Environmental choice may be better than coercion for business

Firms that voluntarily adopt environmental policies appear to develop more innovative and proactive measures than firms where policies are imposed, according to new research. A study of 1151 Spanish firms indicated that those that self-regulate, especially in co-operation with other firms, seem to perform better environmentally.

There are a number of ways in which the environmental impact of businesses can be reduced, ranging from command and control policies to voluntary initiatives. To evaluate the different approaches, this study identified five categories of policy that encourage environmental adaptation and allocated 1151 firms into these categories according to managerial description of their policies as follows:

1. Command and control regulation (40 per cent of firms selected this option) are public policies of obligatory regulation where standards and practices are imposed and controlled by checks and sanctions.
2. Market-based approaches (9 per cent of firms) are policies that establish limits on polluting levels but allow a more flexible approach by using economic instruments, such as tradable emission permits.
3. Mandatory information-based approaches (10 per cent) require transparent information on environmental impacts and actions by the firms.
4. Voluntary, individual policies (24 per cent) are voluntary agreements to undertake environmental actions, usually with incentives provided by taxes and subsidies.
5. Voluntary, cooperative policies (17 per cent) are agreements initiated through the membership of a network of firms.
   

The study analysed the presence of 27 different environmental tools and systems and assessed environmental performance using five indicators, including reduced emissions, waste recycling and consumption of natural resources.

All firms demonstrated an increase in adoption of environmental practices from 2002 to 2005. Results indicated that 50 to 60 per cent of firms with control regulation or market-based approaches used a reactive approach through end-of-pipe measures that control pollution at the point of waste discharge rather than by changing processes. This was the case for about 16-20 per cent of firms inspired by voluntary practices and which tended to adopt more preventative and proactive practices. For example, over 40 per cent of firms with voluntary cooperative policies conducted an analysis of eco-efficiency whilst this was the case in only 13 per cent of firms with command and control regulation.

Firms using more voluntary practices, especially if they are cooperative, have a high level of environmental reporting and measuring. For example, 80 per cent conducted an evaluation of environmental risks and impacts compared to 56 per cent of firms with an information-based environmental approach.

Firms with a voluntary approach had few environmental problems and accidents. They also showed greater reduction in emissions (20 per cent had reduced emissions), a greater reduction in consumption of natural resources and a higher percentage of waste recycling. The poorest level was seen in firms with a command and control approach where only 2 per cent had reduced emissions.

Although the results indicate that firms with more voluntary policies perform better environmentally, the researchers suggest conclusions should be tentative. Firstly the study does not prove that voluntary policies actually cause environmental improvements and results could depend on other variables, such as time available to comply with regulation. Secondly there was no information on the level or degree of adoption of policies and no consideration of firms that adopted more than one type of policy.

Source: Camisón, C. (2010) Effects of coercive regulation versus voluntary and cooperative auto-regulation on environmental adaptation and performance: Empirical evidence in Spain. European Management Journal. 28:346-361.
Contact: camison@emp.uji.es