Grantee Research Project Results
Final Report: Oregon Business Decisions for Environmental Performance
EPA Grant Number: R831034Title: Oregon Business Decisions for Environmental Performance
Investigators: Ervin, David E. , Khanna, Madhu , Wu, Junjie , Koss, Patricia
Institution: Portland State University , University of Illinois Urbana-Champaign , Oregon State University
Current Institution: Portland State University , Oregon State University , University of Illinois Urbana-Champaign
EPA Project Officer: Hahn, Intaek
Project Period: June 1, 2003 through May 31, 2006 (Extended to May 31, 2007)
Project Amount: $251,973
RFA: Corporate Environmental Behavior: Examining the Effectiveness of Government Interventions and Voluntary Initiatives (2002) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
- Collect primary data on the environmental practices of a random sample of Oregon firms.
- Identify and measure the major environmental performance indicators, e.g., toxic releases, water pollutant emissions and solid waste levels, for Oregon firms.
- Collect data on firm, industry, regulatory, and ‘voluntary’ environmental program factors hypothesized to influence business environmental performance.
- Test the influences of firm, industry, regulatory conditions, simultaneously with voluntary program factors, on the use of environmental policies and practices.
- Test the influences of firm, industry, regulatory, and voluntary environmental program factors on firms' environmental performance.
- Infer the ‘voluntary’ program elements, (i.e., policies and practices) and other factors that significantly improve firm environmental performance.
Summary/Accomplishments (Outputs/Outcomes):
June 2006 to September 2007 was devoted primarily conducting summary statistics analysis to characterize the survey data, identifying and incorporating secondary data on environmental performance, collecting data to test for nonrespondent bias, designing theoretical and empirical models, and conducting preliminary analyses.
Summary Statistics and Characterization of the Survey Data
This study uses both primary and secondary data. Primary data were obtained from the study survey, which was conducted at the facility level, and included facilities employing at least 10 individuals in six industrial sectors. Characteristics of the responding facilities include the following:
- Respondents comprised roughly equivalent proportions of each of the six sectors: 34% Construction, 37% Food, Wood, and Transport respectively, and 30% Accommodation.
- Ninety-five percent of the sample employed fewer than 250 individuals, while 84% employed fewer than 100 individuals, consistent with US Census data on facility size in the US, the Pacific Northwest, and Oregon (USCB 2003).
- The majority of facilities were privately held; just 12% were publicly traded.
- Seventy-nine percent reported being independently owned; only 21% were owned by a parent company, and 13% belonged to a multinational corporation.
- Twenty-two percent reported having R&D capacity.
- Forty-three percent reported selling directly into retail markets.
- Nearly 80% reported having 10 or fewer close competitors.
- Upper management, defined as the director level and above, was involved in environmental decision making at 60% of facilities. Thirty percent of facilities reported having dedicated environmental staff. Environmental management was delegated to other staff, such as executives, facility managers, or health and safety managers at the remaining 70% of facilities.
- Facilities reported spending an average of 2.2% and 2.4% of annual revenues on environmental management in 2003 and 2004, respectively, consistent with available estimates (Reinhardt 2000).
- Sixty percent of the sample had implemented at least one environmental management practice, with employee training the most widely implemented.
- Twenty percent of the sample participated in at least one voluntary environmental program (VEP), consistent with other studies (Alberini and Segerson 2002, Khanna 2001, Videras and Alberini 2000, Arora and Cason 1995). ENERGY STAR® was the most popular program, with 34% of participants reporting participating, followed by LEED® (Leadership in Energy and Environmental Design) Certification, with 23% of participants participating.
We are currently supplementing the data from the survey with detailed firm-specific data on environmental performance from the Toxic Release Inventory (TRI) and other EPA databases, permit records from the Oregon Department of Environmental Quality (DEQ), and VEP membership lists, among other sources. A primary goal of the additional data collection is to test for nonrespondent bias. In addition, telephone interviews of 365 survey non-respondents were completed (46.3% response rate). Less than 1% indicated that the facility had been issued a notice of violation or other penalty by an environmental regulatory authority on an annual basis, compared to 2% in the mail survey. Forty-five percent reported being subject to some type of environmental regulations, compared to 84% of survey respondents. The interviews do not indicate significant non-response bias based on facility environmental performance.
Theoretical and Empirical Model Development and Preliminary Results
Three models of voluntary business environmental management decisions are being tested with econometric and structural equation modeling (SEM) approaches.
I. Motivations for participating in voluntary environmental programs (VEPs) and adoption of environmental management practices (EMPs)
One econometric investigation classifies voluntary environmental initiatives by firms into two categories, participation in VEPs and adoption of EMPs. It investigates the factors motivating firms to undertake each type of initiative and explores any differences in the types of firms likely to participate in VEPs and those likely to adopt EMPs. Results, which have been accepted for publication in the Policy Studies Journal, have implications for policy. The analysis shows the influence of existing regulatory approaches on fostering firms’ voluntary environmental activities and the types of activities they are more likely to motivate. By distinguishing between different types of regulatory pressures, the analysis sheds light on how the various pressures induce different types of voluntary behavior. The results obtained here also highlight the importance of providing technical assistance to firms that may not have the capacity to unilaterally undertake innovative environmental activities. Lastly, by identifying the types of facilities less likely to be self-motivated to undertake voluntary activities, this analysis has implications for the design and targeting of policy initiatives that seek to encourage increased voluntary environmental behavior.
II. Determinants of the Intensity of Environmental Management
The SEM analysis views firms as being motivated to adopt environmental management practices/plans and certain environmental practices due to specific motivating factors. EMP adoption, environmental practice adoption, and the motivating factors are latent variables that cannot be measured directly. This approach views the survey responses as observed factors that indicate the level of these underlying latent factors. SEM is conceptually similar to regression with many researchers stating that regression is a special case of SEM (e.g., Kline 2005, Bollen 1989, Golob 2001). Many published articles in psychology, sociology, educational research, political science, and market research have applied SEM techniques.
The analysis is conducted in three steps using a measurement model and the structural model. First, the measurement model is assessed to evaluate whether the latent variables constructed represent reasonable and identifiable distinct concepts. Next, the goodness of fit is evaluated to determine how closely the observed model fits the observed data. Third, results are obtained from a regression designed to determine the effects of the proposed explanatory motivations on EMP adoption.
Results indicate that managerial attitudes have a statistically significant effect on the extent to which facilities implement EMPs and adopt P2 practices. In addition, findings suggest that facilities that perceived stronger investor pressures and were publicly owned were more likely to adopt EMPs. However, neither of these factors are important in explaining the adoption of P2 practices. In fact, investor pressures had a negative but insignificant impact on the adoption of P2 practices. Other findings indicate that regulatory pressures have an important influence on both implementation of EMPs and adoption of P2 Practices. Furthermore, facilities that perceived stronger barriers to implementation of environmentally friendly production methods were less likely to adopt EMPs; this perception however did not have a statistically significant impact on adoption of P2 practices. No evidence was found that perceived consumer pressures or interest group pressures played a role in motivating the implementation of EMPs and adoption of P2 practices. Larger facilities were not found to be more likely to be environmentally proactive than smaller firms.
III. Effect of Voluntary Environmental Management on Environmental Performance
The third investigation uses a simultaneous equations approach to determine the motivations for facilities to implement environmental management practices and pollution prevention actions, and the ensuing effect of these decisions on environmental performance. The analysis is based on a theoretical framework in which the CEO’s utility is a function of profit and environmental performance, similar to the approach taken by Nakamura et al. (2001). Two recursive equation systems are estimated. The first includes EMP adoption and P2 actions with predicted EMP intensity feeding into the P2 equation. The second system adds an environmental performance (EP) equation to the first system, with predicted EMP and P variables entering the EP equation. Both systems are estimated with three stage least squares.
Initial findings for the first equation system suggest that upper management attitudes toward environmental protection exert a significant effect on EMP intensity, supporting the utility maximization model. Managers over 60 years of age, and competitiveness and investor pressures also had a positive and significant effect on practice intensity. Higher regulatory pressures, including the threat of future environmental regulations, and consumer pressures were associated with higher levels of pollution prevention. Estimates for the second system suggest that EMP adoption significantly affects environmental performance, as hypothesized. Unexpectedly, higher levels of P2 are estimated to be associated with lower levels of environmental performance. The preliminary estimates for second equation system are less robust because nearly 200 fewer observations were obtained in the survey for the environmental performance variable. A variety of ways are being explored to increase the number of observations for the EP variable in the second equation system.
Voluntary Program Participation and Environmental Effort
As just noted, performance data collected in the survey was limited, due to low response rates on these items. Nonetheless, some bivariate comparisons indicate significant associations between VEP participation and improved environmental effort:
- Facilities of all sizes participated in VEPs. Proportionally, however, more medium and large facilities (36%) participated than small facilities (20%).
- Nearly twice as many publicly traded facilities (30%) participated in voluntary programs than privately held facilities (18%).
- Nearly twice as many facilities reporting that either the facility or the parent firm was a multinational corporation (33%) reported participating in VEPs than other facilities (18%).
In addition, greater proportions of facilities with R&D capacity, facilities that had been inspected by a regulatory agency, facilities that were subject to regulations on multiple environmental impacts, and facilities with fewer competitors all reported participating in VEPs. The incidence of participation in voluntary programs among retail firms was approximately equal to that of non-retail firms. Findings that suggest greater environmental effort among VEP participants include the following:
- Among respondents that reported participating in at least one VEP, nearly 80% reported improved performance in at least one area of impact, compared to 54% of nonparticipants.
- A greater proportion of VEP participants, 57%, reported overcompliance with regulatory requirements compared with 33% of nonparticipants.
- A greater proportion of VEP participants had implemented environmental practices than nonparticipants. In addition, VEP participants had implemented a significantly higher number of practices on average than nonparticipants.
- Impact-specific results indicate that VEP participants recycle at significantly higher rates than nonparticipants. In addition, in the construction sector, VEP participants installed significantly more energy-efficient equipment, and built significantly more projects to green building standards than nonparticipants.
Summary and Progress Status
Six overarching conclusions and implications emerge from the analyses to date:
- Oregon business facilities have access to a wide variety of VEPs, yet participation remains low overall.
- Many Oregon business facilities are using multiple environmental management and pollution prevention practices, most of which are not part of formal VEPs.
- Regulatory pressure stimulates voluntary environmental management.
- Smaller facilities are disadvantaged in participating in voluntary environmental programs but not in adopting EMPs.
- Supportive managerial attitudes toward environmental protection and perceptions that environmental issues are a significant concern for the facility exert a significant and positive effect on business environmental management.
- A host of market factors, such as investor, consumer and competitive pressures, and cost barriers, can significantly affect particular business environmental management behaviors.
These findings suggest that simply relying on market forces to lead to corporate greening will not be enough. They also strongly suggest that policies must account for the influence of managerial attitudes in formulating effective strategies to promote voluntary environmental management. Finally, our analyses suggest that public policies to encourage corporate environmental management should be targeted towards private, domestically oriented facilities that would otherwise have fewer incentives to do so.
As of the end of September 2007, the project was considered complete from the standpoint of collecting primary data and completing initial multivariate analyses. Secondary data entry is expected to be completed by mid-October 2007. Additional analyses in development will be reported in future publications. Initial reports were completed in Spring 2007, and the first multivariate results are forthcoming in 2008.
Journal Articles:
No journal articles submitted with this report: View all 10 publications for this projectSupplemental Keywords:
socio-economic; public policy; Northwest; pollution prevention; corporate environmental decision making, voluntary environmental management,, RFA, ENVIRONMENTAL PROTECTION AGENCY, Scientific Discipline, Economic, Social, & Behavioral Science Research Program, Geographic Area, INDUSTRY, State, Small Businesses, Reinvention, Corporate Performance, Economics and Business, decision-making, Social Science, Economics & Decision Making, Environmental Law, Oregon, polchotomas choice selectivity model, compliance assistance, policy making, decision analysis, decision making, environmental decision making, incentives, cost benefit, economic incentives, corporate evironmental reform, cost/benefit analysis, environmental policy, compliance costs, benefits assessment, corporate environmental behaviorRelevant Websites:
http://obep.research.pdx.edu 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.