behaviorRelevant Websites:
http://www.bren.ucsb.edu/~delmas Exit
http://www.bren.ucsb.edu/~delmas/survey Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.