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Why Do Firms Improve Their Environmental Performance?

 

There are growing concerns that globalisation undermines the capacity of states to regulate the environmental impact of firms' activities. Conflicting claims have been made about the emergence of 'pollution havens.' Is there a 'race-to-the-bottom', as governments drop environmental standards as they compete to attract mobile investors? Conversely, does trade liberalization have beneficial effects because firms have to meet high environmental standards as a condition of access to lucrative markets? Many firms have played a prominent part in these debates, and demonstrated their commitment to social and environmental standards by negotiating various forms of civil, private and co-regulation.

This research by Kollman and Prakash represents an important advance in our understanding of how, when and why firms upgrade their environmental performance. They focus on the neglected area of implementation, examining variations between the United States, Germany and the United Kingdom in firms' responses to two widespread environmental management systems: the 14001 series of the ISO (International Organization for Standardization); and EMAS (European Union's Eco-Management Scheme). They explore the relationship between the nature of the institution setting the standard and the domestic regulatory environment in which the standards are implemented. The conclusions they draw are significant beyond the cases they study. They note that environmental management 'standards can be seen as a part of broader trends that are fundamentally changing the way business and certain policy areas are regulated'. Two key trends are: the increasing amount of regulation being developed within supranational bodies; and greater reliance on private actors for implementing these international standards, often because government institutions are either non-existent or too weak. Multinational firms also tend to prefer this approach, as they only have to deal with one supranational standard, rather than a myriad of conflicting national regulations.

Kollman and Prakash explain differences in take-up and implementation by:

  • The degree to which the domestic regulatory approach is considered to be adversarial, i.e. where regulators are less willing to offer firms regulatory relief to make voluntary schemes attractive. Domestic institutions therefore structure firms' preferences for participating in an environmental management system. This explains why American firms have not responded enthusiastically to ISO14001 (fearing that evidence gathered by a third party auditor might be used against them in a court of law), whereas British regulators have offered smaller firms help in implementing the standards.

  • The nature of international regime and the processes by which they set standards. This affects the ability of governments to mould policies to their own regulatory styles. Processual standards allow more room for manouevre than substantive regimes that stipulate quantifiable goals. The difference here is that processual standards specify the nature of the environmental management system that has to be in place, but not the levels of acceptable pollution or the ways in which they should be reduced. Substantive regimes, on the other hand, are more proscriptive, setting clear, quantifiable reductions that firms are required to meet.

Significance?

  • Determining the levels and causes of acceptability of 'beyond compliance' policy instruments across and within countries is important because they are often characterised as blueprints for future regulation. A lot of faith is placed in the willingness and ability of industries to self-regulate on a voluntary basis, but our understanding of the take-up of such initiatives is poor.

  • The factors that this research identifies for explaining variations in adoption rates of environmental standards apply to other areas of the world. For example, there have been positive responses to supranational environmental management standards in countries such as Taiwan, South Korea and Thailand, characterised by high levels of coordination and cooperation between government and business.

  • However, in these latter cases, where national accreditation organisations tend to function as de facto agencies of ministries of international trade and commerce, there are fears that too close a relationship between government and industry may dilute accreditation standards.

Source: Kollman, K. and Prakash, A. 2001. "Green by choice? Cross-national variations in firms' responses to EMS-based regimes" World Politics Volume 53 April, pp 399-430.

World Politics is published quarterly by Johns Hopkins University Press (www.press.jhu.edu).

Keywords: environmental standards, government-business relations

Commentator: Dr Peter Newell, IDS (March 2002)

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