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What Motivates Business Environmental Management: Sticks, Carrots or Both? David Ervin Professor, Environmental Studies, Portland State University Cody Jones Graduate Research Assistant, Portland State University November 16, 2007. Context for Greening Business.
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What Motivates Business Environmental Management: Sticks, Carrots or Both?David ErvinProfessor, Environmental Studies, Portland State UniversityCody JonesGraduate Research Assistant, Portland State UniversityNovember 16, 2007
Context for Greening Business • Environmental problems are widespread and demand for environmental quality continues to grow • Environmental regulatory compliance and enforcement costs trending higher with greenhouse gas controls yet to come • More NGOs see limits in using legislation and the courts and favor more collaborative approaches • Increasing number of firms perceive revenue and cost rewards for being green (e.g., ISO 14001) • Net effect – More responsibility for environmental management is shifting to the business sector and NGOs
“Oregon Business Decisions for Environmental Management (OBDEM)” • Funded by the U.S. EPA Program on Corporate Environmental Behavior and Effectiveness of Government Intervention • June 2003 – September 2007 • Three universities: PSU, OSU, UIUC • Comprehensive survey of environmental management in Oregon • Informing public policy to foster voluntary environmental management efforts at for-profit organizations
Motivations for BEM • Reduce cost (waste) • Increase productivity • Mitigate or preempt environmental regulations • Access and serve ‘green’ markets
Motivations for BEM • Manage legal and financial risks • Improve relations with stakeholders, e.g., community, labor • Manage competitors (first-mover advantage) • Owner/CEO personal preferences
Research Questions • What motivations are most important in prompting environmental management for which firm types? • Do formal and informal voluntary environmental management strategies appeal to different types of firms? • Does business-led environmental management improve environmental performance? • What role(s) can the public sector play in furthering cost-effective ‘voluntary’ business environmental management?
Sample and Survey • Facility level data • Six industrial sectors • Wood products manufacturing • Food manufacturing • Electronics manufacturing • Truck transportation • Construction of buildings • Accommodation (hotels, etc.)
Sample and Survey cont’d • Identified environmental management motivations, practices, and performance measures from literature and industry interviews • Survey topics • Environmental management motivations and barriers • Facility environmental practices • Facility environmental performance • General information, e.g. annual revenues, management age
Sample Ordered Response Question Please indicate the extent each of the following factors has influenced environmental management at your facility in the last 5 years. (Please check only ONE box for each factor.) No Great Do Not InfluenceInfluenceKnow ▼ ▼ ▼ ▼ ▼ ▼ a. Customer desire for environmentally friendly products and services 1 2 3 4 5 D b. Customer willingness to pay higher prices for environmentally friendly products/services. 1 2 3 4 5 D
100 87 85 84 83 83 81 80 60 40 Study sample Washington 20 Montana Oregon Idaho U.S. 0 Respondents • 689 responses • 35.1% response rate • Construction: 34.3% • Food: 37.1% • Wood: 37.2% • Electronics: 34.2% • Transport: 37.3% • Accommodation: 29.9% • 31 of 36 counties • Small facilities • 89% privately held • 79% independent Establishments (facilities) with <100 employees (2000 Census)
Selected General Findings • Characteristics • 54% reported > 6 competitors • 42% percent sell directly into retail • 13% reported some R&D capacity • 2.4%of revenues spent on environmental management on average • 42% reported at least one regulatory inspection in 2004 • 2% reported at least one penalty, lawsuit, or infraction in 2004
Selected General Findings cont’d • Values • The highest average rating was for the idea that facility upper management has a moral responsibility to protect the environment. • The highest rated priority was complying with current regulations. • The least important influence was environmental interest groups. • Cost was the most important barrier to environmental management, followed by time.
Environmental Mgmt Practices (EMPs) • 60% had implemented at least one practice • Environmental training for employees • Internal environmental standards • Documented environmental policy • Well-defined environmental goals • Regular environmental audits • Green purchasing policy • Environmental cost accounting • Environmental standards for suppliers • Periodic publishing of environmental results • Employee compensation for environmental performance
EMP Intensity/Effectiveness • Mean = 2.7, SD = 1.2 • Continuous efforts • Employee awareness • Adequacy of training • Goals guide decisions • Standards above regulation • Well-defined procedures • Audits for own goals • Standards for suppliers • Public reporting • Environmental cost accounting • Employee incentives
Pollution Prevention Efforts • Mean = 3.8, SD = 1.1 • Reduction of spills and leaks is emphasized. • Recycling has increased and landfilling has been reduced. • Pollution prevention is emphasized to improve environmental performance. • Production systems have been modified to reduce waste. • Products have been modified to reduce environmental impacts. • Raw materials are chosen to reduce impacts.
Poisson Regression of Types of Environmental Management • Environmental Management Practices • Employee training, internal environmental standards • Avoid certification costs • Flexible solutions • Voluntary Environmental Management Programs (VEPs) • ENERGY STAR, LEED, ISO 14001 • 22% reported participating • Public recognition, consumer education • High cost, prepackaged solutions
Poisson Regression – Number of Environmental Practices (EMPSUM)
Poisson Regression – Number of Environmental Practices (EMPSUM)
Poisson Regression – Number of Voluntary Programs (VEPSUM)
Poisson Regression – Number of Voluntary Programs (VEPSUM)
Summary of Influences • Facilities more likely to implement practices or participate in programs (common influences) • Larger facilities • Facilities that perceive environmental issues as a significant concern • Facilities regulated on a greater number of impacts • Facilities more likely to implement practices • Publicly traded, multinational corporations • Facilities regulated on any impact • Wood and Transport, compared to Construction • Facilities more likely to participate in VEPs • Facilities with fewer competitors • Facilities regulated on solid waste • Construction facilities
Environmental Performance • Impacts queried • Wastewater and dewatering discharge • Solid waste and recycling • Hazardous or toxic wastes • Carbon dioxide (CO2) emissions • Hazardous air emissions • Electricity and natural gas (selected) • Green building/energy efficiency (construction) • Diesel and biodiesel use (transport) • Measures: outcomes, compliance, changes • Outcomes received the lowest response rates (from 2% to 94%)
Bivariate Performance Results • Solid waste: VEPPs recycled 59%, NPs averaged 44% • Energy efficient equipment in Construction: VEPPs averaged 54%, NPs averaged 32% • Green building in Construction: VEPPs averaged 28%, NPs averaged 9% • Overcompliance for at least one impact: 57% of VEPPs versus 30% of NPs • Improvements during 2004: 80% of VEPPs vs 54% of NPs • Most changes were minimal (1-3%)
Basic Economics of BEM • Choices of EMPs and P2 actions depend on their expected utility to managers and other benefits compared to costs/barriers. • Expected benefits (utility and monetary) are approximated by relative responses to various motivation questions. • Expected costs/risks are captured by the responses to strength of various barriers. • Environmental performance depends on the expected relative benefits and costs for each facility over time.
Preliminary Multivariate Analysis • Facility environmental management includes three inter-related decisions • Select environmental management policies/practices (EMPs) (Q 12) • Choose extent of environmental and pollution prevention (P2) actions (Q 14) • Environmental performance depends on intensity of environmental practices, extent of environmental action, and other factors (analysis underway)
Analytical Approach • Use principal components (PC) to estimate indices (0 ≤ I ≤ 1) for environmental policies/practices, actions, and performance • Use PC also to estimate indices for various motivations and barriers • Estimate recursive system of two equations in which EMPs depend on motivations and other facility characteristics, and P2 actions depend on EMPs and other factors. • Econometric (3SLS) methods
Preliminary Findings for Environmental Policies/Practices • Favorable upper management attitudes toward environment show the largest positive influence. • Competitiveness, regulatory and investor pressures also exert significant effects. • A composite of barriers (e.g., upfront costs) significantly decrease EMP intensity. • Consumer and interest group pressures, and facility characteristics are insignificant .
Preliminary Findings for Pollution Prevention Actions • EMP intensity shows a significant and positive effect on P2 action. • Management attitudes, competitiveness, regulatory, and investor pressures and barriers exert indirect positive impacts via their effects on EMPs • Environmental agency inspection in 2004 exerts a separate and significant positive effect. • Facility R&D exerts a marginally significant negative effect on P2 intensity?
Preliminary Implications • The commitment to environmental policies/practices (EMPs) is shaped heavily by upper management attitudes and market pressures, (e.g. competitors, investors). • The level of environmental (P2) action is significantly influenced by the degree of EMP commitment and regulatory pressure. • The absence of significant effects by facility characteristics, e.g., size, when motivations and barriers are properly controlled for, is notable.
Future Analysis • Checking for self-selection and non-respondent bias • Delineate ‘voluntary’ environmental practices and action, and the significant influences on them • Probe sector differences • Augment reported environmental performance with secondary data • Test the influences on environmental performance, and the relationships with environmental practices and action
Publications • Project Website • http://obep.research.pdx.edu/ • “Reports” • OBDEM Summary Report • Hall, Teresa, “Business Decisions for Voluntary Environmental Management: Motivations, Actions and Outcomes,” M.S. Thesis, Oregon State University, 2006. • Jones, Cody, “Voluntary Environmental Program Participation in Oregon: Summary Statistics,” MEM report, Portland State University, 2007. • “Motivations for Voluntary Environmental Management,” Policy Studies Journal (forthcoming)